As filed with the Securities and Exchange Commission on November 10, 1997.
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DISPATCH MANAGEMENT SERVICES CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 4215 13-3967426
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
DISPATCH MANAGEMENT SERVICES CORP.
65 West 36th Street
New York, New York 10018
(212) 268-2910
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Linda M. Jenkinson
Chief Executive Officer
DISPATCH MANAGEMENT SERVICES CORP.
65 West 36th Street
New York, New York 10018
(212) 268-2910
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Bruce S. Mendelsohn, Esq. Bruce E. Macdonough, Esq.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. GREENBERG TRAURIG HOFFMAN LIPOFF
1333 New Hampshire Avenue, N.W. ROSEN & QUENTEL, P.A.
Suite 400 1221 Brickell Avenue
Washington, D.C. 20036 Miami, Florida 33131
(202) 887-4000 (305) 579-0500
Approximate date of commencement of proposed sale of securities 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, as amended (the "Securities Act"), check the following box. |_|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. |_|
If this Form is a post-effective amendment filed pursuant to 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. |_|
CALCULATION OF REGISTRATION FEE
===============================================================
Proposed maximum Amount of
Title of each class aggregate offering registration fee
of securities to be price
registered
---------------------------------------------------------------
Common Stock, $0.01
par value per share $80,500,000 $24,394
===============================================================
(1) Estimated solely for purpose of calculating the registration fee pursuant
to Rule 457(o).
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, or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such an offer, solicitation or sale would be unlawful
prior to the registration or qualification under the securities laws of any such
State.
SUBJECT TO COMPLETION -- DATED NOVEMBER 10, 1997
PROSPECTUS
================================================================================
[_______] Shares
Dispatch Management Services Corp.
Common Stock
================================================================================
All of the ____ shares of common stock, par value $0.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by Dispatch Management
Services Corp. (the "Company").
Prior to the Offering, there has been no public market for the Common Stock. It
is currently anticipated that the initial public offering price for the Common
Stock will be between $___ and $___ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
The Company has applied for inclusion of the Common Stock in The Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol "DMSC."
See "Risk Factors" on pages 9 to 16 for a discussion of certain material factors
that should be considered in connection with an investment in 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.
================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- - - - --------------------------------------------------------------------------------
Per Share ......... $ $ $
Total(3) .......... $ $ $
- - - - --------------------------------------------------------------------------------
================================================================================
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$_____________.
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to ____________ additional shares of Common Stock on
the same terms and conditions as set forth above. If all such additional
shares are purchased by the Underwriters, the total Price to Public will
be $____, the total Underwriting Discounts and Commissions will be $______
and the total Proceeds to Company will be $_____. See "Underwriting."
- - - - --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters, subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the shares to the Underwriters is expected to be made at the office of
Prudential Securities Incorporated, One New York Plaza, New York, New York, on
or about ________________, 1997.
Prudential Securities Incorporated
____________, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS, AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
- - - - --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes appearing elsewhere in the Prospectus. Unless otherwise indicated,
all share, per share and financial information in the Prospectus: (i) have been
adjusted to give effect to the Combinations; and (ii) assumes that the
Underwriters' over-allotment option has not been exercised.
Simultaneously with and as a condition to the closing of the Offering made
by this prospectus (the "Prospectus"), the Company will acquire, in separate
combination transactions (the "Combinations"), in exchange for cash or shares of
its Common Stock or a combination of both, 35 urgent, on-demand, point-to-point
courier firms and one software firm (each, together with one software firm
previously acquired by the Company a "Founding Company", and collectively, the
"Founding Companies"). Unless otherwise indicated, all references to the
"Company" and "DMS" herein mean Dispatch Management Services Corp., its
subsidiaries and the Founding Companies. For more information about the
Combinations, see "The Company."
The Company
Dispatch Management Services Corp. has been recently formed to create one
of the largest providers of urgent, on-demand point-to-point ("Point-to-Point")
delivery services in the world. The Company focuses on Point-to-Point delivery
by foot, bicycle, motorcycle, car and truck and operates in 16 of the largest
metropolitan markets in the United States as well as in London, U.K. and
Wellington, New Zealand. The Company believes that it has the largest market
share for Point-to-Point delivery services in each of London, New York City, San
Francisco, Washington, D.C., Seattle and Denver. The Company also believes that
it is the only courier firm focused exclusively on consolidating the highly
fragmented Point-to-Point delivery industry. The Company intends to become the
largest consolidator focused on this market. The Company's pro forma combined
revenues for the year ended December 31, 1996 and the six months ended June 30,
1997 were $125.6 million and $66.6 million, respectively.
Management believes that the Company's distinctive operating methodology
(the "DMS Model") significantly differentiates it from both local market
competitors and other large, same-day delivery service providers who compete in
the Point-to-Point delivery services market on a limited basis. The DMS Model is
designed to reduce operating complexities inherent in the Point-to-Point
delivery industry and allows for both significant growth and increased
profitability. Key elements of the DMS Model include: (i) restructuring the
Company's courier operations into three distinct functions relating to dispatch,
road management and marketing management; (ii) utilizing proprietary software to
manage order entry and delivery completion, on-time performance and transaction
processing; (iii) operating multiple brands in local markets in order to target
specific customers through individual brand identities and capitalize on niche
marketing opportunities; (iv) empowering the courier fleet, rather than
dispatchers, to determine optimal use of road resources ("Free Call Dispatch");
and (v) incentivizing the Company's workforce in each of the three functions to
maximize operating efficiency and profitability. Management has chosen to focus
on the Point-to-Point delivery business because of: (i) the customers'
requirements for immediate service and responsiveness, which management believes
enables the Company to distinguish the DMS Model from the operating methods
employed by its competitors; (ii) the Company's ability to charge premium
pricing for guaranteed, on-time delivery; and (iii) the lack of a focused
national or international consolidator.
The Company believes that the DMS Model provides it with significant
competitive advantages, including the ability to provide higher levels of
customer service and to guarantee the delivery of time-critical parcels in as
little as 15 minutes. The Company also believes that implementation of the DMS
Model creates an entrepreneurial environment which facilitates increased
personnel utilization, lower transaction processing costs as a percentage of
revenue and increased profitability. In addition, the Company believes the
resulting reduction of operating
- - - - --------------------------------------------------------------------------------
2
<PAGE>
- - - - --------------------------------------------------------------------------------
complexity allows the Company to substantially increase the number of
transactions the Company is able to process with minimal incremental cost.
The Company's founders and senior executives have significant experience
operating Point-to-Point courier companies or consolidating back-office
operations of transaction-oriented Fortune 100 companies. The Company's founder
created the DMS Model in 1991. Since 1994, the Company's management team has
introduced certain components of the DMS Model and has refined the DMS Model
through licensing arrangements with a number of courier firms, including 19
Founding Companies in 14 of the 16 markets in which the Company will operate
subsequent to the Offering. These companies collectively represented 18.9% of
the Company's pro forma combined revenues in 1996. The Company's founders and
management team have developed and have begun implementing a conversion and
integration plan with each of the Founding Companies in order to expedite the
full conversion to the DMS Model.
The Company's growth strategy is intended to increase revenue and
profitability by increasing market penetration in existing markets and expanding
into new markets. A significant portion of the Company's growth strategy is to
acquire additional brands in existing markets. The Company believes that it will
be able to achieve significant operating efficiencies by converting acquired
companies to the DMS Model and consolidating their operations into existing DMS
operations. The Company intends to further develop its relationships with
existing clients and to expand its client base by (i) niche marketing the
Company's services through multiple brands in each market and (ii) providing
enhanced services not currently provided to customers, such as guaranteed,
on-time delivery. The Company intends to enter new markets by acquiring
companies which on a combined or stand-alone basis will make the Company the
largest or second largest provider of Point-to-Point delivery services in such
market. The Company also intends to expand its 1-800-COURIER(TM) network, which
currently is operating in seven markets, and its 1-800 DELIVER(TM) brand name to
develop a premium branded national accounts program.
The following table lists the Founding Companies and sets forth their
revenues for the twelve months ended December 31, 1996:
-------------------------------------------------------------------
Unaudited
Pro Forma Combined Revenues
for 12 Months Ended
December 31, 1996
Brand Name (dollars in thousands)
===================================================================
London, U.K
-------------------------------------------------------------------
West One $24,148
-------------------------------------------------------------------
Security Despatch 9,794
-------------------------------------------------------------------
New York Metro Area
-------------------------------------------------------------------
Earlybird Courier 13,189
-------------------------------------------------------------------
Atlantic Freight 8,728
-------------------------------------------------------------------
Bullit Courier 7,696
-------------------------------------------------------------------
Eveready Express 2,607
-------------------------------------------------------------------
San Francisco
-------------------------------------------------------------------
Aero Delivery 10,998
-------------------------------------------------------------------
S-Car-Go Courier 1,155
-------------------------------------------------------------------
Zap Courier 941
-------------------------------------------------------------------
Battery Point 732
-------------------------------------------------------------------
Studebaker 342
-------------------------------------------------------------------
Minneapolis/Phoenix
-------------------------------------------------------------------
1 800 COURIER - Minneapolis/Phoenix 8,536
-------------------------------------------------------------------
Washington, DC
-------------------------------------------------------------------
Washington Express 5,800
-------------------------------------------------------------------
Rocket Courier 394
-------------------------------------------------------------------
AFS Courier 518
===================================================================
- - - - --------------------------------------------------------------------------------
3
<PAGE>
- - - - --------------------------------------------------------------------------------
-------------------------------------------------------------------
Pro Forma Combined Revenues
for 12 Months Ended
December 31, 1996
(dollars in thousands)
===================================================================
Atlanta
-------------------------------------------------------------------
MLQ Express 5,310
-------------------------------------------------------------------
Denver
-------------------------------------------------------------------
Kangaroo Express 2,650
-------------------------------------------------------------------
1 800 COURIER-Denver 1,247
-------------------------------------------------------------------
Los Angeles
-------------------------------------------------------------------
National Messenger 2,413
-------------------------------------------------------------------
1 800 COURIER - L.A.X 1,212
-------------------------------------------------------------------
Houston
-------------------------------------------------------------------
A&W Couriers 1,560
-------------------------------------------------------------------
Houston Flash 1,201
-------------------------------------------------------------------
Boston
-------------------------------------------------------------------
1 800 COURIER- Boston 1,343
-------------------------------------------------------------------
1 800 COURIER- Hollis, New Hampshire 1,022
-------------------------------------------------------------------
Time Couriers 0
-------------------------------------------------------------------
Seattle
-------------------------------------------------------------------
Fleetfoot Messenger 2,172
-------------------------------------------------------------------
Jet City 135
-------------------------------------------------------------------
Dallas
-------------------------------------------------------------------
Striders Courier 1,014
-------------------------------------------------------------------
United Messenger 738
-------------------------------------------------------------------
Detroit
-------------------------------------------------------------------
Express Messenger 1,612
-------------------------------------------------------------------
Wellington, New Zealand
-------------------------------------------------------------------
KiwiCorp 1,552
-------------------------------------------------------------------
Portland
-------------------------------------------------------------------
1 800 COURIER - Portland 1,919
-------------------------------------------------------------------
Chicago
-------------------------------------------------------------------
Deadline Express 1,177
-------------------------------------------------------------------
Philadelphia
-------------------------------------------------------------------
Time Cycle 600
-------------------------------------------------------------------
Software Companies
-------------------------------------------------------------------
Fleetway Systems 1,092
-------------------------------------------------------------------
Kiwi Express 23
-------------------------------------------------------------------
Total $125,570
===================================================================
- - - - --------------------------------------------------------------------------------
4
<PAGE>
The Offering
Common Stock Offered by the Company ...................... _________ shares
Common Stock to be issued to Founding Companies
in the Combinations ................................ _________ shares (1)
Common Stock held by Existing Shareholders of the
Company ............................................ _________ shares (1)
Common Stock to be Outstanding after the Offering ........ _________ shares (2)
Use of Proceeds .......................................... To pay the cash
portion of the
purchase price
for the Founding
Companies and for
general corporate
purposes,
including future
acquisitions. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol ................... DMSC
(1) Assumes an initial public offering price of $___ per share at the
mid-point of the proposed offering range. The Company will issue Common
Stock to the Founding Companies valued at $43.0 million. Accordingly, if
the initial public offering price is higher than $___ per share, the
number of shares to be issued in the Combinations will be reduced and the
existing shareholders will hold a greater percentage of the Company's
outstanding Common Stock subsequent to the Offering. Conversely if the
initial public offering price is less than $___ per share, the number of
shares to be issued in the Combinations will be increased and the existing
shareholders will hold a lower percentage of the Company's outstanding
Common Stock subsequent to the Offering. See "The Company -- The
Combinations."
(2) Excludes _____ shares of Common Stock reserved for issuance under the
Company's Stock Option Plan. The Company expects to issue options to
acquire ______ shares of Common Stock to certain members of management at
the initial public offering price which will vest in equal increments over
a five-year period beginning immediately following this Offering.
Risk Factors
Investors should consider the material risk factors involved in connection
with an investment in the Common Stock and the impact to investors from various
events that could adversely affect Company's business. See "Risk Factors."
- - - - --------------------------------------------------------------------------------
5
<PAGE>
- - - - --------------------------------------------------------------------------------
Summary Pro Forma Combined Financial Data
(in thousands, except share and per share data)
The Company has been identified as the "accounting acquiror" in connection
with the Combinations. The following unaudited summary pro forma statement of
operations data for the Company have been adjusted to give effect to (i) the
consummation of the Combinations and (ii) certain pro forma adjustments to the
historical financial statements as described in the notes below. The following
unaudited summary pro forma combined balance sheet data for the Company have
been adjusted to give effect to (i) the consummation of the Combinations and
(ii) the consummation of the Offering and the application of the net proceeds
therefrom. The summary pro forma data are not necessarily indicative of the
Company's operating results or financial position that might have occurred had
the events described above been consummated at the beginning of the period and
should not be construed as representative of future operating results or
financial position. The summary pro forma combined financial data should be read
in conjunction with the Unaudited Pro Forma Combined Financial Statements and
the related notes thereto and the historical financial statements of the
Founding Companies and the related notes thereto included elsewhere in the
Prospectus.
Pro Forma
---------------------------------------
Twelve
Months Ended Six Months Ended
December 31, 1996 June 30,
----------------- ----------------
1996 1997
---- ----
Statement of Operations Data (1):
Revenues $125,570 $60,981 $66,552
Cost of revenues 76,845 37,137 41,021
-------- ------- -------
Gross profit 48,725 23,844 25,531
Sales and marketing expenses 7,012 3,570 3,639
General and administrative expenses (2) 10,145 5,000 5,702
Other operating expenses 21,624 10,457 10,606
Depreciation and amortization (3) 3,952 1,954 2,161
-------- ------- -------
Operating income 5,992 2,863 3,423
Interest and other expense, net 1,345 606 525
-------- ------- -------
Income before income taxes 4,647 2,257 2,898
Provision for income taxes (4) 2,512 1,231 1,488
-------- ------- -------
Net income $ 2,135 $ 1,026 $ 1,410
======== ======= =======
Net income per share $ $ $
Shares used in computing
pro forma net income per
share (5)
As of June 30, 1997
--------------------------------
Pro Forma Pro Forma
Combined (6) As Adjusted (7)
------------ ---------------
Balance Sheet Data:
Working capital (deficit) $(39,213)(8) $ 4,754
Total assets 97,664 109,588
Long term debt, net of current maturities 3,437 --
Stockholder's equity 31,641 91,363
- - - - ----------
(Footnotes begin on next page)
- - - - --------------------------------------------------------------------------------
7
<PAGE>
- - - - --------------------------------------------------------------------------------
(1) The pro forma combined statement of operations data assumes that the
Combinations and the disposition of a business segment at one of the
Founding Companies occurred on January 1, 1996.
(2) The pro forma combined statement of operations data reflect pro forma
reductions in (i) salaries, bonuses and benefits to the owners of the
Founding Companies (the "Compensation Differential") aggregating
approximately $2.1 million, $1.1 million and $810,000, and (ii) royalty
payments made by certain Founding Companies related to franchise
agreements which will be terminated with the closing of the Combinations,
for the year ended December 31, 1996 and the six-month periods ended June
30, 1996 and 1997, respectively.
(3) Primarily consists of amortization of goodwill to be recorded as a result
of the Combinations computed on the basis described in the Note 3 of Notes
to the Unaudited Pro Forma Combined Financial Statements.
(4) Assumes the Company is subject to a corporate income tax rate of 40%. The
higher resulting effective tax rate is due to the amortization of certain
goodwill expenses which are not tax deductible.
(5) Assumes an initial per share offering price of $____ and includes: (i)
_________ shares to be issued to owners of certain of the Founding
Companies; (ii) _________ shares held by the existing shareholders of the
Company; (iii) the _________ shares required to be sold in the Offering to
pay the cash portion of the Combination consideration and to pay expenses
associated with this Offering and the Combinations; and ____ shares
related to the dilution attributable to options and warrants granted with
an exercise price below the initial public offering price, in accordance
with the treasury stock method.
(6) The pro forma combined balance sheet data assume that the Combinations
were consummated on June 30, 1997.
(7) Adjusted for the sale of the ________ shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(8) Reflects $40.6 million of cash consideration due to certain owners of the
Founding Companies pursuant to the Combinations and excludes $12.3 million
subject to an earnout. See "The Company - The Combinations."
- - - - --------------------------------------------------------------------------------
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information contained in the Prospectus,
in connection with an investment in the shares of Common Stock offered hereby.
The Prospectus contains forward-looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"will," "could," "may" and similar expressions are intended to identify
forward-looking statements. These statements include information regarding
future net cash flows. Such statements reflect the Company's current views with
respect to future events and financial performance and involves certain risks
and uncertainties, including without limitation the risks described below in
"Risk Factors." Should one or more of these risks or uncertainties occur, or
should underlying assumptions prove incorrect, actual results may vary
materially and adversely from those anticipated, believed, estimated or
otherwise indicated.
Risks Relating to Conversion to the DMS Model. None of the Founding
Companies has utilized every aspect of the DMS Model. Subsequent to the
Offering, the Company intends to convert the operations of the Founding
Companies, and of future acquisitions, to the DMS Model to the extent feasible.
The process of converting an existing Point-to-Point courier operation to the
DMS Model involves the implementation of the Free Call Dispatch system as well
as the integration of new software systems, pricing structures, billing methods,
personnel utilization practices and data standardization. Changes in the pricing
structures and billing methods could result in the loss of customers. The
process of conversion in a particular market may involve unforeseen
difficulties, including delays in the consolidation of facilities, complications
and expenses in implementing the new operating software system, or the loss of
customers or key operating personnel, any of which can cause substantial delays
to the conversion process in such particular market and may have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, Brand Managers, as defined, are expected to have
substantial authority with respect to the continuing operation of the Founding
Companies subsequent to the Offering. There are significant limitations on the
Company's ability to terminate such Brand Managers. Additionally, the timing of
any acquisitions of additional Point-to-Point courier firms and their respective
conversion to the DMS Model may have a significant impact on the Company's
financial results, particularly in quarters immediately following such
acquisitions. Many of the key elements of the DMS Model have been described in
various public forums, such as trade shows and industry publications, and also
have been made available to companies that are or have been licensees of the
Company but are not a Founding Company. Although the software used in the DMS
Model is proprietary, certain other key elements of the DMS Model cannot be
protected by patents or trademarks. Therefore, there can be no assurance that
other Point-to-Point courier companies will not be able to effectively replicate
the DMS Model and implement it more effectively than the Company and at a lower
cost. See "Business--The DMS Model."
Absence of Combined Operating History; Risks of Integration. The Company
was founded in September 1997, has conducted no operations other than in
connection with the Offering and the Combinations, and has generated no revenues
to date other than receipt of licensing fees. Although the Company has entered
into agreements to acquire the Founding Companies (other than one software
company that was previously acquired) simultaneously with and as a condition to
the closing of the Offering, the Company and the Founding Companies operate as
separate, independent businesses. Consequently, the historical and pro forma
financial information contained herein may not be indicative of the Company's
financial condition and historical or future operating results. See "The
Company" and "Certain Transactions."
The process of integrating acquired businesses often involves unforeseen
difficulties and may require a disproportionate amount of the Company's
financial and other resources, including management time. The success of the
Company will depend, in part, on the extent to which the Company is able to
institute and centralize accounting and other administrative functions such as
billing, collections and cash management, implement financial controls,
eliminate the unnecessary duplication of other functions and otherwise integrate
the Founding
9
<PAGE>
Companies, and such additional businesses the Company may acquire in the future,
into a cohesive, efficient enterprise. The Company may experience delays,
complications and unanticipated expenses in implementing, integrating and
operating such systems, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. There can be
no assurance that the Company's founders or senior management group will be able
to successfully integrate, profitably manage or achieve anticipated cost savings
from the combined operations of the Founding Companies or implement the
Company's business, internal and acquisition growth strategies subsequent to the
Offering. The inability of the Company to successfully integrate the Founding
Companies would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business - Acquisition
Strategy" and "Management."
Management of Growth. The Company expects to expend significant time and
effort in expanding its existing businesses and identifying, acquiring and
integrating acquisitions. There can be no assurance that the Company's
management and financial reporting systems, procedures and controls will be
adequate to support the Company's operations as they expand. Any future growth
also will impose significant added responsibilities on members of senior
management, including the need to identify, recruit and integrate additional
management and employees. There can be no assurance that such additional
management and employees will be identified and retained by the Company. To the
extent that the Company is unable to manage its growth efficiently and
effectively, or is unable to attract and retain additional qualified personnel,
the Company's business, financial condition and results of operations could be
materially adversely effected. See "Business -- Internal Growth Strategy" and
"Management."
Risks Relating to the Company's Acquisition Strategy. One of the Company's
primary growth strategies is to increase its revenues and profitability and
expand the markets it serves through the acquisition of additional
Point-to-Point courier businesses. Several large, national publicly traded
companies have begun to consolidate the delivery industry through the
acquisition of independent Point-to-Point courier companies. As a result,
competition for acquisition candidates is intense and there can be no assurance
that the Company will be able to compete effectively for acquisition candidates
on terms deemed acceptable to the Company. There also can be no assurance that
the Company will be able to successfully convert acquired businesses to the DMS
Model and integrate such businesses into the Company without substantial costs,
delays or other operational or financial problems. In addition, there can be no
assurance that companies acquired in the future either will be beneficial to the
successful implementation of the Company's overall strategy or will ultimately
produce returns that justify the investment therein, or that the Company will be
successful in achieving meaningful economies of scale through the acquisitions
thereof. Further, acquisitions involve a number of special risks, including
possible adverse effects on the Company's operating results and the timing of
those results, diversion of management's attention, dependence on retention,
hiring and training of key personnel, risks associated with unanticipated
problems or legal liabilities, and the realization of intangible assets, some or
all of which could have a material adverse effect on the Company's business,
financial condition and results of operations, particularly in the fiscal
quarters immediately following the consummation of such transactions. Customer
dissatisfaction or performance problems at a single acquired company could also
have an adverse effect on the reputation of the Company. In addition, there can
be no assurance that the Founding Companies or other Point-to-Point courier
companies acquired in the future will achieve the anticipated level of revenues
and earnings. To the extent that the Company is unable to acquire additional
Point-to-Point courier firms or integrate such businesses successfully, the
Company's ability to expand its operations and increase its revenues and
earnings to the degree desired would be reduced significantly.
Factors Affecting Internal Growth. Certain of the Founding Companies have
individually experienced significant revenue and earnings growth over the past
few years. There can be no assurance that these Founding Companies will continue
to experience internal growth comparable to these levels, if at all. From time
to time, certain of the Founding Companies have been unable to hire and train as
many couriers, operating and sales personnel as necessary to meet the increasing
demands of these businesses. Factors affecting the ability of each of these
Founding Companies to experience continued internal growth includes, but are not
limited to, the continued relationships with existing customers, the ability to
expand the customer base, the ability to recruit and retain
10
<PAGE>
qualified couriers, operating and sales personnel, continued access to capital
and the ability to cross-sell services between the Founding Companies. See
"Business -- Internal Growth Strategy."
Need for Additional Financing. The Company currently intends to finance
future acquisitions by using a combination of shares of its Common Stock and
cash. In the event that the Common Stock of the Company does not maintain a
sufficient market value, or potential acquisition candidates are unwilling to
accept the Company's Common Stock as part of or all of the consideration to be
paid for their business, the Company may be required to utilize its cash
resources, if available, to maintain its acquisition program. If the Company has
insufficient cash resources to pursue acquisitions, its growth could be limited
unless it is able to obtain additional capital through debt or equity financing.
There can be no assurance that the Company will be able to obtain such financing
if and when it is needed or that, if available, such financing can be obtained
on terms the Company deems acceptable. The inability to obtain such financing
could negatively impact the Company's acquisition program and have a resulting
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company intends to seek a line of credit,
there can be no assurance that the Company will be able to obtain such line of
credit in such amounts and on terms the Company deems acceptable. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Pro Forma Combined Liquidity and Capital Resources."
Risks of RMS. Under the DMS Model, all road operations will be performed
by a Road Management Center (an "RMS Center"). All couriers will be employees
of, or independent contractors with, an RMS Center. Each RMS Center is owned and
managed by persons other than the founders, management or major shareholders of
the Company. The relationship between each RMS Center and the Company is
governed by contractual arrangements which permit each RMS Center to provide
services to other courier firms that are not owned by or affiliated with the
Company. Although the Company has an option to acquire control of the RMS
Centers (which results in the consolidation of the RMS Center with the Company
for financial reporting purposes), the Company may not be able to exercise the
same degree of control over the couriers and over road operations as did the
Founding Companies. Moreover, there can be no assurance that the Company will
not be deemed to be responsible for the liabilities of the couriers or the RMS
Center, such as liabilities for accidents, loss of documents or taxes. The RMS
Centers have never been operated on this large a scale so there can be no
assurance that the RMS Centers will be able to efficiently handle the operation
of delivery services on a national scale. Failure of the RMS Centers to succeed
in operating the delivery services on a national scale may have a material
adverse impact on the Company's business, financial condition and results of
operations.
Certain Tax Matters Related to Independent Contractors. Subsequent to the
Offering, a significant number of the couriers utilized by the Company and all
Brand Managers will be independent contractors and employees. From time to time,
federal and state taxing authorities have sought to assert that independent
contractors in the Point-to-Point delivery industry, including those utilized by
the Company, are employees of the Company, rather than independent contractors.
In addition, the Internal Revenue Service has also asserted (including against
one Founding Company) that reimbursements paid to owner-operator employees for
automobile allowances constitute additional compensation, rather than payments
made pursuant to a plan or a vehicle rental arrangement. See Note 3 to the
financial statements of Aero Special Delivery Services, Inc. The Company does
not pay or withhold any federal or state employment tax with respect to or on
behalf of independent contractors. The Company believes that the independent
contractors utilized by the Company are not employees of the Company under
existing interpretations of federal and state laws. However, there can be no
assurance that federal and state authorities will not challenge this position,
or that other laws or regulations, including tax laws, or interpretations
thereof, will not change. The Company expects to enter into agreements with one
or more RMS Centers in each metropolitan market the Company serves to
coordinate, manage and employ or contract with couriers. The Founding Companies
currently employ or contract with most of these couriers directly. If, as a
result of any of the foregoing, the Company is required to pay for and
administer added benefits to independent contractors, the Company's operating
costs would increase. In addition, the Company could become responsible for
certain past and future employment taxes. Additionally, if the Company is
required to pay back-up withholding
11
<PAGE>
taxes with respect to amounts previously paid to such persons, it may be
required to pay penalties. Any of the foregoing circumstances could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- The DMS Model" and "Employees and
Independent Owners/Contractors."
Limitations on Access to Radio Channels. The Company relies to a
significant extent on the use of two-way radio channels to communicate with its
courier fleet. Such radio channels are made available, on a limited basis, by
local government authorities and the Federal Communications Commission.
Accordingly, providers of the transmission networks for the radio channels may
have the ability to restrict, or substantially increase the costs with respect
to, the Company's use or access to the radio channels. The Company is
particularly susceptible to limitations on access to radio channels in the
metropolitan New York City market, where the Company will be required to
increase the number of radio channels to which it has access in order to fully
implement the DMS Model in that market. The Company may, at its own expense, be
required to incur substantial costs to obtain, build or maintain its own
transmission networks in the event that third party owners of the current
transmission networks restrict or otherwise obstruct the Company's access to
radio channels. Any increases in the costs of radio transmission, obstruction of
current radio channel service or any need for the Company to build its own
transmission networks could severely inhibit the Company's ability to deliver
Point-to-Point delivery services and have a material adverse effect on the
Company's business, financial condition and results of operations.
Risks Associated with the Point-to-Point Delivery Industry; General
Economic Conditions. The Company's revenues and earnings are especially
sensitive to events that affect the delivery services industry, including
extreme weather conditions, economic factors affecting the Company's significant
customers, increases in fuel prices and shortages of or disputes with labor, any
of which could result in the Company's inability to service its clients
effectively or the ability of the Company to profitably manage its operations.
In addition, demand for the Company's services may be negatively impacted by
downturns in the level of general economic activity and employment in the United
States or the U.K. The development and increased popularity of facsimile
machines and electronic mail via the Internet has recently reduced the demand
for certain types of Point-to-Point delivery services, including those offered
by the Company. As a result, Point-to-Point courier firms are increasingly
dependent upon delivery requests for items that are unable to be delivered via
alternative methods. There can be no assurance that similar industry-wide
developments will not have a material adverse effect on the Company's business,
financial condition or results of operations.
Effect of Potential Fluctuations in Quarterly Operating Results. The
Company may experience significant quarter to quarter fluctuations in its
results of operations. Quarterly results of operations may fluctuate as a result
of a variety of factors including, but not limited to, the timing of the
integration of the Founding Companies and other acquired companies and their
conversion to the DMS Model, the demand for the Company's services, the timing
and introduction of new services or service enhancements by the Company or its
competitors, the market acceptance of new services, competitive conditions in
the industry and general economic conditions. As a result, the Company believes
that period to period comparisons of its results of operations are not
necessarily meaningful or indicative of the results that the Company may achieve
in any subsequent quarter or full year. Such quarterly fluctuations may result
in volatility in the market price of the Common Stock of the Company, and it is
possible that in future quarters the Company's results of operations could be
below the expectations of the public market. Such an event could have a material
adverse effect on the market price of the Common Stock of the Company. Several
of the Founding Companies recorded a net loss for the six months ended June 30,
1997. No assurance can be given that these Founding Companies will become
profitable in the future or that their respective financial performance will be
accretive to the Company's earnings.
Claims Exposure. The Company is exposed to claims for personal injury,
death and property damage as a result of automobile, bicycle and other accidents
involving its employees and independent contractors. The Company may also be
subject to claims resulting from the non-delivery or delayed delivery of
packages, many of which claims could be significant because of the unique or
time sensitive nature of the deliveries. The Company intends to carry liability
insurance and independent contractors are required to maintain the minimum
amounts of
12
<PAGE>
liability insurance required by state law. However, there can be no assurance
that claims will not exceed the amount of coverage. In addition, the Company's
increased visibility and financial strength as a public company may create
additional claims exposure. If the Company were to experience a material
increase in the frequency or severity of accidents, liability claims, workers'
compensation claims or unfavorable resolution of claims, the Company's insurance
costs could significantly increase and operating results could be negatively
affected. In addition, future claims against the Company or one of the Founding
Companies could negatively affect the Company's reputation and could have a
correspondingly material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Technology. The Company's business is dependent upon a
number of different information and telecommunication technologies to operate
the DMS Model, manage a high volume of inbound and outbound calls and process
transactions accurately and on a timely basis. Any impairment of the Company's
ability to process transactions on an accurate and timely basis could result in
the loss of customers and diminish the reputation of the Company.
Currently, many of the Founding Companies operate on separate computer and
telephone systems, several of which utilize different technologies. There can be
no assurance that the contemplated integration of these systems and conversion
to the Company's proprietary software will be successful or completed on a
timely basis or without unexpected costs. There can also be no assurance that
the Company will be able to continue to design, develop and refine its computer
systems and software on a cost efficient basis, whether due to the loss of
employees or otherwise. Any of the foregoing would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company utilizes computer hardware and operating systems
designed and manufactured by Apple Computer, Inc. ("Apple"). Any material
changes in computer and operating platform technology designed and manufactured
by Apple which is incompatible with the Company's current computer systems, or
the discontinuance of Apple computer hardware or support services, would have a
material adverse effect on the Company's business, financial condition and
results of operations. If the Company decides to change its hardware and
operating systems to a different operating platform technology, there can be no
assurance that the Company will be able to successfully make such a change or
that such new hardware and operating systems will be as effective as the
existing hardware and operating system.
Dependence on Availability of Qualified Courier Personnel. The Company is
dependent upon its ability to attract, train and retain qualified courier
personnel and independent contractors who possess the skills and experience
necessary to meet the needs of its operations. The Company competes in markets
in which unemployment is relatively low and the competition for couriers and
other employees is intense. The Company must continually evaluate, train and
upgrade its pool of available couriers to keep pace with demands for delivery
services. There can be no assurance that qualified courier personnel will
continue to be available in sufficient numbers and on terms acceptable to the
Company. The inability to attract and retain qualified courier personnel would
have a material adverse impact on the Company's business, financial condition
and results of operations. See "Business -- The DMS Model" and "Employees and
Independent Owner/Contractors."
Reliance on Key Personnel. The Company's success is largely dependent on
the efforts and relationships of R. Gregory Kidd, the Company's founder and
Chairman of the Board of Directors, Linda M. Jenkinson, the Company's Chief
Executive Officer, the executive officers and senior managers of the Founding
Companies and Brand Managers. Furthermore, the Company will likely be dependent
on the senior management of any businesses acquired in the future, particularly
the Brand Managers and sales representatives who have on-going relationships
with customers. The loss of the services of any of these individuals could have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that such individuals will
continue in their present capacity for any particular period of time. The
Company does not intend to obtain key man life insurance covering any of its
executive officers or other members of senior management. However, the Company
has entered into two-year employment contracts with its five executive officers.
In addition, the Company's future success and plans for growth also depend on
the Company's ability to
13
<PAGE>
attract, train and retain skilled personnel in all areas of its business. See
"Management," "-Risks of RMS" and "-Dependence on Availability of Qualified
Courier Personnel."
Competition. The market for Point-to-Point delivery services is highly
competitive and has low barriers to entry. Many of the Company's competitors
operate in only one location and may have more experience and brand recognition
than the Company in such local market. In addition, several large, national,
publicly traded companies have begun to consolidate the Point-to-Point delivery
industry through the acquisition of independent Point-to-Point courier
companies. Other companies in the industry compete with the Company not only for
the provision of services but also for acquisition candidates. Some of these
companies have longer operating histories and greater financial resources than
the Company. In addition, other firms involved in segments other than
Point-to-Point delivery services may expand into this market in order to provide
their customers with "one-stop" shopping of delivery and logistics services.
Many of such companies have greater financial resources and brand name
recognition than the Company. There can be no assurance that any of the
foregoing would not have a material adverse effect on the Company's business,
financial condition and results of operations.
Reliance on Key Markets. A significant portion of the Company's revenues
and profitability are attributable to services rendered in the metropolitan
London, New York City and San Francisco markets. Revenues from the London, New
York City and San Francisco markets accounted for 28.60% 24.9% and 12.2%,
respectively, of pro forma combined revenues, during the six months ended June
30, 1997. Therefore, the Company's results of operations are significantly
affected by fluctuations in the general economic and business cycles in these
markets. The Company's reliance on these individual markets makes it susceptible
to risks that it would not otherwise be exposed to if it operated in a more
geographically diverse market. The Company believes that it will be susceptible
to geographic concentration risks for the foreseeable future.
Risk of Business Interruptions and Dependence on Single Facilities in a
Market. The Company believes that its future results of operations will be
dependent in large part on its ability to provide prompt and efficient service
to its customers. Upon conversion of the Company to the DMS Model, the Company's
operations typically will be performed at a single DMS Center for each
respective metropolitan market it services and, therefore, the operation of such
DMS centers are dependent on continuous computer, electrical and telephone
service. As a result, any disruption of the Company's day-to-day operations
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Substantial Proceeds from the Offering Payable to Affiliates. The Company
will use a substantial portion of the net proceeds from the Offering to meet its
cash requirements relating to the consummation of the acquisitions of the
Founding Companies. The Company will pay subject to adjustments, approximately
$52.9 million in cash, of which $12.3 million is the Earnout and subject to
possible repayment to the Company from the stockholders of the Founding
Companies. See "The Company - The Combinations." After payment of the cash
portion of the purchase price for the Founding Companies, no assurance can be
given that the remaining net proceeds of the Offering will be sufficient to meet
the Company's requirements for working capital and potential acquisitions. See
"Use of Proceeds" and "Certain Transactions."
Permits and Licensing. The Company's operations are subject to various
state, local and federal regulations that, in many instances, require permits
and licenses. Additionally, some of the Company's operations may involve the
delivery of items subject to more stringent regulation, including hazardous
materials, requiring the Company to obtain additional permits. The failure of
the Company to maintain required permits and licenses, or to comply with
applicable regulations, could result in substantial fines or revocation of the
Company's permits and licenses which could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
delays in obtaining approvals, for the transfer or grant of permits or licenses,
or failure to obtain such approvals could delay or impede the Company's
acquisition program. See "Business -- Regulation and
14
<PAGE>
Safety."
Regulatory Compliance. As a public company, the Company will be subject to
continuing compliance with federal securities laws and may also be subject to
increased scrutiny with respect to laws applicable to all businesses, such as
employment, safety and environmental regulations. Certain of the Company's
management have no experience in managing a public company. There can be no
assurance that management will be able to effectively and timely implement
programs and policies that adequately respond to such increased legal and
regulatory compliance requirements.
Foreign Exchange. A significant portion of the Company's operations are
conducted in the U.K. Exchange rate fluctuations between the U.S. dollar and
British pound will result in fluctuations in the amounts relating to the U.K.
currency reported in the Company's consolidated financial statements due to
repatriation of earnings from the U.K. to the United States or translation of
the earnings of the Company's U.K. operations into U.S. dollars for financial
reporting purposes. The Company also conducts operations in New Zealand and
intends to pursue acquisitions in other foreign countries. The Company does not
intend to enter into hedging transactions with respect to its foreign currency
exposure. There can be no assurance that fluctuations in foreign currency
exchange rates will not have a material adverse impact on the Company's
business, financial condition or results of operations.
Development of New Services. The Company believes that its long-term
success depends on its ability to enhance its current services, develop new
services that utilize the DMS Model and address the increasingly sophisticated
needs of its customers. The failure of the Company to develop and introduce
enhancements and new services in a timely and cost-effective manner in response
to changing technologies, customer requirements or increased competition could
have a material adverse effect on the Company's business, financial condition or
results of operations. See "Business - Internal Growth Strategy."
Potential Liability for Breach of Confidentiality. A substantial portion
of the Company's business involves the handling of documents containing
confidential and other sensitive information. There can be no assurance that
unauthorized disclosure will not result in liability to the Company. It is
possible that such liabilities could have a material adverse effect on the
Company's business, financial conditions or results of operations.
Control by Existing Management and Stockholders. After the Offering,
existing shareholders of the Company will beneficially own approximately ____%
of the Company's outstanding Common Stock (approximately _____% assuming that
the Underwriters' over-allotment option is exercised in full). In light of the
foregoing, such persons will have the ability to significantly influence the
election of the Company's directors and the outcome of all other issues
submitted to the Company's shareholders. Such persons, together with the
staggered Board of Directors and the anti-takeover effects of certain provisions
contained in the Delaware General Corporation Law and in the Company's
Certificate of Incorporation and Bylaws (including, without limitation, the
ability of the Board of Directors of the Company to issue shares of Preferred
Stock and to fix the rights and preferences thereof), also may have the effect
of delaying, deferring or preventing an unsolicited change in the control of the
Company, which may adversely affect the market price of the Common Stock or the
ability of shareholders to participate in a transaction in which they might
otherwise receive a premium for their shares. See "Management," "Principal
Stockholders" and "Description of Capital Stock."
Shares Eligible for Future Sale. Upon completion of the Offering, the
Company will have a total of ________________ shares of Common Stock
outstanding. Of these shares, the _____________ shares of Common Stock offered
hereby (_______ shares if the Underwriters' over-allotment options are exercised
in full) will be freely tradeable without restriction or registration under the
Securities Act by persons other than "affiliates" of the Company, as defined
under the Securities Act. The remaining shares of Common Stock outstanding will
be "restricted securities" as that term is defined by Rule 144 as promulgated
under the Securities Act. Upon completion of the Offering, the Company will have
options outstanding to purchase _______________
15
<PAGE>
shares of Common Stock. In addition, options for the purchase of _____________
additional shares will remain available for issuance under the Company's 1997
Stock Incentive Plan. See "Management - 1997 Stock Incentive Plan" and "Shares
Eligible for Future Sale."
Under Rule 144 (and subject to the conditions thereof, including volume
limitations), all _____________ restricted shares (______ restricted shares if
the Underwriters' over-allotment options are exercised in full) will become
eligible for sale after the Offering. However, all of such restricted shares are
also subject to lockup restrictions as described below. The holders of these
shares, which include the Company's executive officers, directors and certain
shareholders, have agreed that they will not, without the prior written consent
of the Company, for a period of two years from the consummation of the Offering.
After such two-year period, the foregoing restriction will expire and shares
permitted to be sold under Rule 144 would be eligible for sale. In addition,
such executive officers, directors and certain shareholders have also agreed
that they will not, without the prior written consent of Prudential Securities
Incorporated, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise dispose of or transfer
(or announce any offer, sale, offer of sale, contract of sale, pledge, grant of
any option to purchase or other disposition or transfer of) any shares of Common
Stock or any other securities convertible into, or exercisable or exchangeable
for, shares of Common Stock or other similar securities of the Company,
currently beneficially owned or hereafter acquired by such holders for a period
of 180 days from the date of the Prospectus. After such 180-day period, the
foregoing restriction will expire and shares permitted to be sold under Rule 144
would be eligible for sale. The Company and Prudential Securities Incorporated
on behalf of the Underwriters, respectively, may, in their sole discretion, at
any time and without prior notice, release all or any portion of the shares of
Common Stock subject to such agreements to which they are party.
Prior to the Offering, there has been no public market for the Common
Stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of additional shares of Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities. See "Shares Eligible for Future Sale."
No Prior Public Market; Volatility of Stock Price. Prior to the Offering,
there has been no public market for the Common Stock, and there can be no
assurance that an active trading market will develop or continue following the
Offering, or that the market price of the Common Stock will not decline below
the initial public offering price. The initial public offering price for the
Common Stock will be determined by negotiations among the Underwriters based on
several factors, and may not be indicative of the market price for the Common
Stock after the Offering. See "Underwriting." The Company believes that various
factors unrelated to the Company's performance, such as general economic
conditions, changes or volatility in the financial markets and changing market
conditions in the Point-to-Point delivery industry, as well as various factors
related to the Company's performance, such as quarterly or annual variations in
the Company's financial results, could cause the market price of the Common
Stock to fluctuate substantially.
Immediate and Substantial Dilution; Dividend Policy. Purchasers of the
Common Stock offered hereby will experience immediate and substantial dilution
in the pro forma as adjusted net tangible book value per share of Common Stock
from the initial public offering price set forth on the cover of this
Prospectus. Assuming an initial offering price of $_________ per share, such
dilution to new investors will be $________ per share while the pro forma as
adjusted net tangible book value of the shares of Common Stock owned by the
existing shareholders will increase by $_________ per share. See "Dilution."
The Company anticipates that for the foreseeable future, its earnings will
be retained for the operation and expansion of its business and that it will not
pay cash dividends. In addition, the Company anticipates that any credit
facility agreement into which it enters will limit the payment of cash dividends
without the lender's consent. See "Dividend Policy."
16
<PAGE>
THE COMPANY
Overview
The Company has been recently formed to create one of the largest
providers of Point-to-Point delivery services in the world. The Company focuses
on Point-to-Point delivery by foot, bicycle, motorcycle, car and truck and
operates in 16 of the largest metropolitan markets in the United States as well
as in London, U.K. and Wellington, New Zealand. The Company believes that it has
the largest market share for Point-to-Point delivery services in each of London,
New York City, San Francisco, Washington, D.C., Seattle and Denver. The Company
also believes that it is the only courier firm focused exclusively on
consolidating the highly fragmented Point-to-Point delivery industry. The
Company intends to become the largest consolidator focused on this market. The
Company's pro forma combined revenues for the year ended December 31, 1996 and
the six months ended June 30, 1997 were $125.6 million and $66.6 million,
respectively.
History
While consulting in New Zealand during the 1980s, R. Gregory Kidd, the
Company's founder and Chairman, observed the use by certain delivery firms of a
Free Call Dispatch operating methodology which enabled couriers, rather than
dispatchers, to decide which deliveries to make and in which order. Mr. Kidd
concluded that firms utilizing Free Call Dispatch were able to achieve higher
levels of customer service than firms where dispatchers generally have absolute
authority in assigning and routing deliveries to the courier fleet ("Command and
Control Dispatch"). Mr. Kidd began to implement the use of the Free Call
Dispatch model on a larger scale and developed a proprietary software system and
operating methodology which would support the model. Mr. Kidd's efforts resulted
in the development of the Company's DMS Model.
The DMS Model was first implemented on a test basis in New Zealand in
1991. The DMS Model was first introduced in the United States in 1994 in four
Founding Companies in San Francisco. Margin improvements were realized by these
firms as a result of a reduction of back-office staff from eleven to five and a
significant increase in courier productivity. Since 1994, certain components of
the DMS Model have been utilized by 19 courier firms in 14 cities, representing
l8.9% of the Company's pro forma combined revenues in 1996.
The Combinations
Between September and November 1997, the Company entered into separate
agreements to acquire the Founding Companies in exchange for cash or Common
Stock or a combination of both. The purpose of the Combinations is to
consolidate the operations of DMS and the Founding Companies into one
corporation. The Combinations will be effective simultaneously with the closing
of the Offering and the Founding Companies, or their investors, will receive an
aggregate of shares of Common Stock (assuming a price to the public in the
Offering of $____________ and that there are no appraisal shares) and an
aggregate of $52.9 million in cash from the net proceeds of the Offering (which
includes $12.3 million subject to earnout provisions). The existing stockholders
of the Company will hold the difference between (i) the ___________ shares of
Common Stock to be outstanding after the Combinations, exclusive of the ______
shares sold in the Offering, are effective (exclusive of the ______ shares to be
sold in the Offering), and (ii) the total number of shares issued to the
Founding Companies or their respective investors. The specific number of shares
of Common Stock to be issued in the Combinations to the Founding Companies or
their investors (the "Stock Consideration") will be determined by dividing $43.0
million by the price to the public in the Offering.
17
<PAGE>
The table below illustrates the aggregate number of shares of Common Stock that
will be issued to the Founding Companies and held by the existing stockholders
of the Company in connection with the Combinations if the price to the public
is, alternatively $ ___, $___ or $___.
Number of Shares of Common Stock if the Price to the Public
-----------------------------------------------------------
is:
---
$ $ $
----- ----- -----
Founding Companies
----- ----- -----
----- ----- -----
Existing Stockholders of the Company
----- ----- -----
----- ----- -----
Total after the Combination
(exclusive of the _____ shares of ----- ----- -----
Common Stock sold in the Offering)
===== ===== =====
===== ===== =====
In certain situations, a portion of the cash consideration issued pursuant
to the Combinations will be subject to possible repayment (the "Earnout") by the
former owners of the Founding Companies if the financial results of the Founding
Company fail to meet certain financial targets. The former owners of the
Founding Companies will each give a promissory note to the Company in the
principal amount of the Earnout, which note will be secured by a pledge of the
Stock Consideration received in the respective Combination. Such shares of
Common Stock will be held in escrow for two years. The promissory note will be
forgiven incrementally over the escrow period as the requisite financial targets
are met. Failure to meet those targets will, in effect, result in a reduction of
the cash consideration.
The consideration to be paid for each of the Founding Companies was
determined through arms-length negotiations between the Company and
representatives of each Founding Company.
Certain factors considered by the parties in determining the consideration
to be paid included historical operating results and the future prospects of
each Founding Company.
The consummation of the Combinations is subject to customary conditions
which include, among others, the accuracy of the representations and warranties
of each Founding Company and of the Company on the closing date of the
Combinations, the performance by each Founding Company of all covenants included
in the agreements relating to the Combinations and the nonexistence of a
material adverse change in the business, financial condition and results of
operations of each Founding Company.
In September 1997, Kiwi Express Software, L.L.C. ("Kiwi Express"), founded
by Mr. Kidd and a provider of dispatch software to DMS Centers in the United
States and New Zealand, was merged into the Company. See "Certain Transactions."
Upon consummation of the Offering, the Company also intends to acquire Brookside
Systems and Programming Limited, a U.K. company that conducts business under the
tradename "Fleetway." Fleetway develops and markets software systems principally
to the Point-to-Point delivery industry in the U.K. and currently has software
licensing agreements with over 300 courier firms.
Upon the consummation of the Offering, the Company intends to operate
certain of the brands acquired in the Combinations (each, a "Brand") through
agreements ("Brand Manager Agreement") with former owners (each, a "Brand
Manager"). Each Brand Manager will be responsible for managing his or her Brand
to maximize its
18
<PAGE>
revenues and profit margins. The Brand Manager will receive payments according
to a formula based on the "Contribution" (which is defined as total revenue less
certain expenses attributable to the Brands and certain administrative and
corporate overhead allocations). The Contribution Percentage (defined as the
Contribution divided by total revenue of the Brand) between 7.5% and 15% accrues
to the Brand Manager. The Contribution Percentage in excess of 15% accrues to
the Brand Manager and the Company in a proportion of 25% and 75%, respectively.
Payments to each Brand Manager are to be made in a combination of cash and
shares of Common Stock of the Company. The Brand Manager Agreement can be
terminated by the Company, upon approval of the Business Steering Committee
(consisting of the President of the Company and certain Brand Managers), under
certain limited conditions. The Brand Manager has the right to terminate the
Brand Manager Agreement upon six months' written notice. Founding Companies
representing approximately 50% of the Company's revenues for the six months
ended June 30, 1997 will not have Brand Manager Agreements, in which case all
operating income will accrue to the Company.
Pursuant to the agreements entered into in connection with the
Combinations, the stockholders of the Founding Companies have agreed not to
compete with the Company for a two-year period, commencing on the date of
consummation of the Offering for persons who are not Brand Managers and
commencing on the date that all consideration payable under the Combination has
been received for persons who are Brand Mangers.
The Founding Companies
The following table sets forth certain information regarding the Founding
Companies:
<TABLE>
<CAPTION>
=======================================================================================
Acquisition Consideration
=========================
Pro Forma Combined Brand
Revenues for 12 Cash Value of Manager
Months Ended Value(1) Common Agreement
December 31, 1996 Stock
(dollars in thousands)
========================================================================================
<S> <C> <C> <C> <C>
London, U.K
- - - - ----------------------------------------------------------------------------------------
West One $ 24,148 $16,613 $ 2,477 No
- - - - ----------------------------------------------------------------------------------------
Security Despatch 9,794 5,923 0 No
- - - - ----------------------------------------------------------------------------------------
New York Metro Area
- - - - ----------------------------------------------------------------------------------------
Earlybird Courier 13,189 12,092 4,649 Yes
- - - - ----------------------------------------------------------------------------------------
Atlantic Freight 8,728 143 4,125 Yes
- - - - ----------------------------------------------------------------------------------------
Bullit Courier 7,696 3,540 3,000 No
- - - - ----------------------------------------------------------------------------------------
San Francisco
- - - - ----------------------------------------------------------------------------------------
Aero Delivery 10,998 2,141 3,730 No
- - - - ----------------------------------------------------------------------------------------
S-Car-Go Courier 1,155 234 638 Yes
- - - - ----------------------------------------------------------------------------------------
Battery Point 732 222 428 Yes
- - - - ----------------------------------------------------------------------------------------
Minneapolis/Phoenix
- - - - ----------------------------------------------------------------------------------------
1 800 COURIER - Minneapolis, Phoenix 8,536 577 4,264 Yes
- - - - ----------------------------------------------------------------------------------------
Washington, DC
- - - - ----------------------------------------------------------------------------------------
Washington Express 5,800 1,176 2,792 Yes
- - - - ----------------------------------------------------------------------------------------
Atlanta
- - - - ----------------------------------------------------------------------------------------
MLQ Express 5,310 4,678 0 No
- - - - ----------------------------------------------------------------------------------------
Denver
- - - - ----------------------------------------------------------------------------------------
Kangaroo Express 2,650 681 1,079 Yes
- - - - ----------------------------------------------------------------------------------------
1 800 COURIER - Denver 1,247 70 774 Yes
- - - - ----------------------------------------------------------------------------------------
Los Angeles
========================================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================
Acquisition Consideration
=========================
Pro Forma Combined Brand
Revenues for 12 Cash Value of Manager
Months Ended Value(1) Common Agreement
December 31, 1996 Stock
(dollars in thousands)
========================================================================================
<S> <C> <C> <C> <C>
National Messenger 2,413 665 1,210 Yes
- - - - ----------------------------------------------------------------------------------------
1 800 COURIER - L.A.X 1,212 376 450 No
- - - - ----------------------------------------------------------------------------------------
Boston
- - - - ----------------------------------------------------------------------------------------
1 800 COURIER - Boston 1,343 193 636 Yes
- - - - ----------------------------------------------------------------------------------------
Seattle
- - - - ----------------------------------------------------------------------------------------
Fleetfoot Messenger 2,172 0 1,279 Yes
- - - - ----------------------------------------------------------------------------------------
Houston
- - - - ----------------------------------------------------------------------------------------
A&W Couriers 1,560 294 755 Yes
- - - - ----------------------------------------------------------------------------------------
Detroit
- - - - ----------------------------------------------------------------------------------------
Express Messenger 1,612 250 720 Yes
- - - - ----------------------------------------------------------------------------------------
Chicago
- - - - ----------------------------------------------------------------------------------------
Deadline Express 1,177 0 914 Yes
- - - - ----------------------------------------------------------------------------------------
Software Company
- - - - ----------------------------------------------------------------------------------------
Fleetway Systems 1,092 838 2,016 No
- - - - ----------------------------------------------------------------------------------------
Other Founding Companies 13,006 2,251 7,103 No
- - - - ----------------------------------------------------------------------------------------
Total $125,570 $52,957 $43,039
========================================================================================
</TABLE>
(1) Includes $12.3 million subject to certain Earnouts. See "-- The
Combinations."
The Company's executive offices are located at Dispatch Management
Services Corp., 65 West 36th Street, New York, New York 10018, and its telephone
number is (212) 268-2910.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the _______ shares of
Common Stock offered hereby, after deducting the underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$60.1 million ($69.9 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $____ per
share. Of the net proceeds $52.9 million will be used to pay the cash portion of
the purchase price for the Founding Companies, of which approximately $12.3
million is subject to the Earnout.
Approximately $7.2 million of the proceeds from the Offering will be used
to repay indebtedness of the Company. Approximately $7.2 million of such
indebtedness was incurred by the Founding Companies, bears interest at rates
ranging from __________% to ____________% per annum and matures between
____________, 1997 and ________________________. Approximately $1.0 million of
the indebtedness was incurred by the Company in July 1997 to partially fund
expenses associated with this Offering and the Combinations (the "Bridge Loan").
The Bridge Loan bears interest at 10% per annum and matures on the earlier of
the consummation of the Offering or on January 22, 1999. The parties who
provided the Bridge Loan also received shares of Common Stock, representing a
1.4% interest in the Company after the Offering.
The Company will have approximately $1.9 million in cash as a result of
the Combinations which will be used for working capital and for general
corporate purposes, which are expected to include future acquisitions of
Point-to-Point courier firms. The Company has held preliminary discussions with
a number of such acquisition candidates; however, except for the Combinations,
the Company has no agreement with respect to any acquisition. Pending such uses,
the net proceeds will be invested in short-term, interest-bearing, investment
grade securities.
DIVIDEND POLICY
The Company has never declared or paid any dividends, intends to retain
all of its earnings, if any, to finance the expansion of its business and for
general corporate purposes, including future acquisitions, and does not
anticipate declaring or paying any cash dividends on its Common Stock for the
foreseeable future. In addition, in the event the Company is successful in
obtaining one or more lines of credit, it is likely that any such facility will
include restrictions on the ability of the Company to pay dividends.
21
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma combined capitalization of
the Company at June 30, 1997 and as adjusted to give effect to the Offering and
the application of the net proceeds. See "Use of Proceeds." This table should be
read in conjunction with the Pro Forma Combined Financial Statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1997
------------------------
Pro Forma Pro Forma
Combined As Adjusted
-------- -----------
<S> <C> <C>
Cash and cash equivalents .......................... $ 1,871 $ 1,871
======== ========
Payable to Founding Companies (1) .................. $ 40,639 $ --
======== ========
Short-term debt and current portion of
long-term debt (2) ............................... 3,722 --
======== ========
Long-term debt, less current maturities (2) ........ $ 3,437 $ --
Stockholders' equity:
Preferred Stock: $0.01 par value, 10,000,000 shares
authorized; none issued or outstanding ......... -- --
-------- --------
Common Stock: $0.01 par value, 100,000,000 shares
authorized; and ____ shares issued and
outstanding, pro forma; _____ shares issued and
outstanding, pro forma as adjusted (3) ......... 29 29
Accumulated paid-in capital ...................... 31,634 91,356
Retained deficit ................................. (22) (22)
-------- --------
Total stockholders' equity ..................... 31,641 91,363
-------- --------
Total capitalization ......................... $ 35,078 $ 91,363
======== ========
</TABLE>
- - - - ----------
(1) Excludes $12.3 million paid to certain of the former owners of the
Founding Companies in connection with the Earnout. This amount is subject
to repayment to the Company and is recorded as a note receivable on the
Company's June 30, 1997 pro forma combined balance sheet. See "The Company
- The Combinations."
(2) For a description of the Company's debt, see Notes to Historical Financial
Statements of the Founding Companies included elsewhere in the Prospectus.
(3) Excludes _____ shares of Common Stock reserved for issuance under the
Company's Stock Option Plan of which ______ are expected to be issued
concurrently with the Offering. See "Management - 1997 Stock Incentive
Plan" and "Certain Transactions."
22
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the pro forma net tangible book value of their
Common Stock from the initial public offering price. The pro forma net tangible
book value of the Company as of _____________, 1997 was $_____________ or
$______ per share of Common Stock. Pro form net tangible book value per share
represents the amount of the Company's tangible net worth divided by the total
number of shares of Common Stock outstanding as of __________, 1997 assuming
that the Combinations had been consummated as of such date. After giving effect
to the sale of _________ shares of Common Stock by the Company in the Offering
(assuming an initial public offering price of $_________ per share) and the
application of the net proceeds therefrom (after deduction of underwriting
discounts and commissions and estimated Offering expenses payable by the
Company), the pro forma net tangible book value of the Company as of
____________, 1997 would have been $________ million or $_______ per share of
Common Stock. This represents an immediate increase in net tangible book value
of $_______ per share to existing shareholders and an immediate dilution of
$________ per share to purchasers of shares in the Offering. The following table
illustrates the per share dilution:
Assumed initial public offering price ........ $
Pro forma net tangible book value before
the Offering ........................... $
Increase in pro forma tangible book
value per share attributable to
new investors ..........................
Pro forma as adjusted net tangible book
value after the Offering ...............
Dilution in pro forma net tangible book -------
value to new investors ................. $
=======
The following table sets forth on a pro forma basis as of ___________,
1997 the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the Company's
existing shareholders (including persons who receive Common Stock pursuant to
the Combinations) and to be paid by new investors in the Offering (assuming an
initial public offering price of $______ per share) and before deduction of
underwriting discounts and commissions and estimated Offering expenses:
Shares Purchased(1) Total Consideration Average
------------------- ------------------- Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Existing shareholders (2) % $ % $
New investors ............
------ ------- ------ -------
Total .................... % $ %
====== ======= ====== =======
- - - - ----------
(1) Excludes ______ shares of Common Stock reserved for issuance under the
Company's Stock Option Plan of which _____ are expected to be issued
concurrently with the Offering. See "Management - 1997 Stock Incentive
Plan" and "Certain Transactions."
(2) Includes persons who receive Common Stock pursuant to the Combinations.
23
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL DATA
(in thousands, except share and per share data)
The Company has been identified as the "accounting acquiror" in
connection with the Combinations. The following unaudited summary pro
forma statement of operations data for the Company have been adjusted to
give effect to (i) the consummation of the Combinations and (ii) certain
pro forms adjustments to the historical financial statements as described
in the notes below. The following unaudited summary pro forma combined
balance sheet data for the Company have been adjusted to give effect to
(i) the consummation of the Combinations and (ii) the consummation of the
Offering and the application of the net proceeds therefrom. The summary
pro forma data are not necessarily indicative of the Company's operating
results or financial position that might have occurred had the events
described above been consummated at the beginning of the period and should
not be construed as representative of future operating results or
financial position. The summary pro forms combined financial data should
be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements and the related notes thereto and the historical financial
statements of the Founding Companies and the related notes thereto
included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
Pro Forma
--------------------------------------
Twelve
Months Ended Six Months Ended
December 31, 1996 June 30,
----------------- -----------------
1996 1997
---- ----
<S> <C> <C> <C>
Statement of Operations Data (1):
Revenues $125,570 $60,981 $66,552
Cost of revenues 76,845 37,137 41,021
-------- ------- -------
Gross profit 48,725 23,844 25,531
Sales and marketing expenses 7,012 3,570 3,639
General and administrative expenses (2) 10,145 5,000 5,702
Other operating expenses 21,624 10,457 10,606
Depreciation and amortization (3) 3,952 1,954 2,161
-------- ------- -------
Operating income 5,992 2,863 3,423
Interest and other expense, net 1,345 606 525
-------- ------- -------
Income before income taxes 4,647 2,257 2,898
Provision for income taxes (4) 2,512 1,231 1,488
-------- ------- -------
Net income $ 2,135 $ 1,026 $ 1,410
======== ======= =======
Net income per share $ $ $
Shares used in computing
pro forma net income per
share (5)
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1997
-----------------------------
Pro Forma Pro Forma, As
Combined(6) Adjusted(7)
----------- -------------
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit) $(39,213)(8) $ 4,754
Total assets 97,664 109,588
Long term debt, net of current maturities 3,437 --
Stockholder's equity 31,641 91,363
</TABLE>
- - - - ----------
(Footnotes begin on next page)
24
<PAGE>
(1) The pro forma combined statement of operations data assumes that the
Combinations and the disposition of a business segment at one of the
Founding Companies occurred on January 1, 1996.
(2) The pro forma combined statement of operations data reflect pro forma
reductions in (i) salaries, bonuses and benefits to the owners of the
Founding Companies (the "Compensation Differential") aggregating
approximately $2.1 million, $1.1 million and $810,000, and (ii) royalty
payments made by certain Founding Companies related to franchise
agreements which will be terminated with the closing of the Combinations,
for the year ended December 31, 1996 and the six-month periods ended June
30, 1996 and 1997, respectively.
(3) Consists of amortization of goodwill to be recorded as a result of the
Combinations computed on the basis described in the Note 3 of Notes to the
Unaudited Pro Forma Combined Financial Statements.
(4) Assumes the Company is subject to a corporate income tax rate of 40%. The
higher resulting effective tax rate is due to the amortization of certain
goodwill expenses which are not tax deductible.
(5) Assumes an initial per share offering price of $____ and includes: (i)
_________ shares to be issued to owners of certain of the Founding
Companies; (ii) _________ shares held by the existing shareholders of the
Company; (iii) the ________ shares required to be sold in the Offering to
pay the cash portion of the Combination consideration and to pay expenses
associated with this Offering and the Combinations and; __ shares related
to the dilution attributable to options and warrants granted with an
exercise price below the initial public offering price, in accordance with
the treasury stock method.
(6) The pro forma combined balance sheet data assume that the Combinations
were consummated on June 30, 1997.
(7) Adjusted for the sale of the _________ shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."
(8) Reflects $40.6 million of cash consideration due to certain owners of the
Founding Companies pursuant to the Combinations and excludes $12.3 million
subject to an earnout. See "The Company - The Combinations."
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected Pro
Forma Combined Financial Data," the Unaudited Pro Forma Combined Financial
Statements of the Company and the related Notes thereto and the Founding
Companies' Audited Historical Financial Statements and the related Notes thereto
appearing elsewhere in this Prospectus. A number of statements in this
Prospectus address activities, events or developments which the Company
anticipates may occur in the future, including such matters as the Company's
strategy for acquisition and internal growth and improved profitability,
additional capital expenditures (including the amount and nature thereof),
acquisitions of assets and businesses, industry trends and other such matters.
These statements are based on certain assumptions and analyses made by the
Company in light of its perception of historical trends, current business and
economic conditions and expected future developments, as well as other factors
the Company believes are reasonable or appropriate. However, whether actual
results and developments will conform with the Company's expectations and
predictions is subject to a number of risks and uncertainties, including those
set forth in "Risk Factors"; general economic, market or business conditions;
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company; changes in laws or regulations; and other factors, many
of which are beyond the control of the Company. Consequently, there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized that they will have the
expected consequences to or effects on the Company or its business or
operations.
Introduction
The Company has been recently formed to create one of the largest
providers of Point-to-Point delivery services in the world. The Company focuses
on Point-to-Point delivery by foot, bicycle, motorcycle, car and truck and
operates in 16 of the largest metropolitan markets in the United States as well
as in London, U.K. and Wellington, New Zealand. The Company believes that it has
the largest market share for Point-to-Point delivery services in each of London,
New York City, San Francisco, Washington, D.C., Seattle and Denver. The Company
also believes that it is the only courier firm focused exclusively on
consolidating the highly fragmented Point-to-Point delivery industry. The
Company intends to become the largest consolidator focused on this market. The
Company's pro forma combined revenues for the year ended December 31, 1996 and
the six months ended June 30, 1997 were $125.6 million and $66.6 million,
respectively.
Basis For Presentation
Management does not believe that a period-to-period comparison of the
results of operations of the Founding Companies whose financial statements are
included elsewhere in this Prospectus would be meaningful to prospective
investors. The Founding Companies have been managed as independent private
companies and, as such, their results of operations reflect different corporate
and tax structures which have been influenced, among other things, their
historical levels of owners' compensation. The owners of the Founding Companies
have agreed to certain reductions in their salaries, bonuses and benefits in
connection with the organization of the Company. The Compensation Differentials
for the year ended December 31, 1996 and for the six months ended June 30, 1997
were $2.1 million and $810,000, respectively, and have been reflected as pro
forma adjustments in the Unaudited Pro Forma Combined Statements of Operations.
The Unaudited Pro Forma Combined Statements of Operations includes a provision
for income tax as if the Company were taxed as a C corporation.
Integration Synergies. Subsequent to the Offering, the Company believes
that it could realize savings from: (i) increased productivity of courier
fleets; (ii) increased productivity of dispatchers and order takers; (iii)
greater volume discounts from suppliers; (iv) consolidation of insurance
programs and treasury functions; and (v) consolidation of other corporate
operations, such as research and development and financial and management
reporting. Integration of the Founding Companies may also present opportunities
to reduce costs through the elimination of duplicative functions and through
increased employee utilization. However, subsequent to the
26
<PAGE>
Offering, the Company will incur significant additional costs and expenditures
for corporate management and administration, corporate expenses related to being
a public company, systems integration and facilities expansion. Although, these
integration synergies, potential savings and additional costs may make
historical operating results not comparable to, or indicative of, future
performance, such matters are not presently quantifiable with any degree of
certainty. Accordingly, neither the anticipated savings nor the anticipated
costs have been included in the unaudited pro forma financial data presented
herein. There can be no assurance that the Company will achieve any such cost
savings. See "Risk Factors - Risks Relating to Conversion to the DMS Model," "-
Risks of Integration" and "- Effect of Potential Fluctuations in Quarterly
Operating Results."
Although there can be no assurance, management believes that use of the
DMS Model enables courier-companies to achieve higher margins than typically
associated with Point-to-Point courier companies. The following table sets forth
certain (i) combined operating margin information, which has been derived from
the historical financial statements included elsewhere in this Prospectus, and
(ii) unaudited pro forma combined operating margin information. This information
is presented with respect to (i) Founding Companies which have utilized the
Company's proprietary software since January 1, 1996 ("DMS Founding Companies")
and (ii) Founding Companies which, as of January 1, 1996, were not utilizing
such software ("Non-DMS Founding Companies"). The DMS Founding Companies
represent approximately 10% of the Company's combined revenues in 1996 and
Non-DMS Founding Companies represent approximately 79% of the Company's combined
revenues in 1996. During the periods presented below, the Founding Companies
were not under common control or management and, therefore, the data presented
may not be comparable to or indicative of post-Combination results to be
achieved by the Company. Further, none of the Founding Companies has, to date,
utilized all aspects of the DMS Model, and there can be no assurance that the
results reflected below are indicative of results to be achieved upon full
utilization of the DMS Model. In addition, the average size of the Non-DMS
Founding Companies is significantly larger than the DMS Founding Companies.
There can be no assurance that the higher margins of the DMS Founding Companies
illustrated below are not directly attributable to the relatively fewer
complexities involved in the operation of a smaller company. Finally, the
following data does not purport to compare the performance of the DMS Founding
Companies prior to and subsequent to the utilization of the Company's
proprietary software, and the conversion process itself could temporarily reduce
margins. Accordingly, no definitive conclusion can be drawn as to the degree to
which the Company's proprietary software, or other components of the DMS Model,
contributed to improvements in the operational performance of the DMS Founding
Companies.
<TABLE>
<CAPTION>
Historical Pro Forma Combined
Combined Operating Margin (1) Operating Margin (2)
----------------------------- --------------------
Six Months
Year Ended Six Months Ended Year Ended Ended
December 31, 1996 June 30, 1997 December 31, 1996 June 30, 1997
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
DMS Founding Companies 5.7% 8.3% 6.3% 8.0%
Non-DMS Founding Companies 2.8% 3.1% 4.8% 4.6%
</TABLE>
(1) Derived from the historical financial statements included elsewhere in the
Prospectus.
(2) Derived from the unaudited pro forma combined financial statements of the
Company included elsewhere in the Prospectus and reflects pro forma
adjustments for goodwill amortization, the Compensation Differential and
royalty payments made by certain Founding Companies. See Notes 1, 2, 3 and
4 to the Selected Pro Forma Combined Financial Data.
Revenues. The Company primarily earns revenues from fees charged for
Point-to-Point delivery services with the remainder of revenues being derived
from strategic stocking and other services. Revenues consist primarily of
charges to customers for individual delivery services and weekly or monthly
charges for other ongoing
27
<PAGE>
services. Revenues are recognized when the services are performed. The revenue
per transaction for a particular delivery service is dependent upon a number of
factors, including the time sensitivity of a particular delivery, special
handling requirements and local market conditions.
Cost of Revenues. Cost of revenues consists of costs relating directly to
performance of services, including earned courier compensation and employee
benefits, if any, vehicle lease expenses and the cost of managing the Company's
courier fleet. The Company believes that the Point-to-Point delivery business
offers higher gross margins than scheduled or routed deliveries, which results
from lower courier compensation as a percentage of revenue as well as premium
pricing for time-sensitive deliveries. The Company's couriers have historically
been compensated based on a fixed percentage of the revenue for a delivery.
However, the Company intends to realign courier compensation to an effort-based
pricing standard. Management believes that this effort-based fee structure
maximizes courier fleet productivity and allows it to better manage its pricing
policies and gross margins.
Sales and Marketing Expenses. Sales and marketing expenses include
expenses related to new business development, account management and local brand
marketing initiatives. Examples include Brand Manager compensation, sales
commissions and advertising and other promotional expenses. The Company
anticipates the need for additional investment in sales and marketing
initiatives including the implementation and execution of the l-800-DELIVER(TM)
and l-800-COURIER(TM) national brand strategies. Prior to the consummation of
the Combinations, compensation expense for the former owners of the Founding
Companies were classified as the General and Administrative Expenses of the
Founding Companies. Subsequent to the Offering, payments under Brand Manager
Agreements and compensation to sales personnel will appear in Sales and
Marketing Expenses.
General and Administrative Expenses. General and administrative expenses
include salaries and benefits of management and administrative staff,
professional fees, expenditures for research and development, training costs and
expenses related to comprehensive insurance programs.
Other Operating Expenses. Other operating expenses include costs for
execution of order taking, dispatch management, customer service and local
supervisory personnel.
Depreciation And Amortization. The Company has no significant investment
in warehousing facilities or transportation equipment, and as such, depreciation
expense primarily relates to depreciation of office, communication and computer
equipment. Amortization expense primarily relates to the amortization of
acquisition goodwill. In July 1996, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 97 ("SAB 97") relating to business
combinations immediately prior to an initial public offering. SAB 97 requires
that these Combinations be accounted for using the purchase method of
acquisitions accounting. A total of $700,000 of the purchase price has been
allocated to in-process research and development and will be expensed upon
closing of the Combinations. The excess of the fair value of the consideration
received in the Combinations over the fair value of the net assets to be
acquired totals approximately $66.9 million. The excess purchase price will be
recorded as goodwill on the Company's balance sheet. Goodwill will be amortized
as a non-cash charge to the income statement over a period ranging from 5 to 40
years. The pro forma impact of this amortization expense for the year ended
December 31, 1996 was approximately $2.1 million, of which approximately
$400,000 was deductible for income tax purposes. The Company expects to continue
to make acquisitions and anticipates that certain acquisitions will be accounted
for using the purchase method of accounting. As a consequence, in the future
the Company will incur additional expense for the amortization of acquired
intangible assets, primarily goodwill.
Pro Forma Combined Results of Operations
The pro forma combined results of operations of the Founding Companies for
the periods presented may not be comparable to, and may not be indicative of,
the Company's post-combination results of operations because: (i) the Founding
Companies were not under common control or management during the periods
presented; (ii) the Company will incur incremental costs related to its new
corporate management and the costs of being a public company; and (iii) the
combined data do not reflect potential benefits and cost savings the Company
expects to
28
<PAGE>
realize when operating as a combined entity. The following discussion should be
read in conjunction with the Unaudited Pro Forma Combined Financial Statements
and the related Notes thereto and certain Founding Companies' Historical
Financial Statements and the Notes thereto appearing elsewhere in this
Prospectus.
The following table sets forth the combined results of operations of the
Founding Companies on a pro forma combined basis and as a percentage of revenues
for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1997
---- ----
(in thousands)
<S> <C> <C> <C> <C>
Revenues $60,981 100.0% $66,552 100.0%
Cost of revenues 37,137 60.9 41,021 61.6
------- ------- ------- -------
Gross profit 23,844 39.1 25,531 38.4
Sales and marketing expenses 3,570 5.9 3,639 5.5
General and administrative expenses 5,000 8.2 5,702 8.6
Other operating expenses 10,457 17.1 10,606 15.9
Depreciation and amortization 1,954 3.2 2,161 3.2
------- ------- ------- -------
Operating income $ 2,863 4.7% $ 3,423 5.1%
======= ======= ======= =======
</TABLE>
Pro Forma Combined Results for the Six Months Ended June 30, 1997 Compared to
the Six Months Ended June 30, 1996
Revenues. Revenues increased approximately $5.6 million, or 9.1%, to $66.6
million for the six months ended June 30, 1997 from $61.0 million for the six
months ended June 30, 1996. This increase was primarily attributable to
increased transaction volume from new and existing customers and was partially
offset by decreases in revenues from those Founding Companies participating in a
former national courier franchise.
Cost of Revenues. Cost of revenues increased approximately $3.9 million,
or 10.5%, to $41.0 million for the six months ended June 30, 1997 from $37.1
million for the six months ended June 30, 1996. The increase was due primarily
to increased revenues. The gross profit margin decreased slightly from 39.1% to
38.4% during the first six months of 1997.
Sales and Marketing Expenses. Sales and marketing expenses increased
approximately $100,000, or 1.9%, to $3.7 million for the six months ended June
30, 1997 from $3.6 million for the six months ended June 30, 1996. This increase
is due primarily to an increase in revenues and business development activity.
As a percentage of revenues, selling and marketing expenses decreased to 5.5%
for the six months ended June 30, 1997 from 5.9% for the six months ended June
30, 1996 due to economies of scale.
General and Administrative Expenses. General and administrative expenses
increased approximately $700,000, or 14.0%, to $5.7 million for the six months
ended June 30, 1997 from $5.0 million for the six months ended June 30, 1996.
This increase is due primarily to an increase in owner's compensation. As a
percentage of revenues, general and administrative expenses increased to 8.6%
for the six months ended June 30, 1997 from 8.2% for the six months ended June
30, 1996.
Other Operating Expenses. General and administrative expenses increased
approximately $100,000, or 1.4%, to $10.6 million for the six months ended June
30, 1997 from $10.5 million for the six months ended June 30, 1996. As a
percentage of revenues, general and administrative expenses decreased to 15.9%
for the six months ended June 30, 1997 from 17.1% for the six months ended June
30, 1996.
29
<PAGE>
Operating Income. As a result of the above, operating income increased
approximately $600,000 or 19.6%, to $3.4 million for the six months ended June
30, 1997 from $2.8 million for the six months ended June 30, 1996. As a
percentage of revenues, operating income increased to 5.1% for the six months
ended June 30, 1997 from 4.7% for the six months ended June 30, 1996.
Pro Forma Combined Liquidity and Capital Resources
The Company is a holding company that will conduct all of its operations
through its subsidiaries. Accordingly, the Company's principal sources of
liquidity are the cash flow of its subsidiaries, cash available from credit
facilities that it may establish and the unallocated net proceeds of this
Offering. After the closing of the Combinations and this Offering, the Company
will have approximately $1.9 million in cash, working capital of approximately
$4.8 million and no indebtedness outstanding on a pro forma combined basis on
June 30, 1997.
The Company is seeking a $25 million credit facility, which it anticipates
will be secured by assets of the Company and will require the Company to comply
with various loan covenants including: (i) maintenance of certain financial
ratios; (ii) restrictions on additional indebtedness; and (iii) restrictions on
liens, guarantees, advances and dividends. The facility is intended to be used
for acquisitions, capital expenditures, refinancing of Founding Company
indebtedness, if necessary, and for general corporate purposes. There can be no
assurance that the Company will obtain such a credit facility.
Capital expenditures totaled approximately $2.3 million in 1996 and
approximately $1.0 million in the six months ended June 30, 1997, primarily for
office equipment and computers and facility upgrades. Subsequent to this
Offering, the Company expects to make capital expenditures to upgrade certain
components of its management and financial reporting systems, to install an
internal computer intranet network and communications system integrating the
Founding Companies and subsequently acquired businesses and to establish a
centralized administrative services center. Management presently anticipates
that such capital expenditures will total approximately $5.0 million over the
next two years; however, no assurance can be made with respect to the actual
timing and amount of such expenditures.
The Company intends to pursue further acquisition opportunities, the
timing, size or success of which are unpredictable as well as the associated
potential capital commitments. The Company expects to fund further acquisitions
primarily through a combination of a portion of the unallocated net proceeds of
this Offering, cash flow from operations and borrowings, including borrowings
under the proposed line of credit, as well as issuances of additional shares of
Common Stock.
The Company believes that cash flow from operations will be sufficient to
fund the Company's operations for the foreseeable future. In addition, the
Company believes that cash flow from operations, borrowings under a potential
credit facility and the unallocated net proceeds of this Offering, will be
sufficient to implement its growth strategy. To the extent that the Company's
acquisition strategy proceeds at a rate faster than is presently contemplated,
it may be necessary to finance such acquisitions through the issuance of
additional equity securities, issuance of additional indebtedness or both. See
"Risk Factors - Need for Additional Financing."
Potential Fluctuations in Quarterly Operating Results
The Company may experience significant quarter to quarter fluctuations in
its results of operations. Quarterly results of operations may fluctuate as a
result of a variety of factors including, but not limited to, the timing of the
integration of the Founding Companies and other acquired companies and their
conversion to the DMS Model, the demand for the Company's services, the timing
and introduction of new services or service enhancements by the Company or its
competitors, the market acceptance of new services, competitive conditions in
the industry and general economic conditions. As a result, the Company believes
that period to period comparisons of its results of operations are not
necessarily meaningful or indicative of the results that the Company may achieve
in any subsequent quarter or full year. Such quarterly fluctuations may result
in volatility in the market
30
<PAGE>
price of the Common Stock of the Company, and it is possible that in future
quarters the Company's results of operations could be below the expectations of
the public market. Such an event could have a material adverse effect on the
market price of the Common Stock of the Company. Several of the Founding
Companies recorded a net loss for the six months ended June 30, 1997.
31
<PAGE>
BUSINESS
General
The Company has been recently formed to create one of the largest
providers of Point-to-Point delivery services in the world. The Company focuses
on Point-to-Point delivery by foot, bicycle, motorcycle, car and truck and
operates in 16 of the largest metropolitan markets in the United States as well
as in London, U.K. and Wellington, New Zealand. The Company believes that it has
the largest market share for Point-to-Point delivery services in each of London,
New York City, San Francisco, Washington, D.C., Seattle and Denver. The Company
also believes that it is the only courier firm focused exclusively on
consolidating the highly fragmented Point-to-Point delivery industry. The
Company intends to become the largest consolidator focused on this market. The
Company's pro forma combined revenues for the year ended December 31, 1996 and
the six months ended June 30, 1997 were $125.6 million and $66.6 million,
respectively.
Industry
The $60 billion expedited small-package delivery industry in the United
States consists of multi-day delivery companies (such as Federal Express and
United Parcel Service) and same-day delivery and courier companies. The $15
billion same-day delivery market in the United States consists of: (i) intercity
and interstate line-haul specialists; (ii) route specialists, which service
preset routes through a central distribution hub or on a scheduled basis; and
(iii) Point-to-Point specialists, which focus on urgent (4 to 5 hours or less),
on-demand, local deliveries.
According to Courier Magazine, a leading industry publication, the U.S.
market for Point-to-Point delivery services is approximately $4 billion and is
served by more than 4,000 delivery companies, primarily closely held, single
center operations serving a limited geographic area. Based upon their
experience, management of the Company believes that most Point-to-Point courier
firms are small or mid-sized operations with annual revenues of $2 million or
less performing less than 600 deliveries a day. Historically, the barriers to
starting a Point-to-Point delivery service have been low in comparison to the
substantial resources required to enter into national or regional overnight or
route delivery services. However, management of the Company believes that the
urgent nature of Point-to-Point deliveries does not allow for the effective
utilization of overnight or route specialist operations. The complexities of
managing large volumes of Point-to-Point deliveries, including the time critical
nature of deliveries and constantly changing delivery locations, limit the
economies of scale and route density normally sought by line-haul or route
specialists. Management believes that the Company is the only company having a
national or an international network of delivery firms focused primarily on the
Point-to-Point delivery market
In recent years, the emergence of alternative technologies, such as
facsimile machines and the Internet, have increased pressure on the same-day
delivery industry to improve cost competitiveness and service levels and to
develop into new market niches. The same technological advancements have led to
more rapid ordering and production capabilities for products, greater
expectations regarding delivery times and movement toward just-in-time inventory
standards; all these factors have increased the demand for urgent delivery of
products. The Company believes that many of the smaller Point-to-Point courier
companies lack the communication technology and coverage capability to
adequately service this increased demand for urgent delivery of products.
Additionally, in an effort to control costs and focus on core competencies, many
businesses are seeking to reduce their reliance on in-house transportation
departments by turning to third-party providers for such services. Management
believes that these trends favor larger and well capitalized courier firms, such
as the Company.
The employees of "traditional" Point-to-Point courier firms typically work
in only one of the basic courier functional areas - telephone answering (call
capture), courier dispatch, or back-office accounting. Moreover, dispatchers
generally have absolute authority in assigning and routing deliveries to the
courier fleet ("Command and Control Dispatch"), whereby one person receives an
incoming call from a customer and enters pick-up and delivery information into a
computer terminal. A summary of the order is transferred to the dispatch area,
often in
32
<PAGE>
the form of paper tickets. The dispatcher typically analyzes the current status,
location and availability of the entire courier fleet before assigning the order
to a particular courier. The dispatcher often delays assigning a particular
order until it can be grouped with other deliveries or assigned to a particular
courier. The Company believes that providing the dispatcher with this degree of
authority often leads to late deliveries, routing inefficiencies, favoritism
between dispatchers and selected couriers resulting in under-utilization of the
courier work force; this in turn leads to higher courier turnover and undue
dependence of courier firms on the dispatchers. Additionally, the Company
believes that segregation of each back-office function leads to inaccurate
communications, reduced customer service levels and inefficient staffing levels.
As a result, the Company believes that Command and Control Dispatch cannot be
used for large volumes of transactions without significant increases in labor.
The DMS Model
Management has chosen to focus on the Point-to-Point delivery business
because of: (i) the customers' requirements for immediate service and
responsiveness, which management believes enables the Company to distinguish the
DMS Model from the operating methods employed by its competitors; (ii) the
Company's ability to charge premium pricing for guaranteed on-time delivery; and
(iii) the lack of a focused national or international consolidator. Prior to
this Offering, none of the Founding Companies has incorporated every aspect of
the DMS model into their respective operations. However, since 1994, the
Company's management team has introduced certain components of the DMS Model and
has refined the DMS Model through licensing arrangements with a number of
courier firms, including 19 Founding Companies in 14 of the 16 markets in which
the Company will operate subsequent to this Offering. These companies
represented 18.9% of the Company's pro forma revenues in 1996. However,
following this Offering, the Company will continue to support the conversion of
the Founding Companies to the DMS Model.
Key elements of the DMS Model include:
The DMS Model. The DMS Model organizes the Company's business into three
discrete functions: (i) Dispatch Management Services; (ii) Road Management
Services; and (iii) Marketing Management Services.
o Dispatch Management Services refers to back-office functions such as
telephone answering (call capture), order taking, dispatch and
back-office accounting. Under the DMS Model, a single DMS Center is
used to consolidate the back-office functions for several
independent Brands in each geographic region in which the Company
operates. Each DMS Center is structured to facilitate interactive
communication among, and to maximize utilization of, all personnel
within the DMS Center. DMS Center employees are positioned around
"donut" shaped work stations that promote a constant exchange of
information. Prompt capture of the customer's call is the top
priority of DMS Center personnel. The Company cross-trains personnel
to improve the quality and service levels of each DMS Center. For
example, during peak demand periods, a greater number of employees
can be made available to serve as order capturers, while during
off-peak periods, more employees can devote time to administrative
functions such as job audit and payment processing. DMS Center
personnel, including dispatchers in peak workload periods, answer
customers' calls on telephone lines dedicated to specific Brands and
enter the orders into computers using the Company's proprietary
software. The Company intends to standardize customer information,
pricing and geographic zoning data among Brands permitting the call
capturers to answer telephones and enter orders more quickly and
with fewer keystrokes or chances for error than competitors'
systems.
o Road Management Services refers to the management of the courier
fleet Management believes a financially incentivized, team-oriented
courier fleet is an integral part of the success of the DMS Model.
Under the DMS Model, couriers are incentivized using an effort-based
fee structure. The couriers are compensated per delivery, with the
courier fee set by utilizing pre-
33
<PAGE>
determined zone pricing standards that reward the effort needed to
complete a delivery with the appropriate courier fee. Management
believes that compensating its couriers on an effort-based standard
eliminates the demotivation created by fixed salary compensation. In
addition, management believes that a commission-based structure
where a courier is paid a fixed percentage of the total delivery
price creates inefficiencies by putting the couriers' focus on the
price of the delivery, rather than the effort required to complete
the delivery. Management believes that its effort-based fee
structure maximizes courier fleet productivity and allows it to
better manage its pricing policies and gross margins. In addition,
this fee structure allows couriers to earn higher levels of overall
compensation and for that compensation to be aligned with the
specific effort involved in making the delivery.
Management also believes that the consolidation of courier fleets
for multiple Brands in a single metropolitan area provides
significant efficiencies. Pooling the courier resources of multiple
Brands in a single metropolitan area enhances courier coverage and
optimizes courier staffing levels, which leads to an increase in
overall productivity of the courier fleet. Accordingly, subsequent
to the Combinations, the Company intends to establish a single,
independent RMS Center in each of its markets. Subject to guidelines
and standards established by the Company, each RMS Center will be
responsible for hiring, training, rostering and managing the
couriers. The Company believes that segregating the courier cost and
management function into separate RMS Centers will increase the
profitability of the RMS Center and the Company by: (i) better
motivating the couriers through team management and peer governance;
and (ii) focusing the RMS Center exclusively on road management and
minimizing road management costs.
o Marketing Management Services refers to the continued decentralized
promotion of each of the Founding Company's Brand names to
capitalize on its particular market niche, goodwill and established
name recognition. Former owners of 25 of the Founding Companies
(representing 50% of the Company's combined pro forma 1996 revenues)
will enter into Brand Manager Agreements pursuant to which such
former owners will continue to have primary responsibility for the
Marketing Management Services component of their Founding Company.
See "The Company -The Combinations." Marketing Management Services
functions for Brands not covered by a Brand Manager will be
performed by an employee of the Company who will receive
performance-based compensation. In each case, a dedicated sales and
marketing team will be responsible for increasing penetration of
existing accounts and the overall revenues of their specific Brand.
Each Brand will have customized marketing materials providing
customers with a summary of frequently used time-based service
levels, pricing schedules and modification charges.
Proprietary Technology. The Company has developed a proprietary software
system to support multiple Brands and a Free Call Dispatch environment while
facilitating the consolidation of dispatch and road management services. Data
standards used on a Company-wide basis simplifies and streamlines the Company's
data entry and record keeping functions. The Company's software automatically
routes the customer's order to a dispatcher, who announces the job to a pool of
couriers under the Free Call Dispatch system. The software allows the dispatcher
to view in a "windows"-based environment, on a single screen, all deliveries in
progress for each courier, including an automatic, color-coded countdown of the
time remaining for each delivery. The software automatically records the job
with the proper billing rate, using standardized zone sheets, cost matrices and
service codes, and records the commission to be paid to the courier. See "-Free
Call Dispatch."
Utilization of Multiple Brands. The DMS Model is designed to support the
growth of Brands within established market niches. Maintaining the
distinctiveness of preexisting tradenames for acquired courier firms allows the
Company to capitalize on the goodwill while continuing to operate in a framework
of consolidated back-office and road work forces.
34
<PAGE>
Free Call Dispatch. Under the Free Call Dispatch system, immediately upon
receiving an order for delivery, the dispatcher announces the specifics of the
job to the entire courier fleet via a two-way radio. A courier who believes that
he or she can complete the pickup and delivery within the time requirements
responds to the dispatcher and requests the job based on, among other factors,
their proximity to the job pick-up location. The Company believes that Free Call
Dispatch, combined with effort-based compensation (including zero payout to
couriers for deliveries not made on time) improves the utilization of the
courier fleet, increases on-time deliveries and provides couriers with the
opportunity to earn higher aggregate compensation than available under Command
and Control Dispatch or from the Company's competitors. Free Call Dispatch
allows couriers to exchange deliveries in progress. Management believes that
these hand-offs permit couriers to perform multiple deliveries all going to the
same general area, thus increasing productivity of couriers and speed of
deliveries. Additionally, bicycle couriers frequently meet with vehicle couriers
for hand-offs on downtown deliveries in certain metropolitan areas, reducing the
risk of traffic jams and the need of the vehicle courier to find parking in a
crowded area. In both cases, the couriers themselves, rather than the
dispatchers, are given the communication and operating tools to initiate
selection of work and hand-offs between team members and among different teams.
Incentivize Workforce. The Company seeks to incentivize all segments of
its workforce - DMS employees, couriers and Brand Managers - in order to
maximize operating efficiency and profitability. Employees who work in the
Company's DMS Centers will be compensated incrementally for each new back-office
task at which the employees become proficient. In addition, profit-sharing,
bonuses, stock options and other incentive compensation will be available to
employees based on the overall performance of the DMS Center. Couriers will be
compensated per delivery with effort-based compensation, with zero payout for
deliveries that are not delivered in a timely manner.
A Brand Manager will be incentivized under the Brand Manager Agreement by
receiving payments according to a formula based on the Brand's contribution.
Contribution is defined as total revenue less certain expenses attributable to
the Brands and certain administrative and corporate overhead allocations. The
Contribution Percentage (defined as the Contribution divided by total revenue of
the Brand) between 7.5% and 15% accrues to the Brand Manager. The Contribution
Percentage in excess of 15% accrues to the Brand Manager and the Company in a
proportion of 25% and 75%, respectively.
Acquisition Strategy
The Company intends to implement an aggressive acquisition program in the
highly fragmented Point-to-Point delivery industry. Management believes that the
Company will be an attractive acquirer to local and regional Point-to-Point
courier companies due to: (i) its unique operating model and proprietary
software platform, which facilitates increased levels of productivity, customer
service and profitability; (ii) the Brand Manager strategy, which allows the
seller to participate in the increased profitability and continued growth of the
Brand under the DMS Model; (iii) the increased customer account opportunities
resulting from participation in a large organization; and (iv) its strategy for
focusing exclusively on consolidating the Point-to-Point delivery market.
The Company's acquisition strategy targets growth in both existing and new
markets:
Expansion of Existing Markets. The Company intends to rapidly acquire
additional businesses in each of the markets where it currently operates
in order to increase capacity utilization and market share of each DMS
Center. The Company intends to acquire Point-to-Point courier firms with
strong customer relationships that, due to the nature of their customer
base and service levels provided, can be assimilated efficiently into
existing DMS Centers The Company believes that these "fill-in"
acquisitions typically can be absorbed without a corresponding increase in
administrative costs and will broaden the Company's range of delivery
services. Brand Managers of existing DMS Centers will be incentivized to
seek acquisition targets in local markets.
Enter New Markets. The Company also intends to expand into new markets,
primarily by acquiring companies in the top U.S. metropolitan markets
which are not presently served by a DMS Center. Ultimately,
35
<PAGE>
the Company intends to be the largest or second largest provider of
Point-to-Point delivery services in every market where it has a presence.
Management will target "platform" acquisition candidates with strong
customer relationships and operating management to form the base of a new
DMS Center. The Company currently operates in 16 of the largest markets
for Point-to-Point delivery services in the United States, and in London,
U.K. and New Zealand.
One of the Company's executive officers, Lever F. Stewart, as Director of
Business Development, will be responsible for the acquisition program and
working with regional management to identity acquisition opportunities. In
addition, several of the Company's other senior executives and Brand Managers
have held prominent positions in national courier trade associations and have
developed significant relationships and visibility with local delivery company
owners, which the Company believes is a competitive advantage in identifying
appropriate acquisition candidates and executing its acquisition strategy. Once
a business is acquired, the Company will assign a team to convert the acquired
company to the DMS Model and integrate the acquisition into the Company. Certain
back-office operations, including accounting, billing, payroll and cash
management will be performed by the Company's central office.
The Company intends to finance future acquisitions by using as
consideration a combination of shares of its Common Stock and cash. For selected
acquisitions, the Company intends to retain the services of the former owners
and managers through Earnout or Brand Manager Agreements, which will further
incentivize such retained personnel based on the future profitability of their
acquired Brands.
For a discussion of certain risks associated with the Company's future
acquisition strategy, see "Risk Factors - Risks Relating to the Company's
Acquisition Strategy" and "-Need for Additional Financing."
Internal Growth Strategy
The Company intends to drive internal growth by: (i) expanding market
share; (ii) enhancing services; (iii) developing a premium national brand name;
(iv) forming strategic alliances; and (v) improving profitability.
Expanding Market Share. The Company intends to expand market share in
existing markets by target marketing the Company's services to specific
customer segments requiring reliable Point-to-Point delivery capabilities
(such as commercial and investment banking firms, law firms, financial
printers and hospitals). The Company intends to continue to operate
existing and acquired Brands independently, supported by a single
operations staff in each market, in order to capitalize on existing Brand
recognition and maximize revenues.
Enhancing Services. The Company intends to introduce enhanced service to
its customers, such as time critical guaranteed services in as little as
15 minutes and written proof of pickup and delivery. Such services are
generally not provided by other Point-to-Point courier companies. Further,
the Company intends to expand the practice of certain of the Founding
Companies of providing hardware or software to a client to allow them to
directly place orders through their own computers instead of the
telephone. The Company believes that these direct entry capabilities and
other expanded services will facilitate the use of the Company's services
by large volume clients. The Company also intends to expand the practice
of providing customers with these high-quality, customer-oriented
services, which will differentiate the Company from traditional courier
firms and will generate increased demand for the Company's services.
Developing Premium National Brand. As part of its marketing efforts, the
Company intends to promote its own national brand identity through its
service marks l-800-DELIVER(TM) and 1-800-COURIER(TM). The Company
believes that the development of these national Brands will permit the
Company to better pursue national accounts that require coverage in more
than one metropolitan area. The Company believes that offering these
customers the ability to receive consolidated bills for such deliveries,
as well as uniformity of services, will result in increased revenues.
36
<PAGE>
Forming Strategic Alliances. The Company expects to enter into agreements
with providers of facilities management services and logistics to enhance
the Company's ability to service its customers who require strategic
stockpiling of service repair items. The Company also intends to seek
alliances that will allow it to cross-sell its Point-to-Point delivery
services to the customers of other service providers, including overnight
and same-day delivery providers, who do not focus on the Point-to-Point
delivery market. The Company does not compete in such areas other than
Point-to-Point deliveries and believes that it can enhance service
offerings of other overnight and same-day delivery service providers
through these alliances.
Improving Profitability. The DMS Model is designed to improve operating
margins. The Company expects cost savings will be achieved primarily
through (i) the utilization of single back-offices to support multiple
Brands and (ii) the restructuring of courier compensation to improve road
service utilization. The Company expects additional cost savings through
(i) the consolidation of accounting, finance, management and certain other
administrative functions, (ii) the daily review of audit reports to
identify and resolve discrepancies prior to billing, and (iii) the use of
uniform monthly billing and settlement cycles.
Customers
The Company currently has more than 20,000 customers, including
professional service organizations, large corporations, healthcare institutions
and retail and manufacturing firms. No one customer accounts for more than 5% of
the Company's sales. Customers typically do not enter into contracts for the
long-term supply of Point-to-Point delivery services.
Competition
The market for Point-to-Point delivery services is highly competitive and
has low barriers to entry. Many of the Company's competitors operate in only one
location and may have more experience and brand recognition than the Company in
such local market. In addition, several large, national, publicly traded
companies have begun to consolidate the Point-to-Point delivery industry through
the acquisition of independent courier companies. Other companies in the
industry compete with the Company not only for the provision of services but
also for acquisition candidates. Some of these companies have longer operating
histories and greater financial resources than the Company. In addition, other
firms involved in segments other than Point-to-Point delivery services may
expand into the Point-to-Point market in order to provide their customers with
"one-stop" shopping of delivery and logistics services. Many of such companies
have greater financial resources and brand name recognition than the Company.
The Company believes that the principal competitive factors in the
Point-to-Point delivery industry are reliability, service flexibility and
pricing.
Financial Reporting Systems
Management has selected the existing billing and financial system of one
of the largest Founding Companies as the basis for integrating its network of
DMS Centers into a common financial reporting platform. Information regarding
customer accounts, pricing and administrative and courier costs will be
available for management to monitor daily revenue and gross margins, thereby
enabling management to identify emerging trends and manage customer pricing and
courier fees to maximize profitability. The Company believes that its current
financial reporting system is sufficient to accommodate the centralization of
all collections, billing and treasury functions and to support the
implementation of the Company's growth strategy.
37
<PAGE>
Regulation and Safety
The Company's operations are subject to various state and local
regulations and, in many instances, require permits and licenses from state
authorities. In connection with the operation of certain motor vehicles and the
handling of hazardous materials, the Company is subject to regulation by the
United States Department of Transportation and the corresponding agencies in the
states in which such courier operations occur. The Company's relationship with
its employees is subject to regulation by the Occupational Health and Safety
Administration and regulation with respect to hours of work, workers'
compensation and other matters. To the extent the Company holds licenses to
operate two-way radios to communicate with couriers, the Company is also
regulated by the Federal Communications Commission. The Company believes that it
is in substantial compliance with all applicable regulatory requirements
relating to its operations. Failure of the Company to comply with the applicable
regulations could result in substantial fines or revocation of the Company's
operating permits.
The Company currently carries liability insurance which the Company
believes is adequate. In addition, independent owner/operators are required to
maintain liability insurance of at least the minimum amounts required by state
law and to provide the Company with a certificate of insurance verifying that
they are in compliance. Subsequent to the Offering, the Company intends to
subject all couriers to periodic drug testing as well as background
investigations of their records with the Department of Motor Vehicles in the
applicable states.
Intellectual Property
The Company continually develops and refines the DMS Model and enhances
existing proprietary technology. The Company primarily relies on a combination
of copyright, trade secrets, confidentiality procedures and contractual
provisions to protect its intellectual property. Despite these protections, it
may be possible for unauthorized parties to copy, obtain or use certain portions
of the DMS Model and proprietary technology. While any misappropriation of the
Company's intellectual property could have a material adverse effect on the
Company's competitive position, the Company believes that protection of
proprietary rights is less significant to the Company's business than the
continued pursuit of its operating strategies and other factors, such as the
Company's relationship with industry participants and the experience and
abilities of its key personnel.
The Company has registered several trade and service marks, including: DMS
Corp.(TM), 1-800-COURIER(TM) and 1-800-DELIVER(TM). The Company also owns the
Internet domain name "www.DMS-Corp.com." The Company has no knowledge of any
specific infringement to, or any prior claims of ownership of, trademarks that
would materially adversely affect the Company's current results of operations
and financial condition. The Company intends to vigorously defend its
proprietary rights against infringement.
Employees and Independent Owner/Operators
Immediately prior to the consummation of the Combinations, the Founding
Companies employed a work force of approximately 3,620 people, including
approximately 2,900 couriers, 600 operations staff and 120 people in management
positions. Of the couriers, approximately 2,100 are employees and 800 are
independent contractors. The Company is not a party to any collective bargaining
agreements. The Company believes that its relationship with its employees is
good.
From time to time, federal and state authorities have sought to assert
that independent owner/operators in the Point-to-Point delivery industry,
including those utilized by the Company, are employees rather than independent
contractors. The Company believes that independent owner/operators utilized by
the Company are not employees under existing interpretations of federal and
state laws. However, there can be no assurance that federal and state
authorities will not challenge this position, or that other laws or regulations,
including tax laws, or interpretations thereof, will not change. If, as a result
of any of the foregoing, the Company is required to pay
38
<PAGE>
for and administer added benefits to independent owner/operators, the Company's
operating costs would increase. See "Risk Factors - Claims Exposure" and
"- Dependence on Availability of Qualified Courier Personnel."
Facilities
Upon consummation of the Offering and the Combinations, the Company will
operate from 51 leased facilities, which total approximately 310,000 square
feet. Those facilities are principally used for operations, general and
administrative functions and training. In addition, several facilities also
contain storage and warehouse space for Company equipment and inventory as well
as for the strategic stockpiling of service repair items for certain customers.
After consummation of the Offering and the Combinations, the Company intends to
consolidate the back-office operations and to contract all of the road
operations with the local RMS Center. The number of facilities therefore will be
consolidated to conform to the needs of the DMS Centers of the Company. This is
likely to result in the reduction of a number of facilities operated by the
Company.
The table below summarizes the location of the Company's existing
facilities.
Number of
Facilities
----------
London, U.K. ..................................... 5
New York Metropolitan Area ....................... 11
San Francisco, CA ................................ 4
Phoenix, AZ ...................................... 1
Atlanta, GA ...................................... 4
Washington, D.C. ................................. 1
Los Angeles, CA .................................. 3
Houston, TX ...................................... 1
Boston, MA ....................................... 1
Seattle, WA ...................................... 4
Dallas, TX ....................................... 2
Detroit, MI ...................................... 1
Chicago, IL ...................................... 1
Wellington, New Zealand .......................... 1
Philadelphia, PA ................................. 1
Denver, CO ....................................... 6
Minneapolis, MN .................................. 1
Portland, OR ..................................... 1
Hollis, NH ....................................... 2
The Company's corporate headquarters are located in New York, New York.
The Company believes that its properties are generally well maintained, in good
condition and adequate for its present needs. Furthermore, the Company believes
that suitable additional or replacement space will be available when required.
Legal Proceeding
The Company is, from time to time, a party to legal proceedings arising in
the normal course of its business. Management believes that none of the legal
proceedings currently outstanding will have a material adverse effect on the
Company's business, financial conditions or results of operations.
39
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth information concerning the Company's
directors and executive officers. Subsequent to the Offering, the Company
intends to appoint five additional, independent directors to the Board. These
individuals have not been identified as of the date of this Prospectus.
Name Age Position
---- --- --------
R. Gregory Kidd .................... 38 Chairman of the Board
Linda M. Jenkinson ................. 35 Chief Executive Officer; Director
Gilbert D. Carpel .................. 51 President
Kevin Holder ....................... 41 Chief Operating Officer
Marko Bogoievski ................... 34 Chief Financial Officer
Lever F. Stewart ................... 38 Director of Business Development
Alison Davis ....................... 36 Director
Michael Fiorito .................... 37 Director
R. Gregory Kidd has served as the Chairman of the Board of Directors of
the Company since September 1997. From November 1996 to September 1997, Mr. Kidd
was the Chairman of the Board of Directors of Dispatch Management Services,
L.L.C., a Point-to-Point delivery company which was merged with and into the
Company. From 1991 to 1996, Mr. Kidd was a founder of Kiwi Corp., a
Point-to-Point delivery company which purchased several beta site courier firms
to test and refine the DMS Model. Prior to this, Mr. Kidd was a consultant with
Booz Allen & Hamilton, a management consultant firm, from 1985 until 1990. Mr.
Kidd has a Masters degree in management from the Yale School of Management.
Linda M. Jenkinson has served as the Chief Executive Officer and a
director of the Company since August 1997. Since January 1994, Ms. Jenkinson has
been involved in developing and refining the DMS Model in the United States.
From January 1994 to August 1997, Ms. Jenkinson was with A.T. Kearney, a
management consulting firm, in various positions, where she was most recently
named an Officer. From August 1991 to December 1993, Ms. Jenkinson was a Manager
with Price Waterhouse, an accounting and consulting firm. Ms. Jenkinson has a
Masters in Business Administration from the Wharton School at the University of
Pennsylvania.
Gilbert D. Carpel has served as President of the Company since September
1997. Since 1987, Mr. Carpel has held various senior executive positions with
Washington Express Services, Inc., a Point-to-Point delivery firm and a Founding
Company, including Executive Vice President (1992 to present) and Chief
Executive Officer (1987 - 1992). In addition, Mr. Carpel founded Sky Courier, an
air courier firm which was subsequently sold to Airborne Express.
Kevin Holder has served as the Chief Operating Officer of the Company and
its predecessor entities since October 1995. From August 1993 to October 1995,
Mr. Holder was a Principal of Sonet Systems, a software vendor to the courier
industry. From October 1981 to August 1993, Mr. Holder was the President of
Washington Express Services, Inc., a Point-to-Point delivery firm and a Founding
Company.
Marko Bogoievski has served as the Chief Financial Officer of the Company
since September 1997. From April 1996 to September 1997, Mr. Bogoievski was the
Chief Financial Officer of Ansett New Zealand Limited, an airline and
transportation subsidiary of News Corporation, Inc. From June 1993 to April
1996, Mr. Bogoievski was a Finance Director of Lion Nathan Limited, a
publicly-held brewer operating in Australia, New Zealand and China. Mr.
Bogoievski has a Masters in Business Administration from the Harvard Graduate
School of Business.
40
<PAGE>
Lever F. Stewart has served as the Director of Business Development of the
Company since September 1991. From August 1996 to September 1997, Mr. Stewart
was the Chief Executive Officer of Phoenix Couriers, a Point-to-Point delivery
company. From 1988 to 1996, Mr. Stewart was the General Counsel and an executive
officer of Rock-Tenn Company, a publicly-held national paperboard products and
packaging business. Prior to that time, Mr. Stewart was a practicing attorney
with the law firm of King & Spalding specializing in corporate mergers and
acquisitions and securities laws.
Alison Davis will become a director of the Company following the
consummation of the Offering. Since August 1993, Ms. Davis has been a Vice
President and Principal of A.T. Kearney, a management consulting firm. From
December 1991 to July 1993, Ms. Davis was a Senior Engagement Manager of
McKinsey & Company, a management consulting firm.
Michael Fiorito will become a director of the Company following the
consummation of the Offering. Since 1980, Mr. Fiorito has been the Chief
Executive Officer, President and Chairman of Total Management, LLC, and its
predecessor, Early Bird Courier Service, Inc., a delivery company and a Founding
Company.
Subsequent to the Offering, the Board of Directors of the Company will
consist of nine directors divided into three classes with each class serving for
a term of three years. At each annual meeting of stockholders, directors will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring. See "Description of Capital Stock - Common Stock" The
Company expects that the Board of Directors will establish an Acquisition
Committee, an Audit Committee, a Compensation Committee, an Executive Committee
and a Nominating Committee. The members of each committee are expected to be
determined at the first meeting of the Board of Directors following the
consummation of the Combinations.
Messrs. Kidd, Carpel, Holder and Ms. Jenkinson have agreed to vote all the
shares of Common Stock they beneficially own in favor of electing Mr. Fiorito to
the Board of Directors.
All officers serve at the discretion of the Board of Directors.
Director Compensation
Directors who are also employees of the Company or one of its subsidiaries
do not receive additional compensation for serving as a director. Each director
who is not an employee of the Company or one of its subsidiaries receives a fee
of $2,000 for attendance at each Board of Directors' meeting and $1,000 for each
committee meeting (unless held on the same day as a Board of Directors'
meeting). Directors are also reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof incurred in
their capacity as directors.
Executive Compensation; Employment Agreements; Covenants-Not-To-Compete
Linda M. Jenkinson, Gilbert D. Carpel, Kevin Holder, Marko Bogoievski and
Lever F. Stewart will each enter into an employment agreement (the "Employment
Agreement") with the Company providing for an annual base salary of $180,000,
$95,000, $180,000, $180,000 and $180,000, respectively. Mr. Kidd does not have
an Employment Agreement with the Company and receives no salary; he has entered
into an agreement not to compete with the Company. Each of the Employment
Agreements will be for a term of two years. Unless terminated or not renewed by
the Company or the executive officer, the term of the Employment Agreements will
continue thereafter on a year-to-year basis on the same terms and conditions
existing at the time of renewal. R. Gregory Kidd, the Chairman of the Company,
will not be receiving compensation from the Company, but will enter into a
Non-Competition Agreement with the Company. The Non-Competition Agreement and
each Employment Agreement will contain a covenant not to compete (the
"Non-Compete Covenant") with the Company during the term of such agreement and
for a period of one year immediately following termination of employment. Under
the Non-Compete Covenant, the party to the Employment Agreement or the Non
Competition Agreement
41
<PAGE>
will be prohibited from (i) inducing or attempting to persuade any employee of
the Company to discontinue such employment relationship, or (ii) soliciting any
person, corporation, partnership or other entity or organization which at any
time during the term of employment was a customer of the Company, except for
mailings made to the general public or segments of the general public and other
forms of general advertising shall not be included. The Non-Compete Covenant may
be enforced by injunctions and shall survive the termination of employment with
the Company.
Each of the Employment Agreements will provide that, in the event of
termination of employment by the Company without cause the executive officer
will be entitled to receive from the Company: (i) any unpaid base salary,
bonuses or benefits accrued through the date of termination; (ii) reimbursement
of expenses incurred through the date of termination, (iii) the base salary for
a period of two years from the date of termination at the annual rate thereof
immediately preceding such termination; (iv) an annual bonus for a period of two
years following such termination at an annual rate equal to the executive
officer's average annual bonus over the five fiscal years of the Company (or the
period of employment if less than five years) immediately preceding the fiscal
year in which the termination occurred, payable in equal installments together
with the base salary and (v) the continuation of group life, health and
disability benefits for a period of two years from the date of termination.
1997 Stock Incentive Plan
No stock options were granted to, or exercised by or held by any director
or executive officer in 1996. In November 1997, the Board of Directors and the
Company's stockholders approved the Company's 1997 Stock Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, employees,
consultants and independent contractors with additional incentives by increasing
their ownership interests in the Company. Individual awards under the Plan may
take the form of one or more of: (i) either incentive stock options ("ISOs") or
non-qualified stock options ("NQSOs"); (ii) stock appreciation rights ("SARs");
(iii) dividend equivalent rights; (iv) performance awards; (v) restricted or
deferred stock; and (vi) other awards not otherwise provided for, the value of
which is based in whole or in part upon the value of the Common Stock.
The Compensation Committee will administer the Plan and generally select
the individuals who will receive awards and the terms and conditions of those
awards. The maximum number of shares of Common Stock that may be subject to
outstanding awards, determined immediately after the grant of any award, may not
exceed the greater of ______ shares or ___% of the aggregate number of shares of
Common Stock outstanding. Shares of Common Stock which are attributable to
awards which have expired, terminated or been canceled or forfeited are
available for issuance or use in connection with future awards.
The Plan will terminate on the day preceding the tenth anniversary of the
date of its adoption unless sooner terminated by the Board of Directors. The
Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
In connection with the Offering NQSOs to purchase a total of ___________
shares of Common Stock of the Company will be granted as follows: [ ]. In
addition, options to purchase approximately __________ shares will be granted to
the employees of the Founding Companies. The grants of all of the foregoing
options will be effective as of the closing of the Offering and each will have
an exercise price equal to the initial public offering price per share in the
Offering. These options will vest at the rate of 20% per year commencing on the
first anniversary of the date of this Prospectus, and will expire 10 years from
the date of grant.
The Plan provides for (i) the automatic grant to each non-employee
director serving at the commencement of the Offering of an option to purchase
5,000 shares, and thereafter (ii) the automatic grant to each non-employee
director of an option to purchase 3,000 shares on the first business day after
the annual meeting of the stockholders
42
<PAGE>
of the Company ("Directors' Options"). Directors' Options will have an exercise
price per share equal to 100% of the fair market value of such shares at the
date of grant. Directors' Options will expire at the earlier of 10 years from
the date grant or three months after termination of service as a director for
any reason other than disability, death or for cause or for one year after
termination of service as a director by reason of the director's resignation or
removal due to disability. Directors' Options will be immediately exercisable to
the extent they were vested as of the date the director was terminated. If a
director is terminated for cause, as described in the Plan, then any options
granted to such director will immediately terminate in full and no rights
thereunder may be exercised. In addition, the Plan permits non-employee
directors to elect to receive, in lieu of cash directors' fees, shares or
credits representing "deferred shares" that may be settled at future dates, as
elected by the director. The number of shares or deferred shares received will
be equal to the number of shares which, at the date the fees would otherwise be
payable, will have an aggregate fair market value equal to the amount of such
fees.
43
<PAGE>
CERTAIN TRANSACTIONS
Other Transactions
On September 9, 1997, Kiwi Express Software Services, LLC ("Kiwi
Express") which developed much of the proprietary software used in the DMS
Model, merged into the Company. R. Gregory Kidd, the Chairman of the Company and
Linda M. Jenkinson, the Company's Chief Executive Officer, owned membership
interests in Kiwi Express of 64.89% and 10.00%, respectively. As consideration
for the merger, Mr. Kidd and Ms. Jenkinson are entitled to receive upon
consummation of the Offering, shares of Common Stock of the Company equal to
$324,450 and $50,000, respectively, divided by the initial public offering
price. The Company believes that the price paid to acquire Kiwi Express is at
least as favorable to the Company as would be available from an independent
third party.
On September 12, 1997, the Company agreed to acquire Earlybird
Courier for $13.9 million in cash and $4.6 million worth of shares of Common
Stock of the Company valued at the initial public offering price. Michael
Fiorito, a director of the Company, is a 45% shareholder of Earlybird Courier.
Mr. Fiorito has also entered into a Brand Manager Agreement with the Company. In
addition, the Company has agreed to pay Mr. Fiorito compensation equal to two
weeks revenues of any courier company acquired by the Company that is identified
and sourced by Mr. Fiorito. The Company believes that the price paid to acquire
Earlybird Courier is at least as favorable to the Company as would be available
from an independent third party.
On September 12, 1997, the Company agreed to acquire Washington
Express for $2.79 million worth of shares of Common Stock of the Company valued
at the initial public offering price. Gilbert D. Carpel, the President of the
Company, is a 61% shareholder of Washington Express. Mr. Carpel has also entered
into a Brand Manager Agreement with the Company. The Company believes that the
price paid to acquire Washington Express is at least as favorable to the Company
as would be available from an independent third party.
On September 12, 1997, the Company agreed to acquire Kiwicorp
Limited for $____ million worth of shares of Common Stock of the Company valued
at the initial public offering price. R. Gregory Kidd, Chairman of the Board of
Directors of the Company, is a _% shareholder of Kiwicorp Limited. Mr. Kidd has
also entered into a Brand Manager Agreement with the Company. The Company
believes that the price paid to acquire Kiwicorp Limited is at least as
favorable to the Company as would be available from an independent third party.
Company Policy
In the future, any transactions with officers, directors and affiliates
will be approved by a majority of the Board of Directors, including a majority
of the disinterested members of the Board of Directors.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
Based on an initial public offering price of $___ per share, the following
table sets forth certain information regarding the beneficial ownership of the
Common Stock of the Company, after giving effect to the Combinations and the
Offering, by: (i) each person known to beneficially own more than 5% of the
outstanding shares of Common Stock; (ii) each of the Company's directors; (iii)
each named executive officer, and (iv) all executive officers and directors as a
group. All persons listed have an address in care of the Company's principal
executive offices and have sole voting and investment power with respect to
their shares unless otherwise indicated.
Shares Beneficially owned After
-------------------------------
Offering
--------
Name and Address of Beneficial Owner (1) Number Percent
------ -------
R. Gregory Kidd ........................
Linda M. Jenkinson .....................
Gilbert D. Carpel ......................
Michael Fiorito ........................
Kevin Holder ...........................
Marko Bogoievski .......................
Lever F. Stewart .......................
All Directors and Executive ............
Officers as a Group (8 persons) ........
- - - - ----------
* Less than l%
(1) Unless indicated otherwise, the address of the beneficial owners is 65
West 36th Street, New York, New York 10018.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The Company's authorized capital stock consists of 110,000,000 shares of
Capital Stock, par value $.01 per share, consisting of 100,000,000 shares of
Common Stock and 10,000,000 shares of preferred stock, par value $0.01 per share
(the "Preferred Stock").
Common Stock
Subsequent to the Offering and the Combinations, there will be ____ shares
of the Common Stock issued and outstanding.
Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. Holders of Common Stock are entitled to share ratably in the
net assets of the Company upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock then
outstanding. The holders of Common Stock have no preemptive rights to purchase
shares of stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of the
Company. All outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to this Prospectus will be upon payment therefor,
fully paid and nonassessable.
The Board of Directors is classified into three classes as nearly equal in
number as possible, with the term of each class expiring on a staggered basis.
See "Management - Board of Directors." The classification of the Board of
Directors may make it more difficult to change the composition of the Board of
Directors and thereby may discourage or make more difficult an attempt by a
person or group to obtain control of the Company. Cumulative voting for the
election of directors is not permitted, enabling holders of a majority of the
outstanding Common Stock to elect all members of the class of directors whose
terms are then expiring.
Preferred Stock
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
46
<PAGE>
Statutory Business Combinations Provision
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the Board of Directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation; or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
Limitation on Directors' Liabilities
Pursuant to the Company's Certificate of Incorporation and as permitted by
Delaware law, directors of the Company are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases illegal under Delaware law or
any transaction in which a director has derived an improper personal benefit.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust Company.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering the Company will have ___________
shares of Common Stock outstanding. Of these shares, the ___________ shares of
Common Stock sold in the Offering (________________ shares if the Underwriters'
over-allotment options are exercised in full) will be freely tradeable by
persons other than affiliates of the Company, without restriction under the
Securities Act.
The remaining _______ shares of Common Stock (____________ shares if the
Underwriters' over-allotment options is exercised in full) will be "restricted"
securities within the meaning of Rule 144 under the Securities Act and may not
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemptions contained in
Rule 144. All ____________ (______________ if the Underwriters' over-allotment
options are exercised in full) of the restricted shares will be beneficially
owned by persons who are affiliates of the Company and after the date of this
Prospectus, will be eligible for public sale pursuant to Rule 144, subject to
the volume restrictions discussed below. However, all of such restricted shares
are subject to lock up restrictions. Pursuant to these restrictions the holders
of these restricted shares, including the Company's executive officers,
directors and certain shareholders have agreed that they will not, without the
prior written consent of the Company, for a period of two years from the
consummation of this Offering. After such two-year period, the foregoing
restriction will expire and shares permitted to be sold under Rule 144 would be
eligible for sale. In addition, such executive officers, directors and certain
shareholders have also agreed that they will not, without the prior written
consent of Prudential Securities Incorporated directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise dispose of or transfer (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other disposition
or transfer of) any shares of Common Stock or any other securities convertible
into, or exercisable or exchangeable for, shares of Common Stock or other
similar securities of the Company, currently beneficially owned or hereafter
acquired by such persons for a period of 180 days from the date of this
Prospectus. After such 180-day period, the foregoing restriction will expire and
shares permitted to be sold under Rule 144 would be eligible for sale. The
Company and Prudential Securities Incorporated, respectively, may, in their sole
discretion, at any time and without prior notice, release all or any portion of
the shares of Common Stock subject to such agreements to which they are party.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned his or her shares for at least one year (including the prior
holding period of any prior owner other than an affiliate) is entitled to sell
within any three-month period that number of shares which does not exceed the
greater of 1% of the outstanding shares of the Common Stock, or the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not or has not
been deemed an "affiliate" of the Company for at least three months, and who has
beneficially owned shares for at least two years (including the holding period
of any prior owner other than an affiliate) would be entitled to sell such
shares under Rule 144 without regard to the limitations discussed above.
Upon the completion of the Offering, there will be outstanding options to
purchase________ shares of Common Stock, of which options to purchase
___________ shares under the 1997 Stock Incentive Plan are vested and will
generally become exercisable from ___ through ___ at $_____ per share. The
remaining ____ options to be granted under the 1997 Stock Incentive Plan will
vest and become exercisable from _____ through _____ at a price per share equal
to the initial public offering price. In addition, options for the purchase of
_____ additional shares of Common Stock will remain available for issuance under
the 1997 Stock Incentive Plan following the completion of the Offering. The
Company intends to file one or more Registration Statements on Form S-8 to
register under the Securities Act all of the _______ shares of Common Stock that
are issuable upon the exercise of outstanding stock options and that may be
subject to stock options that are issuable in the future under the 1997 Stock
Incentive Plan. These registration statements are expected to be filed as soon
as practicable after the Offering and are expected to become effective
immediately upon filing. Shares covered by the registration statements will be
eligible for sale in the public market after the effective date of the
registration statements, subject to Rule 144 limitations applicable to
affiliates of the Company. See "Management - 1997 Stock Incentive Plan."
48
<PAGE>
Prior to the Offering, there has been no public market for the Common
Stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.
49
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated is acting as the Representative, have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement, to
purchase from the Company, the numbers of shares of Common Stock set forth below
opposite their respective names:
Number of
Underwriters Shares
------------ ------
Prudential Securities Incorporated ...................
----------
Total ..............................................
==========
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are purchased.
The Underwriters, through the Representative, have advised the Company
that they propose to offer the shares of Common Stock initially at the public
offering price set forth on the cover page of this Prospectus; that the
Underwriters may allow to selected dealers a concession of $__________ per
share; and that such dealers may reallow a concession of $___________ per share
to certain other dealers. After the initial public offering, the offering price
and the concessions may be changed by the Representative.
The Company and its executive officers and directors have agreed that they
will not, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, grant any option to purchase, or
otherwise dispose of or transfer (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or other disposition
or transfer of) any shares of Common Stock or any other securities convertible
into, or exercisable for shares of Common Stock or other similar securities of
the Company, currently beneficially owned or hereafter acquired by such persons,
for a period of 180 days after the date of this Prospectus. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
prior notice, release all or any portion of the shares of Common Stock subject
to such agreements.
The Company has agreed to indemnify the several Underwriters or to
contribute to losses arising out of certain liabilities, including liabilities
under the Securities Act.
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M promulgated by the Securities and Exchange
Commission, pursuant to which such persons may bid for or purchase Common Stock
for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Common Stock in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase Common Stock in the open market
following the closing of the Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to __________ shares of Common Stock, by exercising the
Underwriters' over-allotment options referred to above. In addition, Prudential
Securities Incorporated on behalf of the Underwriters, may impose "penalty bids"
under contractual arrangements with the Underwriters whereby it may reclaim from
an Underwriter (or selling group member participating in the Offering) for the
account of the other Underwriters the selling concession with respect to Common
Stock that is distributed in the Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the
50
<PAGE>
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined through negotiation between the Company and the
Representative of the Underwriters. Among the factors to be considered in making
such determination will be the prevailing market conditions, the results of
operations of the Company in recent periods relevant to its prospectus and the
prospects for its industry in general, the management of the Company and the
market prices of securities for companies in businesses similar to that of the
Company.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Akin, Gump, Strauss, Hauer &
Feld, L.L.P., Washington, D.C. Certain legal matters related to the Offering
will be passed upon for the Underwriters by Greenberg Traurig Hoffman Lipoff
Rosen & Quentel, P.A., Miami, Florida.
EXPERTS
The financial statements of Dispatch Management Services Corp. at June 30,
1997 included in this Prospectus have been so included in reliance on the report
(which contains an explanatory paragraph relating to Dispatch Management
Services Corp. ability to contain as a going concern) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of Bridge Wharf Investments Limited as of
September 30, 1996 and June 30, 1997 and for the nine months ended June 30, 1997
and for the two years in the period ended September 30, 1996 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
(London, England), independent accountants, given on the authority of said firm
as experts in accounting and auditing.
The consolidated financial statements of Security Despatch Limited
(excluding the mail room services operations) as of March 3l, 1996 and 1997 and
for the three years in the period ended March 3l, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
(London, England), independent accountants, given on the authority of said firm
as experts in accounting and auditing.
The financial statements of Brookside Systems and Programming Limited as
of March 31, 1996 and 1997 and for each of the three years in the period ended
March 31, 1997 included in this Prospectus have been so included in reliance on
the report of Price Waterhouse (London, England), independent accountants, given
on the authority of said firm as experts in accounting and auditing.
The combined financial statements of Earlybird Courier Service, LLC, Total
Management Support Services, LLC and their Affiliates at December 31, 1995 and
1996, and for each of the three years in the period ended December 31, 1996,
appearing in this Prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Atlantic Freight Systems, Inc.
and affiliated companies as of December 31, 1995 and 1996 and for each of the
three years in the period ended December 31, 1996 included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Bullit Courier Services, Inc. as
of February 29, 1996 and February 28, 1997 and for the three years in the period
ended February 28, 1997 included in this Prospectus have been so
51
<PAGE>
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The financial statements of Aero Special Delivery Service, Inc. as of June
30, 1996 and 1997 and for the years then ended included in this Prospectus have
been so included in reliance on the report (which contains an explanatory
paragraph relating to the Aero Special Delivery Service, Inc.'s ability to
continue as a going concern as described in Note 3 to the financial statements)
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
The financial statements of S-Car-Go Courier, Inc. as of December 31, 1995
and 1996 and for the years then ended included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The financial statements of Gregory W. Austin, Sole Proprietorship (d/b/a
Battery Point Messenger and Alpha Express) as of December 3l, 1995 and 1996 and
for the years then ended included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of American Eagle Endeavors, Inc. as
of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 included in this Prospectus have been so included in
reliance on the report (which contains an explanatory paragraph relating to the
American Eagle Endeavors, Inc.'s ability to continue as a going concern as
described in Note 6 to the financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of Washington Express Services, Inc. as of
September 30, 1995 and 1996 and for the three years in the period ended
September 30, 1996 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The financial statements of MLQ Express, Inc. as of February 28, 1996 and
1997 and for each of the three years in the period ended February 28, 1997
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
The financial statements of Kangaroo Express as of December 31, 1995 and
1996 and for each of the three years in the period ended December 31, 1996
included in this Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
The financial statements of Transpeed Courier Services, Inc. as of
December 31, 1995 and 1996 and for the years then ended included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of National Messenger, Inc. as of November 30,
1995 and 1996 and for the years then ended included in this Prospectus have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The financial statements of Profall, Inc. as of December 31, 1995 and 1996
and for the years then ended included in this Prospectus have been so included
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
52
<PAGE>
The financial statements of Expressit Couriers, Inc. as of December 31,
1995 and 1996 and for each of the three years in the period ended December 31,
1996 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
The financial statements of Fleetfoot Max, Inc. as of August 31, 1996 and
1997 and for the three years in the period ended August 31, 1997 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
The financial statements of A&W Couriers, Inc. as of December 31, 1995 and
1996 and for the years then ended included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The financial statements of Express Enterprise, Inc. - Ground Operations
as of December 31, 1995 and 1996 and for the years then ended included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of RJK Enterprises Inc. (d/b/a Deadline Express)
as of December 31, 1996 and for the period from March 6, 1996 to December 31,
1996, appearing in this Prospectus and registration statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Upon completion of the Offering, the Company will be subject to the
information requirements of the Exchange Act, and in accordance therewith will
file reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza
Building, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its
regional offices located at 7 World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained from the
Commission at Judiciary Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549, at
prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of that site
is http://www.sec.gov.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF DISPATCH MANAGEMENT
SERVICES CORP.
Introduction to Unaudited Pro Forma Combined Financial Statements
Pro Forma Combined Balance Sheet (Unaudited)
Pro Forma Combined Statement of Operations (Unaudited)
Notes to Unaudited Pro Forma Combined Financial Statements
DISPATCH MANAGEMENT SERVICES CORP.
Report of Independent Accountants
Balance Sheet as of June 30, 1997
Notes to Financial Statements
EARLYBIRD COURIER SERVICE, LLC, TOTAL MANAGEMENT SUPPORT SERVICES LLC AND THEIR
AFFILIATES D/B/A EARLYBIRD COURIER
Report of Independent Auditors
Combined Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997
(Unaudited)
Combined Statements of Operations and Retained Earnings (Accumulated Deficit)
For Each of the Three Years in the Period ended December 31, 1996 and Six
Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Combined Statements of Cash Flows for Each of the Three Years in the Period
ended December 31, 1996 and Six Months ended June 30, 1996 (Unaudited) and
1997 (Unaudited)
Notes to Combined Financial Statements
ATLANTIC FREIGHT SYSTEMS, INC. D/B/A/ ATLANTIC FREIGHT
Report of Independent Accountants
Combined Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (Unaudited)
Combined Statements of Income for Each of the Three Years in the
Period ended December 31, 1996 and Six Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Combined Statements of Stockholders' Equity for Each of the Three
Years in the Period ended December 31, 1996 and Six Months ended
June 30, 1997 (Unaudited)
Combined Statements of Cash Flows for Each of the Three Years in the
Period ended December 31, 1996 and Six Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Notes to Combined Financial Statements
BULLIT COURIER SERVICES, INC. D/B/A/ BULLIT COURIER
Report of Independent Accountants
Consolidated Balance Sheets as of February 29, 1995 and February 28,
1996 and May 31, 1997 (Unaudited)
Consolidated Statement of Operations for Each of the Three Years in the
Period ended February 28, 1997 and Three Months ended May 31, 1996
(Unaudited) and 1997 (Unaudited)
Consolidated Statements of Stockholders' Equity for Each of the Three
Years in the Period ended February, 1997 and Three Months ended
May 31, 1997 (Unaudited)
Consolidated Statements of Cash Flows for Each of the Three Years in
the Period ended February, 1997 and Three Months ended May 31,
1996 (Unaudited) and 1997 (Unaudited)
Notes to Consolidated Financial Statements
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED D/B/A FLEETWAY SYSTEMS
Report of Independent Accountants
Balance Sheets as of March 31, 1996 and 1997 and June 30, 1997 (Unaudited)
Statements of Operations for Each of the Three Years in the Period
ended March 31, 1997 and the Three Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
F-1
<PAGE>
Statements of Cash Flows for Each of the Three Years in the Period
ended March 31, 1997 and the Three Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Notes to Financial Statements
BRIDGE WHARF INVESTMENTS LIMITED D/B/A WEST ONE
Report of Independent Accountants
Balance Sheets as of September 30, 1995 and 1996 and June 30, 1997
Profit and Loss Account for the Two Years ended September 1996 and
the Nine Months ended June 30, 1997
Statements of Cash Flows for the Two Years ended September 1996 and the Nine
Months ended June 30, 1997
Notes to Financial Statements
SECURITY DESPATCH LIMITED (EXCLUDING THE MAIL ROOM SERVICES OPERATIONS) D/B/A
SECURITY DESPATCH
Report of Independent Accountants
Consolidated Balance Sheets as of March 31, 1996 and 1997 and June 30, 1997
(Unaudited)
Consolidated Statements of Operations for Each of the Three Years in the
Period ended March 31, 1997 and Three Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Consolidated Statements of Cash Flows for Each of the Three Years in the
Period ended March 31, 1997 and Three Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Notes to Consolidated Financial Statements
AERO SPECIAL DELIVERY SERVICE, INC. D/B/A AERO DELIVERY
Report of Independent Accountants
Balance Sheets as of June 30, 1996 and 1997
Statements of Operations for the Years ended June 30, 1996 and 1997
Statements of Stockholders' Deficiency for the Years ended June 30,
1996 and 1997
Statements of Cash Flows for the Years ended June 30, 1996 and 1997
Notes to Financial Statements
S-CAR-GO COURIER, INC. D/B/A S-CAR-GO COURIER
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)
Statements of Operations for the Years ended December 31, 1995 and
1996 and the Six Months ended June 30, 1996 (Unaudited) and 1997
(Unaudited)
Statements of Stockholders' Equity for the Years ended December 31,
1995 and 1996 and the Six Months ended June 30, 1997 (Unaudited)
Statements of Cash Flows for the Years ended December 31, 1995 and
1996 and the Six Months ended June 30, 1996 (Unaudited) and 1997
(Unaudited)
Notes to Financial Statements
GREGORY W. AUSTIN, SOLE PROPRIETORSHIP D/B/A BATTERY POINT MESSENGER AND ALPHA
EXPRESS D/B/A BATTERY POINT
Report of Independent Accountants
Statements of Assets, Liabilities and Net Assets as of December 31, 1995
and 1996 and June 30, 1997 (Unaudited)
Statements of Operations and Changes in Net Assets for the Two Years ended
December 31, 1996 and the Six Months ended June 30, 1996 (Unaudited) and
1997 (Unaudited)
Statements of Cash Flows for the Two Years ended December 31, 1996 and the
Six Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Notes to Financial Statements
F-2
<PAGE>
WASHINGTON EXPRESS SERVICES, INC. D/B/A WASHINGTON EXPRESS
Report of Independent Accountants
Balance Sheets as of September 30, 1995 and 1996 and June 30, 1997
(Unaudited)
Statements of Operations for Each of the Three Years in the Period
ended September 30, 1996 and Nine Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Statements of Stockholders' Equity (Deficiency) for Each of the Three Years
in the Period ended September 30, 1996 and Nine Months ended June 30,
1996 (Unaudited) and 1997 (Unaudited)
Statements of Cash Flows for Each of the Three Years in the Period
ended September 30, 1996 and Nine Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Notes to Financial Statements
MLQ EXPRESS, INC. D/B/A MLQ EXPRESS
Report of Independent Accountants
Balance Sheets as of February 28, 1996 and 1997 and May 31, 1997 (Unaudited)
Statements of Operations for Each of the Three Years in the Period
ended February 28, 1997 and Three Months ended May 31, 1996
(Unaudited) and 1997 (Unaudited)
Statements of Stockholders' Equity for Each of the Three Years in the
Period ended February 28, 1997 and the Three Months ended May 31,
1996 (Unaudited) and 1997 (Unaudited)
Statements of Cash Flows for Each of the Three Years in the Period
ended February 28, 1997 and Three Months ended May 31, 1996
(Unaudited) and 1997 (Unaudited)
Notes to Financial Statements
AMERICAN EAGLE ENDEAVORS, INC. D/B/A 1-800 COURIER-PHOENIX, MINNEAPOLIS
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (Unaudited)
Consolidated Statements of Operations for Each of the Three Years in
the Period ended December 31, 1996 and Six Months ended June 30,
1996 (Unaudited) and 1997 (Unaudited)
Consolidated Statements of Stockholders' Equity (Deficit) for Each of
the Three Years in the Period ended December 31, 1996 and Six
Months June 30, 1997 (Unaudited)
Consolidated Statements of Cash Flows for Each of the Three Years in
the Period ended December 31, 1996 and Six Months ended June 30,
1996 (Unaudited) and 1997 (Unaudited)
Notes to Consolidated Financial Statements
KANGAROO EXPRESS OF COLORADO SPRINGS, INC. D/B/A KANGAROO EXPRESS
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)
Statements of Operations for Each of the Three Years in the Period
ended December 31, 1996 and the Six Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Statements of Stockholder's Equity for Each of the three Years in the Period
ended December 31, 1996 and Six Months ended June 30, 1997 (Unaudited)
Statements of Cash Flows for Each of the Three Years in the Period ended
December 31, 1996 and the Six Months ended June 30, 1996
(Unaudited) and 1997 (Unaudited)
Notes to Financial Statements
F-3
<PAGE>
TRANSPEED COURIER SERVICES, INC. D/B/A 1-800 COURIER-DENVER
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)
Statements of Operations for the Years ended December 31, 1995 and 1996 and
the Six Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Statements of Stockholders' Equity for the Years ended December 31, 1995 and
1996 and the Six Months ended June 30, 1997 (Unaudited)
Statements of Cash Flows for the Years ended December 31, 1995 and 1996 and
the Six Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Notes to Financial Statements
NATIONAL MESSENGER, INC. D/B/A NATIONAL MESSENGER
Report of Independent Accountants
Balance Sheets as of November 30, 1995 and 1996 and May 31, 1997 (Unaudited)
Statements of Operations for the Two Years ended November 30, 1996
and the Six Months ended May 31, 1996 (Unaudited) and 1997 (Unaudited)
Statements of Shareholders' Equity (Deficit) for the Two Years ended November
30, 1996 and the Six Months ended May 31, 1997 (Unaudited)
Statements of Cash Flows for the Two Years ended November 30, 1996
and the Six Months ended May 31, 1996 (Unaudited) and 1997
(Unaudited)
Notes to Financial Statements
PROFALL, INC. D/B/A 1 800 COURIER-L.A.X.
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)
Statements of Operations for the Years ended December 31, 1995 and
1996 and Six Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Statements of Shareholders' Equity for the Years ended December 31,
1995 and 1996 and Six Months ended June 30, 1997 (Unaudited)
Statements of Cash Flows for the Years ended December 31, 1995 and
1996 and Six Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Notes to Financial Statements
A&W COURIERS, INC. D/B/A A&W COURIERS
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)
Statements of Operations for the Years ended December 31, 1995 and
1996 and Six Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Statements of Stockholders' Equity for the Years ended December 31,
1995 and 1996 and Six Months ended June 30, 1997 (Unaudited)
Statements of Cash Flows for the Years ended December 31, 1995 and
1996 and Six Months ended June 30, 1996 (Unaudited) and 1997
(Unaudited)
Notes to Financial Statements
FLEETFOOT MAX, INC. D/B/A FLEETFOOT MESSENGER
Report of Independent Accountants
Balance Sheets as of August 31, 1996 and 1997
Statements of Operations for Each of the Three Years in the Period ended
August 31, 1997
Statements of Changes in Stockholders' Equity (Deficit) for Each of the Three
Years in the Period ended
Statements of Cash Flows for Each of the Three Years in the Period ended
August 31, 1997
Notes to Financial Statements
EXPRESSIT COURIERS, INC. D/B/A 1 800 COURIER-BOSTON
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)
F-4
<PAGE>
Statements of Operations for Each of the Three Years in the Period ended
December 31, 1996 and the Six Months ended June 30, 1996 (Unaudited) and
1997 (Unaudited)
Statements of Changes in Stockholders' Equity for Each of the Three Years in
the Period ended December 31, 1996 and the Six Months ended June 30, 1997
(Unaudited)
Statements of Cash Flows for Each of the Three Years in the Period ended
December 31, 1996 and the Six Months ended June 30, 1996 (Unaudited) and
1997 (Unaudited)
Notes to Financial Statements
EXPRESS ENTERPRISE, INC. (GROUND OPERATIONS) D/B/A EXPRESS MESSENGER
Report of Independent Accountants
Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)
Statements of Operations for the Two Years ended December 31, 1996
and the Six-Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Statements of Stockholders' Equity as of December 31, 1995 and 1996 and the
Six-Months ended June 30, 1997 (Unaudited)
Statements of Cash Flows for the Two Years ended December 31, 1996 and the
Six-Months ended June 30, 1996 (Unaudited) and 1997 (Unaudited)
Notes to Financial Statements
RJK ENTERPRISES INC. D/B/A DEADLINE EXPRESS
Report of Independent Auditors
Balance Sheets as of December 31, 1996 and June 30, 1997 (Unaudited)
Statements of Operations and Accumulated Deficit for the period from March 6,
1996 to December 31, 1996 and the period from March 6, 1996 to June 30,
1996 (Unaudited) and the Six Months ended June 30, 1997 (Unaudited)
Statements of Cash Flows for the period from March 6, 1996 to December 31,
1996 and the period from March 6, 1996 to June 30, 1996 (Unaudited) and
the Six Months ended June 30, 1997 (Unaudited)
Notes to Financial Statements
F-5
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give
effect to the acquisitions by Dispatch Management Services Corp. (the "Company")
of the outstanding capital stock of the Founding Companies. The Company will
acquire, in separate combination transactions (the "Combinations") in exchange
for cash and shares of Common Stock, certain courier firms simultaneously with
and as a condition to the closing of the Company's initial public offering (the
"Offering"), which will be accounted for using the purchase method of
accounting. The Company has been identified as the accounting acquiror.
The unaudited pro forma combined balance sheet gives effect to the
Combinations and the Offering as if they had occurred on June 30, 1997. The
unaudited pro forma combined statements of operations give effect to these
transactions as if they had occurred on January 1, 1996.
The Company has preliminarily analyzed the savings that it expects to be
realized from reductions in salaries and certain benefits to the stockholders of
the Founding Companies. To the extent the stockholders and management of the
Founding Companies have agreed prospectively to reductions in salary, bonuses,
and benefits, these net reductions have been reflected in the pro forma combined
statement of operations. With respect to other potential cost savings, the
Company has not and cannot quantify these savings until completion of the
Combinations. It is anticipated that these savings will be partially offset by
the costs of being a publicly held company and the incremental increase in costs
related to the Company's new management. However, these costs, like the savings
that they offset, cannot be quantified accurately. Neither the anticipated
savings nor the anticipated costs have been included in the pro forma combined
financial statements of the Company.
The pro forma adjustments are based on estimates, available information
and certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such transactions in fact had occurred on those dates and are not necessarily
representative of the Company's financial position or results of operations for
any future period. Since the Founding Companies were not under common control or
management, historical combined results may not be comparable to, or indicative
of, future performance. The unaudited pro forma combined financial statements
should be read in conjunction with the other financial statements and notes
thereto included elsewhere in this Prospectus. See "Risk Factors" included
elsewhere herein.
F-6
<PAGE>
DMS
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
(000's)
<TABLE>
<CAPTION>
American Eagle
ASSETS DMS West One Aero EarlyBird Bullit Security Disp Endeavors
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 4 313 173 5 3 295
Accounts receivable, net 29 4,105 1,253 2,630 716 1,926 675
Prepaid and other current assets 394 313 249 459 71 1,347 52
--------------------------------------------------------------------------
Total current assets 427 4,731 1,675 3,094 790 3,273 1,022
Property and equipment, net 2,483 442 314 97 178 280
Other assets 114 152 41 623 209
Goodwill, net
--------------------------------------------------------------------------
Total assets 427 7,328 2,117 3,560 928 4,074 1,511
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term debt 109 1,233 128 464
Accounts payable 1,635 392 617 253 2,950 419
Accrued expenses 249 763 3,043 1,088 91 107
Other current liabilities 116 12 42
Payable to shareholders of founding co.
--------------------------------------------------------------------------
Total current liabilities 365 2,398 3,544 2,938 484 2,950 1,032
Long-term debt, less current maturities 1,149 720 1,846 264 291
Other long term liabilities 114
--------------------------------------------------------------------------
Total liabilities 365 3,547 4,264 4,784 748 2,950 1,437
Stockholders' equity
Common Stock 84 125 200 5 25 2,071 1
Treasury stock (1,331) (148)
Additional paid-in capital 69 1,285 156
Retained earnings (22) 3,656 (2,347) 33 303 (2,232) (83)
--------------------------------------------------------------------------
Total stockholders' equity 62 3,781 (2,147) (1,224) 180 1,124 74
--------------------------------------------------------------------------
Total liabilities and stockholders' equity 427 7,328 2,117 3,560 928 4,074 1,511
==========================================================================
<CAPTION>
ASSETS Atlantic Frt Washington Exp MLQ Courier Kangaroo Nat'l Messenger Fleetfoot
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 71 43 5 62 58 106
Accounts receivable, net 783 866 610 308 320 263
Prepaid and other current assets 45 246 84 11 4 5
---------------------------------------------------------------------------------
Total current assets 899 1,155 699 381 382 374
Property and equipment, net 757 443 149 129 47 97
Other assets 161 36 92 9 27
Goodwill, net
---------------------------------------------------------------------------------
Total assets 1,817 1,634 940 519 429 498
=================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term debt 61 716 29 170
Accounts payable 515 115 27 28 12
Accrued expenses 271 100 102 70 29 111
Other current liabilities 289 206 389 70
Payable to shareholders of founding co.
---------------------------------------------------------------------------------
Total current liabilities 1,136 1,137 518 127 99 293
Long-term debt, less current maturities 320 181 52 187
Other long term liabilities 240 100 16 23
---------------------------------------------------------------------------------
Total liabilities 1,696 1,418 518 195 99 503
Stockholders' equity
Common Stock 15 377 2 50
Treasury stock (262) (126)
Additional paid-in capital 18 109 33
Retained earnings 368 (161) 404 215 328 38
---------------------------------------------------------------------------------
Total stockholders' equity 121 216 422 324 330 (5)
---------------------------------------------------------------------------------
Total liabilities and stockholders' equity 1,817 1,634 940 519 429 498
=================================================================================
</TABLE>
ASSETS Fleetway 1800Denver
--------------------
Current assets:
Cash and cash equivalents 17
Accounts receivable, net 173 132
Prepaid and other current assets 17
--------------------
Total current assets 173 166
Property and equipment, net 68 78
Other assets 448 44
Goodwill, net
--------------------
Total assets 689 288
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term debt 154
Accounts payable 765 36
Accrued expenses 60
Other current liabilities
Payable to shareholders of founding co.
--------------------
Total current liabilities 765 250
Long-term debt, less current maturities 26 28
Other long term liabilities
--------------------
Total liabilities 791 278
Stockholders' equity
Common Stock 1
Treasury stock
Additional paid-in capital
Retained earnings (102) 9
--------------------
Total stockholders' equity (102) 10
--------------------
Total liabilities and stockholders' equity 689 288
====================
F-7
<PAGE>
<TABLE>
<CAPTION>
Detroit Profall
ASSETS: Battery Point Express 1-800-CourLAX Express IT A&W Couriers Deadline
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 18 69 22 198
Accounts receivable, net 125 158 171 88 157 119
Prepaid and other current assets 6 2 24 21 16
---------------------------------------------------------------------------
Total current assets 149 158 242 134 376 135
Property and equipment, net 6 42 71 77 52 9
Other assets 18 125 84 10 4
Goodwill, net
---------------------------------------------------------------------------
Total assets 173 325 313 295 438 148
===========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term debt 18 90 171 78
Accounts payable 3 47 38 110 43 65
Accrued expenses 13 31 107 26 29
Other current liabilities 338 227
Payable to shareholders of founding co.
---------------------------------------------------------------------------
Total current liabilities 34 168 654 214 270 94
Long-term debt, less current maturities 48 67
Other long term liabilities 22
---------------------------------------------------------------------------
Total liabilities 34 238 654 214 270 161
Stockholders' equity
Common Stock 1 10 1 3 1
Treasury stock
Additional pain-in capital 59 58
Retained earnings 139 86 (410) 80 107 (14)
---------------------------------------------------------------------------
Total stockholders' equity 139 87 (341) 81 168 (13)
---------------------------------------------------------------------------
Total liabilities and stockholders' equity 173 325 313 295 438 148
===========================================================================
<CAPTION>
Other Pro Forma
Founding Merger Pro Forma Offering
ASSETS: S*Car*Go Cour Companies Adjustments Combined Adjustments As adjusted
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 110 299 1,871 1,871
Accounts receivable, net 192 1,671 17,470 17,470
Prepaid and other current assets 145 3,511 (394) 3,117
-----------------------------------------------------------------------------
Total current assets 302 2,115 0 22,852 (394) 22,458
Property and equipment, net 32 413 (674) 5,590 5,590
Other assets 14 86 2,297 12,318 14,615
Goodwill, net 66,925 66,925 66,925
-----------------------------------------------------------------------------
Total assets 348 2,614 66,251 97,664 11,924 109,588
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term debt 301 3,722 (3,722)
Accounts payable 3 220 8,293 8,293
Accrued expenses 63 380 6,733 6,733
Other current liabilities 162 527 300 2,678 2,678
Payable to shareholders of founding co. 40,639 40,639 (40,639)
-----------------------------------------------------------------------------
Total current liabilities 228 1,428 40,939 62,065 (44,361) 17,704
Long-term debt, less current maturities 211 (1,953) 3,437 (3,437)
Other long term liabilities 21 (15) 521 521
-----------------------------------------------------------------------------
Total liabilities 228 1,660 38,971 66,023 (47,798) 18,225
Stockholders' equity
Common Stock 1 38 (2,982) 29 29
Treasury stock (11) 1,878 0 0
Additional pain-in capital 404 29,443 31,634 59,722 91,356
Retained earnings 119 523 (1,059) (22) (22)
-----------------------------------------------------------------------------
Total stockholders' equity 120 954 27,280 31,641 59,722 91,363
-----------------------------------------------------------------------------
Total liabilities and stockholders' equity 348 2,614 66,251 97,664 11,924 109,588
=============================================================================
</TABLE>
F-8
<PAGE>
DMS
COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
(000's)
<TABLE>
<CAPTION>
American Eagle
DMS West One Aero EarlyBird Bullit Security Disp Endeavors Atlantic Frt
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues -- 24,148 10,998 22,894 7,696 9,794 8,536 8,728
Cost of Revenues -- 16,029 6,333 15,860 4,639 5,654 5,293 5,941
-----------------------------------------------------------------------------------------------
Gross profit 0 8,119 4,665 7,034 3,057 4,140 3,243 2,787
Operating expenses: --
Sales and marketing -- 1,119 900 1,818 358 232 1,535 105
General and administrative expenses -- 2,112 1,521 1,814 642 500 940 693
Other operating expenses -- 2,838 2,234 3,546 2,116 1,960 2,232
Depreciation and amortization -- 298 119 195 6 89 174 270
-----------------------------------------------------------------------------------------------
Operating income (loss) 0 1,752 (108) (339) (65) 1,359 594 (513)
Other (income) expense:
Interest expense -- 369 56 219 107 22 62 83
Other, net -- (2) 34 85 (56) 13 33 36
-----------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 0 1,385 (199) (643) (116) 1,324 499 (632)
Provision for income taxes -- 360 2 (33) 398 200 (123)
-----------------------------------------------------------------------------------------------
Net income (loss) 0 1,025 (199) (645) (83) 926 299 (509)
===============================================================================================
<CAPTION>
Washington Exp MLQ Courier Kangaroo Nat'l Messenger Fleetfoot Fleetway 1800Denver
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Revenues 5,800 5,310 2,650 2,413 2,172 1,092 1,247
Cost of Revenues 3,164 3,296 1,878 1,446 1,332 582 764
-------------------------------------------------------------------------------------------
Gross profit 2,636 2,014 772 967 840 510 483
Operating expenses:
Sales and marketing 483 233 27 86 368 50 58
General and administrative expenses 390 991 265 454 24 40 58
Other operating expenses 1,532 579 405 154 250 403 298
Depreciation and amortization 91 94 50 13 66 101 36
-------------------------------------------------------------------------------------------
Operating income (loss) 140 117 25 260 132 (84) 33
Other (income) expense:
Interest expense 70 43 10 57 23 19
Other, net (18) (38) (2) (34) 4
-------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 88 112 17 260 109 (107) 10
Provision for income taxes 38 32 5 (54)
-------------------------------------------------------------------------------------------
Net income (loss) 50 80 17 255 163 (107) 10
===========================================================================================
</TABLE>
F-9
<PAGE>
DMS
COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
(000's)
<TABLE>
<CAPTION>
Profall
Battery Point Detroit Express 1-800-CourLAX Express IT A&W Couriers Deadline S*Car*Go Cour
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues 732 1,612 1,212 1,343 1,560 1,177 1,155
Cost of revenues 348 986 687 897 940 753 635
------------------------------------------------------------------------------------------------
Gross profit 384 626 525 446 620 424 520
Operating expenses:
Sales and marketing 22 16 27 102 143 84
General and administrative expenses 82 277 298 177 289 144 267
Other operating expenses 113 246 271 231 228 143 140
Depreciation and amortization 10 47 23 44 10 15
------------------------------------------------------------------------------------------------
Operating income (loss) 157 40 (67) (33) (9) (6) 14
Other (income) expense:
Interest expense 16 25 16 2
Other, net 3 (64) 14 (2) (5)
------------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 154 24 (28) (63) (7) (1) 12
Provision for income taxes (24) 4 7
------------------------------------------------------------------------------------------------
Net income (loss) 154 24 (28) (39) (11) (1) 5
================================================================================================
<CAPTION>
Other
Founding Pro Forma Pro Forma
Companies Adjustments Combined
------------------------------------
<S> <C> <C> <C>
Net revenues 13,006 (9,705) 125,570
Cost of revenues 7,836 (8,448) 76,845
------------------------------------
Gross profit 5,170 (1,257) 48,725
Operating expenses:
Sales and marketing 761 (1,515) 7,012
General and administrative expenses 1,643 (3,476) 10,145
Other operating expenses 2,066 (361) 21,624
Depreciation and amortization 193 2,008 3,952
------------------------------------
Operating income (loss) 507 2,087 5,992
Other (income) expense:
Interest expense 164 1,363
Other, net (19) (18)
------------------------------------
Income (loss) before provision
for income taxes 362 2,087 4,647
Provision for income taxes 4 1,696 2,512
------------------------------------
Net income (loss) 358 391 2,135
====================================
</TABLE>
F-10
<PAGE>
DMS
COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(000's)
<TABLE>
<CAPTION>
American Eagle
DMS West One Aero EarlyBird Bullit Security Disp Endeavors Atlantic Frt
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues -- 11,691 5,464 10,653 3,956 5,051 4,296 3,767
Cost of revenues -- 7,640 3,109 7,209 2,193 2,967 2,712 2,798
---------------------------------------------------------------------------------------
Gross profit 0 4,051 2,355 3,444 1,763 2,084 1,584 969
Operating expenses:
Sales and marketing -- 672 450 851 203 93 781 50
General and administrative expenses -- 1,020 733 850 268 263 419 216
Other operating expenses -- 1,440 1,122 1,639 1,079 1,073 861
Depreciation and amortization -- 186 40 110 3 42 87 135
---------------------------------------------------------------------------------------
Operating income (loss) 0 733 10 (6) 210 613 297 (293)
Other (income) expense:
Interest expense -- 240 28 95 1 8 36 38
Other, net -- (16) 15 42 3 19
---------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 0 509 (33) (143) 209 605 258 (350)
Provision for income taxes -- 133 0 2 11 198 105 (126)
---------------------------------------------------------------------------------------
Net income (loss) 0 376 (33) (145) 198 407 153 (224)
=======================================================================================
<CAPTION>
Washington Exp MLQ Courier Kangaroo Nat'l Messenger Fleetfoot Fleetway 1800Denver Battery Point
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues 2,856 2,179 1,336 1,123 1,041 683 593 346
Cost of revenues 1,530 1,305 923 719 617 278 378 164
------------------------------------------------------------------------------------------------------
Gross profit 1,326 874 413 404 424 405 215 182
Operating expenses:
Sales and marketing 247 96 14 42 186 27 26 11
General and administrative
expenses 197 464 133 219 10 18 25 41
Other operating expenses 763 297 189 74 123 185 139 54
Depreciation and amortization 34 41 17 7 22 47 18 5
------------------------------------------------------------------------------------------------------
Operating income (loss) 85 (24) 60 62 83 128 7 71
Other (income) expense:
Interest expense 27 17 5 29 9 8 2
Other, net (1) (30) (2) (11) 3
------------------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 59 (11) 57 62 65 119 (4) 69
Provision for income taxes 25 1 (33)
------------------------------------------------------------------------------------------------------
Net income (loss) 34 (11) 57 61 98 119 (4) 69
======================================================================================================
</TABLE>
F-11
<PAGE>
DMS
COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(000's)
<TABLE>
<CAPTION>
Other
Profall Founding
Detroit Express 1-800-CourLAX Express IT A&W Couriers Deadline S*Car*Go Cour Companies
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues 815 533 696 783 487 537 6,239
Cost of revenues 518 325 461 469 298 295 3,718
------------------------------------------------------------------------------------------------
Gross profit 297 208 235 314 189 242 2,521
Operating expenses:
Sales and marketing 10 5 48 60 42 363
General and administrative
expenses 99 169 79 133 60 133 815
Other operating expenses 130 124 137 123 60 64 940
Depreciation and amortization 26 9 22 5 8 91
------------------------------------------------------------------------------------------------
Operating income (loss) 32 (94) (8) 5 9 (5) 312
Other (income) expense:
Interest expense 8 12 9 1 54
Other, net (37) 2 (4) (4)
------------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 24 (69) (19) 9 9 (6) 262
Provision for income taxes (7) (3) 4
------------------------------------------------------------------------------------------------
Net income (loss) 24 (69) (12) 9 9 (3) 258
================================================================================================
</TABLE>
Pro Forma Pro Forma
Adjustments Combined
-------------------------
Net revenues (4,144) 60,981
Cost of revenues (3,489) 37,137
-------------------------
Gross profit (655) 23,844
Operating expenses:
Sales and marketing (707) 3,570
General and administrative
expenses (1,364) 5,000
Other operating expenses (159) 10,457
Depreciation and amortization 999 1,954
-------------------------
Operating income (loss) 576 2,863
Other (income) expense:
Interest expense 627
Other, net (21)
-------------------------
Income (loss) before provision
for income taxes 576 2,257
Provision for income taxes 921 1,231
-------------------------
Net income (loss) (345) 1,026
=========================
F-12
<PAGE>
DMS
COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(000's)
<TABLE>
<CAPTION>
American Eagle
DMS West One Aero EarlyBird Bullit Security Disp Endeavors
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues -- 13,781 6,283 13,018 4,205 4,558 3,483
Cost of revenues -- 9,747 3,662 9,210 2,501 2,630 2,330
------------------------------------------------------------------------------
Gross profit 0 4,034 2,621 3,808 1,704 1,928 1,153
Operating expenses:
Sales and marketing -- 537 511 879 193 113 687
General and administrative
expenses -- 1,014 896 909 332 232 662
Other operating expenses -- 1,390 1,263 1,580 1,091 916
Depreciation and amortization 284 89 105 5 42 83
------------------------------------------------------------------------------
Operating income (loss) 0 809 (138) 335 83 625 (279)
Other (income) expense:
Interest expense 196 31 107 64 18 35
Other, net -- (3) 20 (23)
------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 0 616 (189) 228 19 607 (291)
Provision for income taxes -- 160 10 42 182 (123)
------------------------------------------------------------------------------
Net income (loss) 0 456 (189) 218 (23) 425 (168)
===============================================================================
<CAPTION>
Atlantic Frt Washington Exp MLQ Courier Kangaroo Nat'l Messenger Fleetfoot Fleetway 1800Denver
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues 4,308 2,849 2,981 1,380 1,255 1,226 683 543
Cost of revenues 3,001 1,453 1,793 949 749 768 278 339
-----------------------------------------------------------------------------------------------------
Gross profit 1,307 1,396 1,188 431 506 458 405 204
Operating expenses:
Sales and marketing 88 271 126 10 43 205 27 24
General and administrative
expenses 238 204 549 144 235 9 18 30
Other operating expenses 842 728 333 220 77 146 185 202
Depreciation and amortization 164 49 37 25 17 18 47 27
-----------------------------------------------------------------------------------------------------
Operating income (loss) (25) 144 143 32 134 80 128 (79)
Other (income) expense:
Interest expense 36 37 18 4 24 9 11
Other, net 5 (3) (22) (3) (27) (11)
-----------------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes (66) 110 147 31 134 83 119 (79)
Provision for income taxes (24) 47 3 41
-----------------------------------------------------------------------------------------------------
Net income (loss) (42) 63 147 31 131 42 119 (79)
======================================================================================================
</TABLE>
F-13
<PAGE>
DMS
COMBINING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(000's)
<TABLE>
<CAPTION>
Profall
Battery Point Detroit Express 1-800-CourLAX Express IT A&W Couriers Deadline S*Car*Go Cour
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues 405 993 807 717 841 622 704
Cost of revenues 173 617 405 436 485 393 362
-------------------------------------------------------------------------------------------------
Gross profit 232 376 402 281 356 229 342
Operating expenses:
Sales and marketing 7 14 17 44 94 87
General and administrative
expenses 32 143 215 96 115 94 121
Other operating expenses 58 155 158 76 129 94 78
Depreciation and amortization 4 24 18 19 4 9
-------------------------------------------------------------------------------------------------
Operating income (loss) 131 40 11 73 64 (53) 47
Other (income) expense:
Interest expense 1 8 13 5 (2) 4
Other, net (39) 4 (2) (41)
-------------------------------------------------------------------------------------------------
Income (loss) before provision
for income taxes 130 32 37 64 68 (12) 43
Provision for income taxes 1 25 13 17
-------------------------------------------------------------------------------------------------
Net income (loss) 130 32 36 39 55 (12) 26
=================================================================================================
</TABLE>
Other
Founding Pro Forma Pro Forma
Companies Adjustments Combined
---------------------------------------------
Net revenues 7,093 (6,183) 66,552
Cost of revenues 4,254 (5,514) 41,021
---------------------------------------------
Gross profit 2,839 (669) 25,531
Operating expenses: 0
Sales and marketing 398 (736) 3,639
General and administrative
expenses 942 (1,528) 5,702
Other operating expenses 1,031 (146) 10,606
Depreciation and amortization 88 1,003 2,161
---------------------------------------------
Operating income (loss) 380 738 3,423
Other (income) expense:
Interest expense 44 663
Other, net 7 (138)
---------------------------------------------
Income (loss) before provision
for income taxes 329 738 2,898
Provision for income taxes 1,094 1,488
---------------------------------------------
Net income (loss) 329 (356) 1,410
=============================================
F-14
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(In thousands, except share amounts)
NOTE 1 - GENERAL
Dispatch Management Services Corp. (the "Company") was founded to create
the largest provider of urgent, on-demand, point-to-point courier and delivery
services in the world. The Company has conducted no operations to date and will
acquire the Founding Companies concurrently with and as a condition to the
closing of this Offering.
The historical financial statements reflect the financial position and
results of operations of the Company and the Founding Companies and were derived
from the respective Founding Companies' financial statements where indicated.
The periods included in these financial statements for the individual Founding
Companies are as of the respective periods, as indicated in the accompanying
financial statements, or a date within 93 days of December 31, 1996. The audited
historical financial statements included elsewhere herein have been included in
accordance with Securities and Exchange Commission Staff Accounting Bulletin No.
80.
NOTE 2 - ACQUISITION OF FOUNDING COMPANIES
Concurrently and as a condition with the closing of this Offering, the
Company will acquire the Founding Companies in separate transactions,
in exchange for cash or shares of its Common Stock or a combination of both. The
acquisitions will be accounted for using the purchase method of accounting with
the Company being identified as the accounting acquiror.
The following table sets forth the consideration to be paid in cash and in
shares of Common Stock to the common stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of shares is determined using an estimated fair value of
[$11.25] per share, which represents a discount of 25 percent from the assumed
initial public offering price of [$15.00] per share due to restrictions on the
sale and transferability of the shares issued. The estimated purchase price for
the acquisitions is based upon preliminary estimates and is subject to certain
purchase price adjustments at and following closing.
F-15
<PAGE>
Shares of
Common
Brand Name Cash Stock
- - - - ---------- ---- -----
West One $ 16,613 165,133
Aero Delivery 248,667
Earlybird Courier 8,605 309,917
Bullit Courier 3,540 200,000
Security Despatch 5,923
1 800 COURIER - Phoenix, Minneapolis 284,267
Atlantic Freight 275,007
Washington Express 186,133
MLQ Courier 4,678
Kangaroo Express 71,933
National Messenger 146 80,687
Fleetfoot Max 85,280
Fleetway Systems 838 134,400
1 800 COURIER - Denver 51,600
Battery Point 39 28,513
Express Messenger 48,000
1 800 COURIER - L.A.X. 30,000
1 800 COURIER - Boston 42,400
A&W Couriers 50,307
Deadline Express 60,933
S-CAR-GO Courier 42,560
Other Founding Companies 257 473,531
-------- ---------
Total $ 40,639 2,869,268
======== =========
F-16
<PAGE>
NOTE 3 - UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments:
<TABLE>
<CAPTION>
Merger Adjustments Offering Adjustments Post
------------------------ Pro Forma ------------------------ Merger
ASSETS (A) (B) (C) (D) Adjustments (E) (F) (G) Adjustments
------- ------- ------- ----- ----------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents -- 60,116 (52,957) (7,159) --
Accounts receivable, net --
Prepaid and other current assets -- (394) (394)
------- ------- ------- ---- ------- ------- ------- ------- -------
Total current assets 59,722 (52,957) (7,159) (394)
Property and equipment, net (674) (674)
Other assets 700 (700) -- 12,318 12,318
Goodwill, net 66,625 300 66,925
------- ------- ------- ---- ------- ------- ------- ------- -------
Total assets 66,651 (700) 300 66,251 59,722 (40,639) (7,159) 11,924
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term debt -- (3,722) (3,722)
Accounts payable --
Accrued expenses --
Other current liabilities 300 300
Payable to shareholders of founding co. 40,639 40,639 (40,639) (40,639)
------- ------- ------- ---- ------- ------- ------- ------- -------
Total current liabilities 40,639 -- 300 40,939 (40,639) (3,722) (44,361)
Long-term debt, less current maturities -- (1,953) (1,953) (3,437) (3,437)
Other long term liabilities (15) (15)
------- ------- ------- ---- ------- ------- ------- ------- -------
Total liabilities 40,639 (1,968) 300 38,971 (40,639) (7,159) (47,798)
Stockholders' equity
Common Stock (2,982) (2,982)
Treasury stock 1,878 1,878
Additional paid-in capital (40,639) 70,082 29,443 59,722 59,722
Retained earnings (359) (700) (1,059)
------- ------- ------- ---- ------- ------- ------- ------- -------
Total stockholders' equity (40,639) 68,619 -- 27,280 59,722 -- -- 59,722
(700)
------- ------- ------- ---- ------- ------- ------- ------- -------
Total liabilities and
stockholders' equity -- 66,651 (700) 300 66,251 59,722 (40,639) (7,159) 11,924
======= ======= ======= ==== ======= ======= ======= ======= =======
</TABLE>
(a) Records the liability for the cash portion of the consideration to be paid
to the stockholders of the Founding Companies in connection with the
Combinations.
(b) Records the purchase of the Founding Companies, consisting of $40,639 (net
of $12,318 of earnout) in cash and 2,869,268 shares of common stock valued
at $11.25 per share (or $32,279), for a total estimated purchase price of
$72,918. Adjustment also reflects $674 of certain assets which will not be
acquired and $1,968 of certain liabilities which will not be assumed in
the Combinations and the allocation of $700 of the purchase price to
acquired research and development activities (in-process research and
development) at a Founding Company. The excess purchase price over the
fair value of the net assets acquired is $66,925.
(c) Records the write-off of the acquired in-process research and development
from a Founding Company.
(d) Records the net deferred income tax liability attributable to the
temporary differences between the financial reporting and tax basis of
assets and liabilities held in S Corporations of $ 300 at certain Founding
Companies.
(e) Records the cash proceeds from the issuance of shares of DMS Common Stock
net of estimated offering costs (based on an assumed initial public
offering of $______ per share). Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.
(f) Records the cash portion of the consideration to be paid to the
stockholders of the Founding Companies in connection with the Combinations
($________) to be paid from proceeds of the Offering and the loan
receivable of $12,318 related to earnout.
(g) Records the use of a portion of the proceeds from the Offering to repay
short-term and long-term debt assumed in the Combinations.
F-17
<PAGE>
NOTE 4 - UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma combined statements of
operations adjustments:
For the year ended December 31, 1996:
<TABLE>
<CAPTION>
Total
Pro Forma
(A) (B) (C) (D) (E) Adjustments
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues (9,705) (9,705)
Cost of Revenues (8,448) (8,448)
Gross profits (1,257) (1,257)
------ ------ ------ ------ ------ ------
Operating expenses:
Sales and marketing (1,515) (1,515)
General and administrative expenses (2,071) (381) (1,024) (3,476)
Other operating expenses (361) (361)
Depreciation and amortization -- 2,066 (58) 2,008
------ ------ ------ ------ ------ ------
Operating income (loss) 2,071 381 (2,066) 1,701 2,087
Other (income) expense:
Interest expense
Other, net
------ ------ ------ ------ ------ ------
Income (loss) before provision for
income taxes 2,071 381 (2,066) 1,701 2,087
Provision for income taxes -- -- 1,696 1,696
------ ------ ------ ------ ------ ------
Net income (loss) 2,071 381 (2,066) 1,701 (1,696) 391
====== ====== ====== ====== ====== ======
For the Six months ended June 30, 1997:
<CAPTION>
Total
Pro Forma
(A) (B) (C) (D) (E) Adjustments
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues (6,183) (6,183)
Cost of revenues (5,514) (5,514)
------ ------ ------ ------ ------ ------
Gross profit (669) (669)
Operating expenses:
Sales and marketing (736) (736)
General and administrative expenses (810) (403) (315) (1,528)
Other operating expenses (146) (146)
Depreciation and amortization -- 1,039 (36) 1,003
------ ------ ------ ------ ------ ------
Operating income (loss) 810 403 (1,039) 564 738
Other (income) expense:
Interest expense
Other, net
------ ------ ------ ------ ------ ------
Income (loss) before provision for
income taxes 810 403 (1,039) 564 738
Provision for income taxes -- 1,094 1,094
------ ------ ------ ------ ------ ------
Net income (loss) 810 403 (1,039) 564 (1,094) (356)
====== ====== ====== ====== ====== ======
For the Six months ended June 30, 1996:
<CAPTION>
Total
Pro Forma
(A) (B) (C) (D) (E) Adjustments
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues (4,144) (4,144)
Cost of revenues (3,489) (3,489)
------ ------ ------ ------ ------ ------
Gross profit (655) (655)
Operating expenses:
Sales and marketing (707) (707)
General and administrative expenses (1,119) (125) (120) (1,364)
Other operating expenses (159) (159)
Depreciation and amortization -- 1,039 (40) 999
------ ------ ------ ------ ------ ------
Operating income (loss) 1,119 125 (1,039) 371 576
Other (income) expense:
Interest expense
Other, net
------ ------ ------ ------ ------ ------
Income (loss) before provision for
income taxes 1,119 125 (1,039) 371 576
Provision for income taxes -- 921 921
------ ------ ------ ------ ------ ------
Net income (loss) 1,119 125 (1,039) 371 (921) (345)
====== ====== ====== ====== ====== ======
</TABLE>
F-18
<PAGE>
(a) Reflects the reductions in salaries, bonuses and benefits to the owners of
the Founding Companies to which they have agreed prospectively.
(b) Reflects the reduction in royalty payments made by certain Founding
Companies in accordance with franchise agreements which will be terminated
as a result of the Combinations.
(c) Reflects the amortization of goodwill to be recorded as a result of the
Combinations over 5 to 40-year estimated lives.
(d) Reflects the disposal of a segment of a business at one Founding Company.
Approximately 80% of the segment was disposed of subsequent to the June
30, 1997 balance sheet and management has a formal plan to dispose of the
remaining portion of the segment prior to the close of the Combinations.
(e) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state income tax and
relating to the other statements of operations' adjustments assuming a
corporate income tax rate of 40% and that a majority of the goodwill is
non-deductible.
F-19
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Dispatch Management Services Corp.
In our opinion, the accompanying balance sheet presents fairly, in
all material respects, the financial position of Dispatch Management Services
Corp. at June 30, 1997, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying balance sheet has been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1, the realization of the
recorded assets and liabilities is subject to the receipt of future proceeds
which are currently anticipated from a public offering. Should such proceeds not
be received, there is substantial doubt about the Company's ability to continue
as a going concern. No adjustments have been recorded to reflect this
uncertainty.
Price Waterhouse LLP
Detroit, Michigan
September 15, 1997
F-20
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
BALANCE SHEET
(Dollars in Thousands)
June 30,
1997
--------
Assets
Cash $ 4
Accounts receivable and other 29
Deferred offering costs 394
-----
Total assets $ 427
=====
Liabilities and Stockholders' Equity
Accrued liabilities $ 249
Accounts payable to related party 116
Stockholders' equity
Preferred stock, $.01 par, 10,000,000
shares authorized
Series A 14,000 shares issued and outstanding
Common stock, $.01 par, 100,000,000 shares
authorized, 10 shares issued and outstanding
Additional paid-in-capital 84
Accumulated deficit (22)
-----
Total stockholders' equity 62
-----
Total liabilities and stockholders' equity $ 427
=====
See accompanying notes to financial statements.
F-21
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
NOTES TO FINANCIAL STATEMENTS
1. Business and Organization
Dispatch Services Management Corp. (the "Company") was incorporated on
September 9, 1997. Dispatch Management Services LLC ("DMS LLC") merged
into the Company effective September 9, 1997. The owners of DMS LLC, in
connection with the merger, received in exchange for their ownership
interest in DMS LLC, common and preferred stock of the Company as
described further in Note 2. The merger was consummated to facilitate an
initial public offering of securities and was accounted for at historical
cost because the same shareholder group controlled both entities.
Dispatch Management Services LLC, Inc. was founded in November 1996 to
create a nationwide network of same-day, on-demand delivery services. The
Company intends to acquire a number of U.S. and foreign business (the
"Mergers"), upon consummation of an initial public offering (the
"Offering") of its common stock and, subsequent to the Offering, continue
to acquire through merger or purchase, similar companies to expand its
international operations.
The Company has not conducted any significant operations, and all
activities to date have primarily related to the Offering and the Mergers.
The Company's cash balances were mainly generated from the capitalization
of the Company and from the receipt of certain software license fees as
discussed further in Note 3. Accordingly, statements of operations and
cash flows for this period would not provide meaningful information and
have been omitted. Operating expenses subsequent to inception consist
mainly of certain administrative costs. As of June 30, 1997, approximately
$394 has been incurred in connection with the Offering, and the Company
has capitalized these costs as deferred offering costs. These costs
include consulting, legal and accounting fees which will be offset against
the proceeds of the Offering at closing. The Company is dependent upon the
Offering to execute the pending Mergers. There is no assurance that the
pending Mergers discussed will be completed or that the Company will be
able to generate future operating revenues.
On September 9, 1997, the Company acquired Kiwi Express Software LLC
("Kiwi") for consideration of 100 shares of Series B preferred stock. The
shareholders of Kiwi are also among the shareholders of the company. Each
share of Series B preferred stock will, upon the initial public offering
of securities, be automatically converted into sufficient shares of common
stock such that the aggregate consideration received by the Series B
stockholders will equal $500. The acquisition will be accounted for as a
purchase as no single shareholder controlled both Kiwi and the Company.
Summary financial information of Kiwi is as follows:
As of and for the six months
ended June 30, 1997
(unaudited)
Revenue $107
Net income 32
Total assets 101
Net assets 62
2. Stockholders' Equity
The capital structure of DMS LLC at June 30, 1997 has been conformed to
reflect the current capital structure of the Company. In conjunction with
the initial capitalization of DMS LLC 2,000,000 shares of Class A common
stock were issued for a total consideration of $2. In addition, at various
times prior to June 30, 1997, DMS LLC issued approximately 14,000 shares
of Class B common stock for approximately $5.83 per share. Subsequent to
June 30, 1997, DMS LLC issued approximately 117,000 shares of Class B
common stock for approximately $5.83 per share in addition to the shares
of Class B common stock issued related to certain notes payable as
discussed further in Note 6.
Under the terms of the merger agreement of DMS LLC into the Company, each
200,000 shares of Class A common stock of DMS LLC was exchanged for 1
share of common stock of the Company, and each share of Class B common
stock of DMS LLC was exchanged for 1 share of Series A preferred stock of
the Company. Each share of Series A preferred stock will upon the initial
public offering of securities, be converted into one share of common stock
should the initial public offering price be greater than $8.33. To the
extent that the initial public offering price is less than $8.33 per share
additional shares of common stock will be issued such that the total value
of the common stock received for each share of Series A preferred stock
will be $8.33.
3. Software License Agreement
In December 1996, the Company entered into a software license and
development agreement with Kiwi under which the Company was granted an
exclusive world-wide license for the use of certain proprietary software
owned by Kiwi. The software helps manage and operate the dispatching,
billing, collection and settlement functions for companies performing
point-to-point urgent delivery services
Under the terms of the software license and development agreement, the
Company has the right to grant sub-licenses for the use of the software to
those companies performing point-to-point urgent delivery services. To the
extent the Company has sub-licensed the use of the software, the Company
shall pay Kiwi a license fee equal to a defined license percentage
(currently 1%) of the sub-licensee's adjusted receipts related to
point-to-point delivery services.
As of June 30, 1997, the Company has sub-licensed the software to
approximately nineteen companies. Under the terms of the sub-license
agreements, the Company will receive a sub-license fee equal to a defined
license percentage (currently 1%) of the sub-licensee's adjusted receipts
related to point-to-point delivery services.
F-22
<PAGE>
DISPATCH MANAGEMENT SERVICES CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Accounts payable to related party at June 30, 1997 on the accompanying
balance sheet primarily represent software license fees due Kiwi. Accounts
receivable at June 30, 1997 on the accompanying balance sheet primarily
represent primarily amounts due the Company from sub-licensees.
4. 1-800-DELIVER License Agreement
The Company has entered into a license agreement with Universal Coupon
Corporation and 1-800-DELIVER-TO-YOU CORP. for the use of certain
toll-free telephone numbers. The terms of the licensing agreement required
the Company to make an initial payment of $5 followed by monthly payments
thereafter of $1. The Company has the option to purchase the license
outright for a price of $100 with the sum of the initial payment and
one-half of all the license fees paid (not to exceed $50) being credited
towards the purchase price. At June 30, 1997, approximately $13 related to
this license is included in deferred offering costs on the accompanying
balance sheet.
5. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 128. Earnings per share (SFAS No.
128). For the Company, SFAS No. 128 will be effective for the year ended
December 31, 1997. SFAS No. 128 simplifies the standards required under
current accounting rules for computing earnings per share and replaces the
presentation of primary earnings per share and fully-diluted earnings per
share with a presentation of basic earnings per share (basic EPS) and
diluted earnings per share (diluted EPS). Basic EPS excludes dilution and
is determined by dividing income available to common stockholders by the
weighted average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could offer if securities
and other contracts to issue common stock were exercised or converted into
common stock. Diluted EPS is computed similarly to fully-diluted earnings
per share under current accounting rules. The implementation of SFAS No.
128 is not expected to have a material effect on the Company's earnings
per share as determined under current accounting rules.
The Company plans to adopt a stock incentive plan. Statement of Financial
Standards No. 123, "Accounting for Stock-Based Compensation", allows
entities to choose between a new fair value based method of accounting for
employee stock options or similar equity instruments and the current,
intrinsic value-based method of accounting prescribed by Accounting
Principles Board Option No. 25, ("APB 25"). Entities electing to remain
with the accounting in APB 25 must make pro forma disclosures of net
income and earnings per share as of the fair value method of accounting
had been applied. The Company will provide pro forma disclosure of net
income and earnings per share, as applicable, in the notes to future
consolidated financial statements.
6. Subsequent Events
Note Payable
During July 1997 the Company entered into a $1,000 loan agreement with DMS
Equity Investors Limited Partnership (" Partnership"). This note bears
interest at the rate of 10% and matures the earlier of the following: (1)
a date eighteen months after the date of the note or (2) the closing date
of the initial public offering of the equity securities. On the maturity
date, the unpaid principal balance and accrued interest shall be due and
payable in full. The note is secured by substantially all of the assets of
the Company.
In conjunction with entering into the loan arrangement, the Company
entered into investment agreements with the four members of the
Partnership. Under the terms of the investment agreements, the Company
issued a total of 28,580 shares of common stock to the four partners in
exchange for a total investment of $3. Each of the four partners is
entitled to own .35% of the common stock of the corporation formed
calculated on a fully diluted basis after giving effect to the issuance of
securities in an initial public offering.
Share Purchase Agreement
In August 1997 the Company entered into a definitive share purchase
agreement to acquire the outstanding shares of Brookside Systems and
Programming Limited ("Brookside") effective contemporaneously with the
Offering. Brookside develops and markets software to the courier industry
in the United Kingdom. In accordance with the share purchase agreement,
the Company made a non-refundable down-payment of approximately $323.
F-23
<PAGE>
7. Unaudited Subsequent Events
The Company has signed definitive agreements to either acquire by merger
or purchase certain assets and liabilities from a number of companies
(Founding Companies) to be effective contemporaneously with the Offering.
F-24
<PAGE>
Report of Independent Auditors
The Members and Stockholders
Earlybird Courier Service, LLC,
and Total Management Support Services, LLC
We have audited the accompanying combined balance sheets of Earlybird
Courier Service, LLC, Total Management Support Services, LLC and their
affiliates (collectively, the "Company"), which is comprised of the companies
listed in Note 2, as of December 31, 1995 and 1996, and the related combined
statements of operations and retained earnings (accumulated deficit), and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Earlybird Courier
Service, LLC, Total Management Support Services, LLC and their affiliates at
December 31, 1995 and 1996 and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
September 3, 1997, except for Note 11,
as to which the date is October 1, 1997
F-25
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
COMBINED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31 June 30
1995 1996 1997
---------------------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2 $ 6 $ 5
Accounts receivable, less allowance for doubtful
accounts of $50 (1995 and 1996) (Note 5) 1,908 2,462 2,630
Prepaid expenses 106 99 109
Other current assets 15 2 --
Due from stockholder (Note 9) 250 350 350
---------------------------
Total current assets 2,281 2,919 3,094
Property and equipment--net (Notes 4 and 5) 459 356 314
Intangible assets--net of accumulated amortization
of $290 (1995) and $431 (1996) (Note 5) 202 65 39
Due from affiliate 28 33 38
Other noncurrent assets 88 100 75
---------------------------
$ 3,058 $ 3,473 $ 3,560
===========================
Liabilities and stockholders' deficiency
Current liabilities:
Notes payable, current portion (Note 5) $ 549 $ 1,426 $ 1,233
Accounts payable 562 866 617
Accrued salaries and payroll taxes payable 402 274 849
Accrued expenses 332 587 234
Deferred revenue 36 -- --
Other current liabilities 7 5 5
---------------------------
Total current liabilities 1,888 3,158 2,938
Notes payable (Note 5) 1,067 857 946
Subordinated notes payable (Note 5) 900 900 900
Commitments and contingencies (Note 7)
Stockholders' deficiency (Note 3 ):
Common stock 5 5 5
Additional paid-in capital 69 69 69
Treasury stock (1,331) (1,331) (1,331)
Retained earnings (accumulated deficit) 460 (185) 33
---------------------------
Total stockholders' deficiency (797) (1,442) (1,224)
---------------------------
$ 3,058 $ 3,473 $ 3,560
===========================
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
COMBINED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Accumulated Deficit)
(Dollars in Thousands)
(Note 10)
<TABLE>
<CAPTION>
Year ended December 31 Six months ended June 30
1994 1995 1996 1996 1997
----------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales (Note 8) $ 17,760 $ 21,967 $ 22,894 $ 10,653 $ 13,018
Cost of sales 12,978 15,187 15,860 7,209 9,210
---------------------------------------------------
Gross margin 4,782 6,780 7,034 3,444 3,808
Operating expenses 3,291 4,595 5,436 2,535 2,516
Sales and marketing 1,006 1,072 1,072 482 526
General and administrative expenses 387 506 670 323 326
Depreciation and amortization excluding
amortization of covenant not to compete 55 138 195 110 105
---------------------------------------------------
Operating income (loss) 43 469 (339) (6) 335
Other expenses:
Interest expense (Note 5) 157 260 219 95 107
Covenant not to compete (Note 5) 85 85 85 42 --
---------------------------------------------------
Income (loss) before provision for local
income taxes (199) 124 (643) (143) 228
Provision for local income taxes (Note 6) 15 30 2 2 10
---------------------------------------------------
Net income (loss) (214) 94 (645) (145) 218
Retained earnings (accumulated deficit),
beginning of period 580 366 460 460 (185)
---------------------------------------------------
Retained earnings (accumulated deficit),
end of period $ 366 $ 460 $ (185) $ 315 $ 33
===================================================
Unaudited pro forma information (Note 6):
Historical net income (loss) before
provision for income taxes (214) 94 (645) (145) 218
Provision (benefit) for income taxes (96) 42 (290) (65) 98
---------------------------------------------------
Pro forma net income (loss) $ (118) $ 52 $ (355) $ (80) $ 120
===================================================
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months
Year ended December 31 ended June 30
1994 1995 1996 1996 1997
--------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net (loss) income $(214) $ 94 $(645) $(145) $ 218
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization 182 273 315 167 105
Changes in operating assets and
liabilities:
Accounts receivable (186) (390) (554) (13) (168)
Prepaid expenses 17 (101) 7 54 (10)
Other current assets (1) 82 13 13 2
Due from affiliate (28) (1) (5) (12) (5)
Other noncurrent assets 169 (71) (12) (140) 25
Accounts payable and accrued
expenses 45 262 559 (132) (602)
Accrued salaries and payroll
taxes payable 39 217 (128) 109 575
Deferred revenue (132) 36 (36) (36) --
Other current liabilities 28 (124) (2) (2) --
--------------------------------------
Net cash provided by (used in)
operating activities (81) 277 (488) (137) 140
Investing activities
Purchases of property and equipment (239) (291) (75) (54) (37)
--------------------------------------
Net cash used in investing activities (239) (291) (75) (54) (37)
Financing activities
Proceeds from notes payable 560 -- 925 418 16
Payments on notes payable (276) (553) (258) (129) (120)
Payments to former owners (87) (250) (100) (100) --
Financing costs (60) (96) -- -- --
Proceeds from subordinated notes payable -- 900 -- -- --
--------------------------------------
Net cash provided by (used in)
financing activities 137 1 567 189 (104)
--------------------------------------
Net increase (decrease) in cash and
cash equivalents (183) (13) 4 (2) (1)
Cash and cash equivalents at beginning
of period 198 15 2 2 6
--------------------------------------
Cash and cash equivalents at end of $ 15 $ 2 $ 6 $ -- $ 5
period
======================================
Supplemental disclosure of cash flow
information
Interest paid $ 157 $ 250 $ 209 $ 95 $ 107
======================================
Local income taxes paid $ 28 $ 26 $ 2 $ 2 $ --
======================================
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1995 and 1996 and
the six months ended June 30, 1996 and 1997
(Information as of June 30, 1997 and for the six
months ended June 30, 1996 and 1997 is unaudited)
1. Business Organization
Earlybird Courier Service, LLC ("Earlybird LLC") is engaged in the
logistics and courier business in the New York Metropolitan area. Total
Management Support Services, LLC ("TMSS LLC") is engaged in full-service
outsourcing and facilities management for clients located in several major
cities throughout the United States. Total Management LLC is a holding
company and the direct owner of Earlybird LLC and TMSS LLC. On January 1,
1995, Earlybird Messenger Service, Inc. transferred substantially all of
its operating assets and liabilities to a newly formed entity, Total
Management LLC, which was immediately followed by a contribution of these
assets and liabilities from Total Management LLC to a newly formed entity,
Earlybird LLC. Simultaneously, Total Management Support Services, Inc.
transferred substantially all of its operating assets and liabilities to
Total Management LLC, which was immediately followed by a contribution of
these assets and liabilities from Total Management LLC to a newly formed
entity, TMSS LLC. Earlybird Messenger Service, Inc. and Total Management
Support Services, Inc. own 88% and 1%, respectively, of Total Management
LLC.
Effective January 1, 1995, one stockholder effectively owns approximately
90% of Earlybird LLC, TMSS LLC, Total Management LLC, approximately 100%
of Earlybird Messenger Service, Inc. and approximately 60% of Total
Management Support Services, Inc.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying combined financial statements include the accounts of
Earlybird LLC, TMSS LLC, Total Management LLC, Earlybird Messenger
Service, Inc. and Total Management Support Services, Inc. all of which are
under common control (collectively, the "Company"). Although the majority
stockholder did not have a majority interest prior to January 1, 1995, the
statements of operations and retained earnings (accumulated deficit) and
cash flows for the year ended December 31, 1994 have also been combined
because they represent the results of operations and cash flows of the
predecessor businesses. All significant intercompany balances and
transactions have been eliminated in the accompanying combined financial
statements.
Unaudited Information
The unaudited financial statements at June 30, 1997 and for the six months
ended June 30, 1996 and 1997 reflect adjustments, all of which are of a
normal recurring nature, which are, in the opinion of management,
necessary to a fair presentation. The results for the interim periods
presented are not necessarily indicative of full year results.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
Courier services and facilities management revenues are recognized in the
period in which they are earned.
Deferred Revenue
Deferred revenue represents revenue received in advance for services
provided in January 1996.
F-29
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
The Company maintains its cash principally in one financial institution.
Depreciation
Depreciation of property and equipment is provided for on the
straight-line basis and accelerated methods over the estimated useful
lives of the assets, which range from three to eight years. Leasehold
improvements are depreciated over the lives of the respective leases.
Intangible Assets
Intangible assets consist of deferred financing costs and a covenant
not-to compete. Deferred financing costs are amortized over the term of
the related financing and the covenant not-to-compete is amortized over
the term of the covenant.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes payable and accrued expenses approximates fair
value because of the short maturity of these instruments. The estimated
fair value of long-term debt approximates its carrying value.
Additionally, interest rates on outstanding debt are at rates which
approximate market rates for debt with similar and average maturities.
Concentration of Credit Risk
Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and, accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
F-30
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
3. Stockholders' Deficiency (dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
(No Par Value)
Additional
Members Number of Paid-in Treasury
Capital Shares Amount Capital Stock
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Management Support Services, Inc.
(200 shares authorized) $ - 50 $ 1 $ 69 $ (199)
Earlybird Messenger Service, Inc.
(200 shares authorized) - 35 4 - (1,132)
------------------------------------------------------------------------
Balance at December 31, 1994 - 85 5 69 (1,331)
Earlybird Courier Service, LLC - - - - -
Total Management Support Services, LLC - - - - -
Total Management LLC - - - - -
Net loss for the year ended
December 31, 1995 - - - - -
------------------------------------------------------------------------
Balance at December 31, 1995 - 85 5 69 (1,331)
Net loss for the year ended
December 31, 1996 - - - - -
------------------------------------------------------------------------
Balance at December 31, 1996 - 85 5 69 (1,331)
Net income for the six months ended
June 30, 1997 - - - - -
------------------------------------------------------------------------
Balance at June 30, 1997 $ - 85 $ 5 $ 69 $ (1,331)
========================================================================
<CAPTION>
Retained
Earnings Total
(Accumulated Stockholders'
Deficit) (Deficiency)
----------------------------------
<S> <C> <C>
Total Management Support Services, Inc.
(200 shares authorized) $ 581 $ 452
Earlybird Messenger Service, Inc.
(200 shares authorized) (215) (1,343)
----------------------------------
Balance at December 31, 1994 366 (891)
Earlybird Courier Service, LLC - -
Total Management Support Services, LLC - -
Total Management LLC - -
Net loss for the year ended
December 31, 1995 94 94
----------------------------------
Balance at December 31, 1995 460 (797)
Net loss for the year ended
December 31, 1996 (645) (645)
----------------------------------
Balance at December 31, 1996 (185) (1,442)
Net income for the six months ended
June 30, 1997 218 218
==================================
Balance at June 30, 1997 $ 33 $ (1,224)
==================================
</TABLE>
Earlybird Messenger Service, Inc. has treasury stock of 65 shares of
common stock and Total Management Support Services, Inc. has treasury
stock of 50 shares of common stock.
4. Property and Equipment
Property and equipment consists of the following (dollars in thousands):
December 31
--------------------------
1995 1996
--------------------------
Furniture and fixtures $ 554 $ 572
Leasehold improvements 192 199
Computer equipment 439 489
Automobiles 8 8
--------------------------
1,193 1,268
Less accumulated depreciation 734 912
--------------------------
$ 459 $ 356
==========================
F-31
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
5. Financing Arrangements
Notes Payable
Notes payable consists of the following (dollars in thousands):
December 31
1995 1996
-------------------------
Note due to the National Westminster Bank (a) $ 19 $ -
Equipment loan due to Sterling National
Bank & Trust Company (b) 63 17
Credit line with Sterling National Bank &
Trust Company (b) 289 1,214
Copytex equipment loan (c) 53 21
Notes payable to former stockholder (d) 1,192 1,031
-------------------------
1,616 2,283
Less current portion due within one year 549 1,426
-------------------------
$ 1,067 $ 857
=========================
(a) The note due to National Westminster Bank bore interest at 11.75%
per annum, and was repaid in monthly installments over a five year
period.
(b) The Company has entered into several credit agreements with the
Sterling National Bank & Trust Company. These credit arrangements
consisted of an equipment loan with interest at 8.875% per annum and
a short-term credit line. The equipment loan is collateralized by
equipment of the Company and is guaranteed by officers of the
Company. The loan principal is being repaid in 40 equal monthly
installments with the last payment due April 1, 1997. The short-term
credit line is collateralized by accounts receivable and bears
interest at the bank's prime rate plus 1-1/4%.
(c) This loans for the purchase of equipment is repayable in 36 equal
monthly installments including interest through July 1997.
(d) Effective January 1, 1993, Earlybird Messenger Service, Inc.
repurchased stock of the company held by one of its stockholders.
The purchase price was $1,500,000 inclusive of interest at 8% per
annum, payable in 96 equal monthly installments commencing February
1, 1994. The principal amount due on this note amounted to
approximately $891,000 and $771,000 at December 31, 1995 and 1996,
respectively. Earlybird Messenger Services, Inc. also entered into a
noncompetition agreement with this former stockholder for a period
of 4 years commencing January 1, 1993. As consideration for entering
into this agreement, Earlybird Messenger Service, Inc. agreed to pay
$500,000 to the former stockholder in 96 equal monthly installments
commencing in February 1, 1994. Accordingly, the covenant
not-to-compete was valued at the present value of the $500,000 to be
paid using a discount rate of 8%. The present value of the amount
payable for the covenant not-to-compete amounted to approximately
$301,000 and $260,000 at December 31, 1995 and 1996, respectively.
F-32
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
5. Financing Arrangements (continued)
Subordinated Notes Payable
On February 28, 1995, Total Management LLC entered into two term loan
commitments, with a venture capital group (the "Lender"), to borrow
$900,000 in installments of $500,000 and $400,000, respectively, at prime
plus 1/2% with repayment terms to commence no earlier than March 1, 1998.
Simultaneously, Total Management LLC issued to the Lender warrants to
acquire up to 50% of the equity of Total Management LLC, in lieu of
repayment of the loans, subject to certain terms and conditions. The
warrants expire on February 28, 1998. Financing costs incurred amounted to
approximately $155,000 (of which $60,000 was paid in 1994) and are being
amortized over the three year period ending in February 1998.
Effective January 1, 1996 through December 31, 1996, the Company was
entitled to defer the payment of interest on the subordinated notes
payable. Effective January 1, 1997, the lender irrevocably waived the
payment of all interest accrued for the period from January 1, 1996 to
December 31, 1996 and waived the accrual and payment of any future
interest on the aforementioned notes.
6. Income Taxes
The Company accounts for income taxes using the liability method in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". Total Management LLC, Earlybird LLC and
TMSS LLC file separate income tax returns and are treated as Partnerships
for federal, New York State and New York City income tax purposes. These
entities file their tax returns on the cash basis of accounting. Earlybird
Messenger Service, Inc. and Total Management Support Services, Inc. also
file separate income tax returns and have elected to be treated as S
Corporations under Subchapter S of the Internal Revenue Code. Accordingly,
the Company is not subject to federal income taxes because the
stockholders include the Company's income in their personal income tax
returns. The LLC's are subject to New York City unincorporated business
tax and the S Corporations are subject New York City Corporate income
taxes and New York state minimum tax.
The unaudited pro forma income tax information included in the combined
statements of operations and retained earnings (accumulated deficit)
represents an adjustment to record a provision for income taxes as if the
Company had been subject to federal and state income taxes for all periods
presented. The provision (benefit) for pro forma income taxes on net
income (loss) using an effective rate of 45% differs from the amounts
computed by applying the applicable federal statutory rate (34%) due to
state and local taxes.
7. Commitments and Contingencies
Lease Commitments
Office space is leased under operating leases expiring through 2001. The
leases provide for minimum annual rent, plus expense escalations. The
Company leases certain equipment for periods up to five years under
operating leases, expiring through 2002.
F-33
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
7. Commitments and Contingencies (continued)
The approximate minimum rental commitments under noncancellable leases for
office space and equipment are as follows (dollars in thousands):
Year ending December 31:
1997 $ 403
1998 625
1999 640
2000 526
2001 505
2002 76
--------
Total minimum payments required $ 2,775
========
Rent expense amounted to approximately $215,000, $260,000 and $355,000,
for the years ended December 31, 1994, 1995 and 1996, respectively.
Litigation
In the normal course of business, the Company is subject to certain claims
and litigation, including unasserted claims. The Company and its counsel
are of the opinion that, based on information presently available, such
legal matters will not have a material adverse effect on the financial
position or results of operations of the Company.
8. Significant Customers
For the years ended December 31, 1995 and 1996, one customer, an office
supplies manufacturer and distributor, accounted for 15% and 14%,
respectively, of the Company's total revenue.
For the year ended December 31, 1996, one customer, a financial services
firm, accounted for 12% of the Company's total revenue.
9. Amount Due from Stockholder
The amount due from stockholder is interest-free and has no fixed
repayment terms.
The Company has also guaranteed certain obligations of this stockholder
amounting to approximately $632,000 at December 31, 1996.
F-34
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
10. Business Segments (dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales:
Courier services $ 9,996 $ 13,867 $ 13,189 $ 6,509 $ 6,835
Facilities management 7,764 8,100 9,705 4,144 6,183
--------------------------------------------------
17,760 21,967 22,894 10,653 13,018
--------------------------------------------------
Cost of sales:
Courier services 6,739 8,195 7,412 3,720 3,696
Facilities management 6,239 6,992 8,448 3,489 5,514
--------------------------------------------------
12,978 15,187 15,860 7,209 9,210
--------------------------------------------------
Gross margin:
Courier services 3,257 5,672 5,777 2,788 3,139
Facilities management 1,525 1,108 1,257 656 669
--------------------------------------------------
4,782 6,780 7,034 3,444 3,808
--------------------------------------------------
Operating expenses:
Courier services 2,563 3,873 3,185 1,394 1,359
Facilities management 728 722 2,251 1,141 1,157
--------------------------------------------------
3,291 4,595 5,436 2,535 2,516
--------------------------------------------------
Sales and marketing:
Courier services 399 515 303 144 143
Facilities management 607 557 769 338 383
--------------------------------------------------
1,006 1,072 1,072 482 526
--------------------------------------------------
Depreciation and amortization:
Courier services 37 107 137 70 69
Facilities management 18 31 58 40 36
--------------------------------------------------
55 138 195 110 105
--------------------------------------------------
General and administrative 387 506 670 323 326
--------------------------------------------------
Operating income (loss) $ 43 $ 469 $ (339) $ (6) $ 335
==================================================
Identifiable assets:
Courier services $ 1,482 $ 2,403 $ 2,356 $ 2,765 $ 2,530
Facilities management 717 655 1,117 376 1,030
--------------------------------------------------
$ 2,199 $ 3,058 $ 3,473 $ 3,141 $ 3,560
==================================================
Capital expenditures:
Courier services $ 122 $ 161 $ 23 $ 27 $ 13
Facilities management 117 130 52 27 24
--------------------------------------------------
$ 239 $ 291 $ 75 $ 54 $ 37
==================================================
</TABLE>
F-35
<PAGE>
EARLYBIRD COURIER SERVICE, LLC,
TOTAL MANAGEMENT SUPPORT SERVICES, LLC AND THEIR AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
11. Subsequent Events
On September 30, 1997, the Company sold certain of its facilities
management business assets consisting primarily of six customer accounts
for $1.25 million. Under the terms of the sale agreement, the Company
entered into a covenant not to compete in the facilities management
business for a period of five years. Net sales, cost of sales, gross
margin and accounts receivable related to these customers were as follows
(dollars in thousands):
Year ended Six months ended June 30
December 31, ------------------------
1996 1996 1997
-------------------------------------
Net sales $ 3,553 $ 1,526 $ 2,704
Cost of sales 2,844 1,217 2,162
-------------------------------------
Gross margin $ 709 $ 309 $ 542
=====================================
Accounts receivable $ 218 $ 235 $ 154
=====================================
In October 1997, the Board of Managers resolved to discontinue its
facilities managements business and the officers of the Company were
authorized to sell the remaining facilities management business or
discontinue such operations.
12. Agreement with DMS (Unaudited)
Earlybird Courier Service, LLC and Total Management Support Services LLC
(collectively the LLC's) have entered into a definitive agreement with
Dispatch Management Services Corp. ("DMS") pursuant to which DMS will
acquire substantially all of the assets and assume substantially all of
the liabilities of the LLC's in exchange for cash and common stock of DMS
concurrent with the consummation of an initial public offering of the
common stock of DMS.
F-36
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Atlantic Freight Systems, Inc.
In our opinion, the accompanying combined balance sheets and the
related combined statements of operations, combined stockholders' equity and
combined cash flows present fairly, in all material respects, the financial
position of Atlantic Freight Systems, Inc. and affiliated companies as listed in
Note 1 at December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Philadelphia, PA
September 3, 1997
F-37
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
COMBINED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 42 $ 71 $ 71
Accounts receivable, net 950 1,158 783
Prepaid and other current assets 53 63 45
Related party receivable 124
------- ------- -------
Total current assets 1,169 1,292 899
Property and equipment, net 658 802 757
Other 105 119 161
------- ------- -------
$ 1,932 $ 2,213 $ 1,817
======= ======= =======
Liabilities and Stockholders' Equity
Current liabilities
Line of credit $ -- $ -- $ 61
Accounts payable 369 794 515
Accrued expenses 64 64 105
Short-term lease obligation 100 165 166
Related party payable 79 361 289
------- ------- -------
Total current liabilities 612 1,384 1,136
Deferred income taxes 328 243 218
Long-term lease obligation 295 405 320
Other 25 18 22
------- ------- -------
Total liabilities 1,260 2,050 1,696
------- ------- -------
Commitments and contingencies
Stockholders' equity:
Common stock $1.00 par value; 15,000 shares
authorized; 15,000 shares issued, 10,000 shares outstanding 15 15 15
Retained earnings 919 410 368
Less - Treasury stock, at cost (5,000 shares at June 30, 1997,
December 31, 1996 and 1995) (262) (262) (262)
------- ------- -------
Total stockholders' equity 672 163 121
------- ------- -------
Total liabilities and stockholders' equity $ 1,932 $ 2,213 $ 1,817
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-38
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
COMBINED STATEMENTS OF INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
Years Ended December 31, June 30,
------------------------------------ ---------------------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 5,338 $ 6,104 $ 8,728 $ 3,767 4,308
Cost of sales (2,904) (3,546) (5,941) (2,798) (3,001)
----------- ----------- ------------ ------------ ------------
Gross margin 2,434 2,558 2,787 969 1,307
Operating expenses 1,269 1,454 2,232 861 842
Sales and marketing expenses 132 115 105 50 88
General and administrative expenses 485 659 693 216 238
Depreciation and amortization 52 153 270 135 164
----------- ----------- ------------ ------------ ------------
Operating income (loss) 496 177 (513) (293) (25)
----------- ----------- ------------ ------------ ------------
Other (income)/expense
Interest expense 9 43 83 38 36
Other (income)/expense, net (5) (12) 36 19 5
------------ ------------ ------------ ------------ ------------
Income (loss) before provision (benefit)
for income taxes 492 146 (632) (350) (66)
Provision (benefit) for income taxes 203 76 (123) (126) (24)
----------- ----------- ------------ ------------ ------------
Net income (loss) $ 289 $ 70 $ (509) $ (224) $ (42)
=========== =========== ============ ============ ============
</TABLE>
See accompanying notes to combined financial statements.
F-39
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Treasury Retained
stock stock earnings
<S> <C> <C> <C>
Balance at January 1, 1994 $ 15 $ (262) $ 560
1994 net income 289
------ --------- --------
Balance at December 31, 1994 15 (262) 849
------ --------- --------
1995 net income 70
------ --------- --------
Balance at December 31, 1995 15 (262) 919
------ --------- --------
1996 net loss (509)
------ --------- --------
Balance at December 31, 1996 15 (262) 410
Six months ended June 30, 1997
net loss (unaudited) (42)
------ --------- --------
Balance at June 30, 1997 (unaudited) $ 15 $ (262) $ 368
====== ========= ========
</TABLE>
See accompanying notes to combined financial statements.
F-40
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
Year Ended December 31, June 30,
----------------------- -----------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 289 $ 70 $(509) $(224) $ (42)
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities
Depreciation and amortization 52 153 270 135 164
Changes in assets and liabilities:
Accounts receivable (281) (163) (208) 1 375
Related party receivable 9 (22) 125 123 --
Prepaid and other current assets (33) (3) (10) 19 18
Other assets (16) (51) (14) (8) (13)
Accounts payable 75 123 425 96 (189)
Accrued expenses 5 85 (8) (25) (40)
Short-term lease obligation 10 68 65 55 1
Deferred income taxes 194 63 (85) (80) (59)
----- ----- ----- ----- -----
Net cash provided by (used for)
operating activities 304 323 51 92 215
----- ----- ----- ----- -----
Cash flows from investing activities
Purchases of property and equipment (211) (531) (414) (414) (119)
----- ----- ----- ----- -----
Net cash used for investing activities (211) (531) (414) (414) (119)
----- ----- ----- ----- -----
Cash flows from financing activities
Increase in line of credit -- -- -- -- 61
(Issuances to) borrowings from related parties (51) (33) 282 142 (71)
Principal payments under long-term lease obligation (5) 245 110 198 (86)
----- ----- ----- ----- -----
Net cash provided by (used for)
financing activities (56) 212 392 340 (96)
----- ----- ----- ----- -----
Net increase in cash and equivalents 37 4 29 18 --
Cash and equivalents at beginning of the period 1 38 42 42 71
----- ----- ----- ----- -----
Cash and equivalents at end of the period $ 38 $ 42 $ 71 $ 60 $ 71
===== ===== ===== ===== =====
Cash paid for
Interest $ 9 $ 43 $ 83 $ 38 $ 36
Income taxes 14 0 3 0 0
</TABLE>
See accompanying notes to combined financial statements.
F-41
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Business Organization and Basis of Presentation
Atlantic Freight Systems, Inc.; Pacific Freight Systems, Inc.; Westchester
Putnam Freight Services, Inc.; Atlantic Freight Services, Inc.; and
Atlantic Freight of ATL, Inc. provide same day, on-demand delivery
services under the trade name of Atlantic Freight Systems, Inc. These
services are provided to the metropolitan and suburban areas surrounding
Newark Airport (New Jersey), JFK Airport (New York City), Stewart Airport
(Newburgh, NY), Philadelphia Airport (Pennsylvania), Atlanta Airport
(Georgia), and Savannah Airport (Georgia). Operations at the Philadelphia,
Atlanta and Savannah Airports have been discontinued or divested effective
December 31, 1996. See Note 9 for further discussion.
These financial statements present the historical financial position,
results of operations and cash flows of these combined entities and their
consolidated subsidiaries during the periods presented. These combined
companies were centrally owned and managed for all periods presented and
are collectively referred to as "Atlantic Freight Systems, Inc." or the
"Company" throughout these financial statements. All significant
intercompany transactions have been eliminated.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets which generally range from 3-15 years.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable, related parties
receivable/payable and accrued expenses approximates fair value because of
the short maturity of these instruments. The estimated fair value of other
long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market
rates for debt with similar terms and average maturities.
F-42
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. The Company provides its services predominately to the air
freight forwarding industry in the New York metropolitan area. Receivables
are not collaterized and accordingly, the Company performs ongoing credit
evaluations of its customers to reduce the risk of loss. The Company's ten
largest customers accounted for approximately 70%, 64% and 65% of sales in
1994, 1995 and 1996 respectively.
Major customers
In 1994, the Company's three largest customers accounted for approximately
25%, 15% and 10% of sales. In 1995, the Company's two largest customers
accounted for approximately 23% and 14% of sales. In 1996, the Company's
two largest customers accounted for approximately 23% and 11% of sales.
Fiscal Year
The fiscal year of the Company ends on the Saturday nearest to December
31. For ease of presentation, the year-end date is presented throughout
these financial statements as December 31, for 1994, 1995 and 1996.
Income taxes
The Company is a C-Corporation for federal and state income tax purposes.
The Company accounts for income taxes using the liability method under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" (FAS 109).
Unaudited Interim Financial Statements
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and June 30, 1997 is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results for the interim periods.
3. Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and at end
of period expenses Write-offs of period
<S> <C> <C> <C> <C>
Year ended December 31, 1994 $ 16 $ 113 $ (100) $ 29
Year ended December 31, 1995 $ 29 $ 222 $ (185) $ 66
Year ended December 31, 1996 $ 66 $ 536 $ (377) $ 225
</TABLE>
The increase in the allowance for doubtful accounts receivable as of
December 31, 1996 relates to bad debts associated with the Company's
operations in Philadelphia, Atlanta and Savannah.
F-43
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
4. Property and Equipment
Property and equipment consists of the following:
December 31,
-----------------
1995 1996
Equipment $ 132 $ 181
Furniture and fixture 14 14
Vehicles 600 963
Other 122 122
------ ------
868 1,280
Accumulated depreciation and amortization 210 478
------ ------
$ 658 $ 802
====== ======
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was approximately $52, $149 and $270, respectively. Vehicles totaling $526
and $862 at December 1995 and 1996 represent capitalized leases.
The Company leases certain warehousing and office facilities and vehicles
under capital and operating leases expiring on various dates through 2000.
The leases generally provide for the lessee to pay taxes, maintenance,
insurance and certain other operating costs of the leased property. The
leases on most of the properties contain renewal provisions. Future
minimum lease payments required under leases that have noncancelable lease
terms in excess of one year at December 31, 1996 are as follows:
Fiscal year Capitalized Operating
leases leases
1997 $ 298 $ 558
1998 275 586
1999 191 410
2000 75 338
2001 45
------ ------
Total minimum lease payments 839 $1,937
======
Imputed interest 269
------
Present value of minimum
capitalized lease payments 570
------
Current portion 165
------
Long-term capitalized lease obligations $ 405
======
F-44
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
5. Lease Commitments
The Company subleases certain of these leased properties to certain
customers. Total rental income, recorded as a reduction in rental expense
of $169, $120 and $109 in 1994, 1995 and 1996, respectively. Rental
expense, net of rental income, charged to operations was approximately
$85, $210 and $322 for the years ended December 31, 1994, 1995 and 1996,
respectively.
6. Income Taxes
The provision for income taxes comprises:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1994 1995 1996
<S> <C> <C> <C>
Current tax expense
Federal $ 12 $ 7 $ -
State and local 3 2 2
--------- --------- --------
15 9 2
Deferred tax 188 67 (125)
--------- --------- --------
Provision (benefit) for income taxes $ 203 $ 76 $ (123)
========= ========= ========
</TABLE>
The provision for income taxes differs from income taxes computed by
applying the U.S. statutory federal income tax rate as a result of the
following:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1994 1995 1996
<S> <C> <C> <C>
Taxes computed at federal statutory rate (35%) $ 181 $ 71 $ (214)
State taxes (net of federal benefit) 33 13 (40)
Other, net (11) (8) 131
------------ ---------- ----------
Provision (benefit) for income taxes $ 203 $ 76 $ (123)
=========== ========== ==========
Effective rate 41.3% 52.1% (19.4)%
=========== ========== ==========
</TABLE>
The Company's effective tax rate varies from the statutory tax rate for
the year ended December 31, 1996 mainly due to the recognition of a
deferred tax valuation allowance.
F-45
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
6. Income Taxes (Continued)
Temporary differences giving rise to the Company's deferred tax assets and
liabilities comprised the following:
December 31,
-----------------
1995 1996
Deferred tax assets
Tax loss carryforwards $ -- $251
Bad debts 20 25
Accrued liabilities 18 22
----- ----
Gross deferred tax assets 38 298
Deferred tax valuation allowance -- (137)
----- ----
Net deferred tax assets 38 161
Deferred tax liabilities
Cash to accrual adjustment 250 181
Property and equipment 116 223
----- ----
Net deferred tax liability $ 328 $243
===== ====
At December 31, 1996, a valuation allowance has been provided against
certain deferred tax assets based on management's assessment of the
ultimate realization of such assets.
7. Related Party Transactions
The Company provided distribution services to an affiliated air freight
services company, amounting to $93, $130 and $117 in 1994, 1995 and 1996,
respectively. The Company believes that the amounts charged to the
affiliated company approximate the fair value of the services provided. In
December 1995, the shareholders of the Company sold their interest in the
affiliated entity to a relative of one of the principal shareholders of
the Company.
The Company provided the affiliated company with certain administrative
services, including accounting and insurance administration activities.
All costs related to these services are charged to the affiliated company
using allocation methods management believes are reasonable. The allocated
charges approximated $21, $17 and $30 in 1994, 1995 and 1996,
respectively.
The Company borrows from and/or loans to, the Company's shareholders and
various relatives of the shareholders. As of December 31, 1995 and 1996,
the amounts owed to related parties were $79 and $361, respectively. As of
December 31, 1995 and 1996, the amounts due from related parties were $124
and $0, respectively. All related party loans to/from are payable upon
demand. On certain related party notes payable, the Company pays interest
at rates ranging from 10% to 12%. Interest expense totaled $7, $17 and $18
for related party notes payable in 1994, 1995 and 1996, respectively.
F-46
<PAGE>
ATLANTIC FREIGHT SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies
The Company is involved in various legal proceedings arising in the
ordinary course of business. Based upon the information presently
available and the Company's evaluation of the proceedings pending,
management believes that the adverse determination of any such proceedings
or all of them combined will not have a material adverse effect on the
Company's business or financial position, results of operations, or cash
flows.
9. Subsequent Events
Divestitures and acquisitions
On December 31, 1996, the Company discontinued the operations of Atlantic
Freight Services Inc., the facility serving the Philadelphia Airport. In
March 1997, the Company sold Atlantic Freight of ATL, Inc., the facilities
serving the Atlanta and Savannah Airports. The cost of these divestitures
was not material to the combined financial position of the Company. These
facilities commenced operations in 1996 and combined accounted for $1,103
of revenues and $165 of operating losses in 1996.
In June 1997, the Company reduced its ownership interest in Lognet, Inc.,
a transportation industry internet service provider, from 65% to 40%.
Proceeds from the sale approximated $50.
In June 1997, the Company purchased Stewart Inc., a competitor serving
Stewart Airport, for approximately $100.
Line of credit
On January 15, 1997, the Company entered into a $100 line of credit
agreement with a maturity date of January 31, 1998. Commitment fees are
nominal. Interest is variable at a per annum rate equal to the sum of
3.50% plus the 30-day commercial paper rate. Collateral on the line of
credit consists of an equity security portfolio owned by one of the
principal shareholders of the Company. The portfolio must be valued at an
aggregate value of no less than $150.
10. Unaudited Subsequent Events
The Company and its stockholders have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which the
Company will merge with DMS. All outstanding shares of the Company will be
exchanged for cash and common stock of DMS concurrent with the
consummation of the initial public offering of the common stock of DMS.
F-47
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Bullit Courier Services, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Bullit Courier Services, Inc., and its subsidiaries at February 28, 1997 and
February 29, 1996, and the results of their operations and their cash flows for
each of the three years in the period ended February 28, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Detroit, Michigan
September 11, 1997
F-48
<PAGE>
BULLIT COURIER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
February 29, February 28, May 31,
1996 1997 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 150 $ 63 $ 3
Accounts receivable, less allowance for
uncollectible accounts of $18 697 693 716
Other assets 57 48 55
------- ----- -----
Total current assets 904 804 774
Property and equipment, net 112 99 97
Deferred tax asset - noncurrent 11 44 44
Other assets 13 13 13
------- ----- -----
Total assets $ 1,040 $ 960 $ 928
======= ===== =====
Liabilities and Stockholders' Equity
Current liabilities
Notes payable to former shareholder $ 9 $ 17 $ 12
Line of credit 50 154 94
Current portion long-term debt 34 34 34
Accounts payable 232 314 253
Payroll taxes 80 26 45
Accrued expenses and other liabilities 97 10 46
------- ----- -----
Total current liabilities 502 555 484
Note payable to former shareholder 17
Bank loans payable 306 273 264
------- ----- -----
Total long-term debt 323 273 264
------- ----- -----
Total liabilities 825 828 748
------- ----- -----
Commitments and contingencies
Stockholders' equity
Common stock, no par value, authorized
200 shares; 60 issued and outstanding 25 25 25
Less - treasury stock, 140 shares repurchased (148) (148) (148)
Retained earnings 338 255 303
------- ----- -----
Total stockholders' equity 215 132 180
------- ----- -----
Total liabilities and stockholders' equity $ 1,040 $ 960 $ 928
======= ===== =====
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
BULLIT COURIER SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Three months
Year ended ended
------------------------------------------- --------------------------
February 28, February 29, February 28, May 31, May 31,
1995 1996 1997 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 6,856 $ 6,704 $ 7,696 $ 2,062 $ 2,172
Cost of sales 4,270 4,119 4,639 1,146 1,308
----------- ------------ ----------- ------------ -----------
Gross margin 2,586 2,585 3,057 916 864
Operating expenses 1,659 1,758 2,116 633 533
Sales and marketing 346 373 358 107 68
General and administrative
expenses 511 489 642 151 138
Depreciation 23 14 6 2 2
----------- ------------ ----------- ------------ -----------
Operating income (loss) 47 (49) (65) 23 123
----------- ------------ ----------- ------------ -----------
Interest expense 8 8 107 3 33
Other income (5) (12) (56) (1)
----------- ------------ ----------- ------------ -----------
Income (loss) before provision
(benefit) for income taxes 44 (45) (116) 21 90
Provision (benefit) for income
taxes 27 (11) (33) 11 42
----------- ------------ ----------- ------------ -----------
Net income (loss) $ 17 $ (34) $ (83) $ 10 $ 48
=========== ============ =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
BULLIT COURIER SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, except number of shares)
<TABLE>
<CAPTION>
Common stock Treasury stock
------------ --------------
Number Retained Number
of shares Amount earnings of shares Amount Total
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity, February 28, 1994 60 $ 25 $ 355 140 $ (148) $ 232
Net income 17 17
---- ----- ------- ----- ------- -------
Stockholders' equity, February 28, 1995 60 25 372 140 (148) 249
Net loss (34) (34)
---- ----- ------- ----- ------- -------
Stockholders' equity, February 29, 1996 60 25 338 140 (148) $ 215
Net loss (83) (83)
---- ----- ------- ----- ------- -------
Stockholders' equity, February 28, 1997 60 25 255 140 (148) 132
Net income (unaudited) 48 48
---- ----- ------- ----- ------- -------
Stockholders' equity, May 31, 1997 (unaudited) 60 $ 25 $ 303 140 $ (148) $ 180
==== ===== ======= ===== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE>
BULLIT COURIER SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three months
Year ended ended
----------------------------------------- ----------------------
February 28, February 29, February 28, May 31, May 31,
1995 1996 1997 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities
Net income (loss) $ 17 $ (34) $ (83) $ 10 $ 48
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation 23 14 6 2 2
Deferred taxes (49) (11) (33) -- --
Other 16 -- 7 8 --
Changes in assets and liabilities
Accounts receivable 98 (166) 4 (28) (23)
Other current assets (93) 44 9 21 (7)
Accounts payable (59) 86 82 12 (61)
Payroll taxes payable 111 (31) (54) (60) 19
Other accrued expenses 18 (12) (87) 23 36
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities 82 (110) (149) (12) 14
--------- --------- --------- --------- ---------
Cash flow from financing activities
Repayments on note payable to former
shareholder (51) (39) (9) (3) (5)
Repayments on long-term bank loans (31) (33) (33) (43) (9)
Short-term bank borrowings, net 25 25 104 34 (60)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
financing activities (57) (47) 62 (12) (74)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 25 (157) (87) (24) (60)
Cash and cash equivalents, beginning
of year 282 307 150 150 63
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of year $ 307 $ 150 $ 63 $ 126 $ 3
========= ========= ========= ========= =========
Supplemental data
Cash paid for
Income taxes $ 89 $ 10 $ 31 $ 15 $ 5
Interest 8 8 107 8 21
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
BULLIT COURIER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Description of the Business
Description of the Business
Bullit Courier Services, Inc. and Subsidiaries (the Company or Bullit) was
incorporated on March 30, 1978 under the laws of the State of New York.
The Company is organized into Bullit Services, Inc. (the Parent) and its
two wholly-owned subsidiaries. The subsidiary Bullit Messenger and
Manpower, Inc. (Messenger) conducts foot messenger and performs
outsourcing services and the subsidiary Bullit Motor Services, Inc.,
(Motor), performs trucking services.
Messenger operates the majority of its business in the mid and downtown
areas of Manhattan and services the small parcel (one to ten pounds)
sector of delivery needs. The majority of the Company's customers are
based in Manhattan. Deliveries are made by foot and through public
transportation.
Motor operates the Company's headquarters in Brooklyn, New York. Motor
services the New York metropolitan region's light-end (10 to 500 pounds)
and freight (500 to 2,000 pounds) trucking needs. Motor is generally a
rush delivery service and operations are conducted 24 hours a day, 365
days a year.
Both Messenger and Motor service the same customers from a multi-industry
base including financial institutions, the garment center and textile
firms and printers.
2. Summary of Significant Accounting Policies
Basis of Presentation
Through the fiscal year ended February 28, 1995, Spartan Worldwide
Delivery, Inc., (Spartan), an airborne delivery services business, and
through the fiscal year ended February 28, 1996, On-Line Automated
Services, a computer consulting business, were wholly-owned subsidiaries
of Bullit. Both businesses were operated at separate locations, conducted
independent operations, and did not share costs with the parent. Only the
assets and operations of Bullit Services, Inc., and its two wholly-owned
subsidiaries that exist at February 28, 1997, Messenger and Motor, are
included, accordingly, the accompanying financial statements exclude the
effects of operations of Spartan and On-Line.
Principles of consolidation
All significant intercompany balances and transactions are eliminated in
consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the balance sheet dates and the reported amounts of revenues and expenses
for the periods presented. Actual results may differ from such estimates.
F-53
<PAGE>
BULLIT COURIER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (Continued)
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Property and equipment
Property and Equipment are stated at cost and are depreciated using
various accelerated methods over the estimated useful lives of the assets
or the terms of the lease, whichever is shorter, as follows:
Years
-----
Equipment 5
Furniture 7
Vehicles 5
Leasehold improvements 31.5
Expenditures for equipment, furniture, leasehold improvements and vehicles
are capitalized. Expenditures for maintenance and repairs are charged to
expense as incurred. Upon disposition of property and equipment, the cost
and accumulated depreciation are removed from the related accounts, and
any resulting gain or loss is reflected in the results of operations for
the period.
Income taxes
The Company applies the liability method in accounting for income taxes in
accordance with Statement of Financial Accounting Standard No. 109 (SFAS
No. 109). Under this method, deferred tax assets and liabilities are
determined based on the differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted rates
and laws that will be in effect when the differences are expected to
reverse.
Concentration of credit risk
The Company performs messenger and truck delivery services to businesses
located principally in the New York Metropolitan region. Financial
instruments which potentially subject the Company to credit risk consists
primarily of accounts receivable, and accordingly, the Company performs
ongoing credit evaluations of its customers to reduce the risk of loss.
The Company grants credit to customers in the ordinary course of business.
Fair value of financial instruments
For certain of the company's financial instruments, including cash,
accounts receivable, notes payable and short-term borrowings, accounts
payable, and other accrued liabilities, the carrying amounts approximate
fair value due to their short maturities. Long-term floating rate notes
are carried at amounts that approximate fair value. The estimated fair
value of long-term debt is primarily based on borrowing rates currently
available to the company for bank loans with similar terms and maturities.
F-54
<PAGE>
BULLIT COURIER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (Continued)
Unaudited Interim Financial Data
The interim financial data as of May 31, 1997 and for the three months
ended May 31, 1996 and May 31, 1997 is unaudited; however, in the opinion
of the Company, the interim data includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
3. Trade Receivables
At February 29, 1996, and February 28, 1997, three customers represented
20%, 10%, and 9%; and 26%, 18% and 10%, respectively, of total
receivables. For the three years ended February 28, 1997, the three
customers represented 19%, 11%, and 9%; and 23%, 14%, and 12%; and 28%,
17%, and 11%, respectively, of net sales.
4. Allowance for Doubtful Accounts
The allowance for doubtful accounts consists of the following:
Balance at Charged to Balance at
beginning costs and end of
of period expenses Write-offs period
Year ended February 29, 1996 $18 $ 3 $ 3 $18
Year ended February 28, 1997 18 117 117 18
5. Property and Equipment
Property and equipment consists of the following:
February 29, February 28,
1996 1997
Furniture and equipment $462 $462
Automobiles 38 --
Leasehold improvements 104 104
---- ----
604 566
---- ----
Less - accumulated depreciation 492 467
---- ----
Property and equipment, net $112 $ 99
==== ====
F-55
<PAGE>
BULLIT COURIER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
6. Debt
Long-term debt
The Company has obtained a Small Business Administration (SBA) loan with a
financial institution for $405 to refinance its previous debt and provide
working capital. The balance is payable over eleven years at a stated
interest rate of 2.75% above prime rate in effect at the beginning of each
Adjustment Period, as defined in the loan agreement (11.0% at February 28,
1997). There are no compensating balances, however, the loan is personally
guaranteed by the officers of the Company. At February 29, 1996 and
February 28, 1997, the current and long-term portions outstanding are as
follows:
1996 1997
SBA loan $340 $307
Less - current portion 34 34
---- ----
Total long-term $306 $273
==== ====
Annual maturity on the SBA loan outstanding at February 28, 1997 is as
follows: 1998, $34; 1999, $34; 2,000, $34; 2001, $34; 2002, $34; 2003 and
thereafter, $137. Interest expense on the SBA loan for each of the three
years ended February 28, 1997 was $38, $8, and $8, respectively.
Short-term debt
In addition, the Company has a line of credit with the same financial
institution, which is renewed on an annual basis. At February 29, 1996 and
February 28, 1997, borrowings under this agreement were $50 and $154
payable at 11.25% and 11.50%, respectively. Interest expense related to
the credit line for each of the three years ended February 28, 1997 was:
$2, $3, and $13. At February 28, 1997, the unused borrowing capacity under
the line of credit totaled $46.
Note Payable to former shareholder
The Company has a note payable to a former shareholder at a stated annual
interest of 6% related to the exchange of treasury stock. At February 29,
1996, and February 28, 1997, the amounts due to the shareholders were as
follows:
1996 1997
Note payable $ 26 $ 17
Less - current portion 9 17
---- ----
Total long term $ 17 $ --
==== ====
F-56
<PAGE>
BULLIT COURIER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
7. Income Taxes
The following are the components of the income tax provision:
<TABLE>
<CAPTION>
Year ended
------------------------------------------
February 28, February 28, February 28,
1995 1996 1997
<S> <C> <C> <C>
Current
Federal $ 16 $ - $ -
State and local 11
----- ------ -------
27
Deferred
Federal (11) (33)
State and local
(11) (33)
----- ------ -------
Income tax provision (benefit) $ 27 $ (11) $ (33)
===== ====== =======
</TABLE>
Reconciliation between income tax expense/(benefit) and the income taxes
computed by applying the U.S. statutory rate to income before income taxes
is as follows:
<TABLE>
<CAPTION>
Year ended
------------------------------------------
February 28, February 28, February 28,
1995 1996 1997
<S> <C> <C> <C>
Federal income tax provision
computed at U.S. statutory rate $ 15 $ (15) $ (39)
State and local income taxes, net
of federal benefit 7
Meals and entertainment 5 4 6
----- ------ -------
Income tax provision (benefit) $ 27 $ (11) $ (33)
===== ====== =======
</TABLE>
Temporary differences giving rise to the Company's deferred tax assets are
minimal.
8. Commitments and Contingencies
Operating Lease
The Company leases offices from unrelated parties under operating lease
arrangements. Future minimum lease payments under noncancelable operating
leases with an initial or remaining term in excess of one year in effect
at February 28, 1997, are as follows:
F-57
<PAGE>
BULLIT COURIER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
Amount
Year
1998 $59
1999 38
---
Total $97
===
9. Related Parties
On a month-to-month basis the Company leases its corporate office building
and warehousing facilities from entities controlled by officers of the
Company. Rental expense paid to related parties for each of the three
years ended February 28, 1997 was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Corporate offices $105 $ 68 $ 68
Warehouses 131 68 68
---- ---- ----
Total $236 $136 $136
==== ==== ====
</TABLE>
10. Unaudited Subsequent Event
The Company and its stockholders have entered into a definitive agreement
with Dispatch Management Services Corp. pursuant to which the Company will
merge with DMS. All outstanding shares of the Company will be exchanged
for cash and common stock of DMS concurrent with the consummation of the
initial public offering of the common stock of DMS.
F-58
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Brookside Systems and Programming Limited
We have audited the accompanying balance sheets of Brookside Systems
and Programming Limited as of March 31, 1997 and 1996, and the related profit
and loss accounts and statements of change in cash flows for each of the three
years in the period ended March 31, 1997, all expressed in pounds sterling and
prepared on the basis set forth in Note 1 to the financial statements. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with United Kingdom generally
accepted auditing standards which do not differ in any material respect from
auditing standards generally accepted in the United States. 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 the Company at March
31, 1997 and 1996, and the results of the Company's operations and its cash
flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom
differ in certain significant respects from accounting principles accepted in
the United States. The application of the latter would have affected the
determination of the loss expressed in pounds sterling for each of the three
years in the period ended March 31, 1997 and the determination of shareholders
equity and financial position also expressed in pounds sterling at March 31,
1997 and 1996. Note 21 to the financial statements summarizes this effect for
each of the years ended March 31, 1997 and 1996, and as at March 31, 1997 and
1996.
Price Waterhouse
London, England
October 15, 1997
F-59
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
BALANCE SHEETS
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
March 31, June 30,
--------- --------
1996 1997 1997
(Unaudited)
<S> <C> <C> <C>
Fixed assets
Intangible assets (pounds) 169 (pounds) 251 (pounds) 269
Tangible assets 34 38 41
--- --- -----
203 289 310
Current assets
Debtors due within one year 117 88 104
Creditors: amounts falling due within one year (327) (457) (459)
----- ----- -----
Net current liabilities (210) (369) (355)
---- ---- ---
Total assets less current liabilities (7) (80) (45)
---- ------ -----
Creditors: amounts falling due after more than one
year (25) (17) (16)
----- ----- ------
(32) (97) (61)
======= -===== =======
Capital and reserves
Share capital - equity - - -
Profit and loss account (32) (97) (61)
--- ---- ----
Shareholders funds (pounds) (32) (pounds) (97) (pounds) (61)
==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
STATEMENTS OF OPERATIONS
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
Three Months
Year End March 31, Ended June 30,
------------------ --------------
1995 1996 1997 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Turnover (pounds) 502 (pounds) 643 (pounds) 655 (pounds) 152 (pounds) 207
Cost of sales (346) (348) (349) (78) (83)
------ ----- ------ ---- ----
Gross profit 156 295 306 74 124
Administrative expenses (268) (286) (357) (95) (82)
------ ----- ------ ---- ----
Operating profit/(loss) (112) 9 (51) (21) 42
Interest payable and similar charges (3) (6) (14) (3) (5)
------ ----- ------ ---- ----
Profit/(loss) on ordinary activities before taxation (115) 3 (65) (24) 37
Taxation on profits from ordinary activities 12 - - - -
Profit/(loss) on ordinary activities after taxation (103) 3 (65) (24) 37
------ ----- ------ ---- ----
Dividends - - - - -
Retained profit for the financial year (pounds) (103) (pounds) 3 (pounds) (65) (pounds) (24) (pounds) 37
====== ===== ====== ==== ====
</TABLE>
All amounts relate to continuing activities.
All recognised gains and losses are included in the profit and loss account.
See accompanying notes to financial statements.
F-61
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
STATEMENTS OF CASH FLOWS
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended March 31, Ended June 30,
-------------------- --------------
1995 1996 1997 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net cash inflow from operating activities (pounds) 52 (pounds) 53 (pounds) 155 (pounds) 50 (pounds) 53
Returns on investments and
servicing of finance (3) (6) (14) (4) (5)
Capital expenditure (62) (111) (146) (38) (34)
---- ------ ----- ---- ---
Cash inflow before use of liquid
resources and financing (13) (64) (5) 8 14
Financing - 32 (7) (2) (2)
---- ------ ----- ---- ---
Increase/(decrease) in cash in the year (pounds)(13) (pounds) (32) (pounds) (12) (pounds) 6 (pounds)12
==== ====== ===== ==== ===
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS
(Pounds Sterling in Thousands)
1. Accounting Policies
Basis of Accounting
The financial statements have been prepared under the historical cost
convention and are in accordance with applicable accounting standards. The
following accounting policies have been applied.
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1997 and June 30, 1996 is unaudited; however in the opinion
of the Company, the interim data includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair statement of the
results for the interim period.
Turnover
Turnover represents amounts invoiced, excluding value added tax, in
respect of the sale of services to customers.
Research and development
Research expenditure is written off to the profit and loss account in the
year in which it is incurred. Development expenditure is written off in
the same way unless the directors are satisfied as to the technical,
commercial and financial viability of individual projects. In this
situation, the expenditure is deferred and amortised over the period
during which the company is expected to benefit.
Depreciation
Deprecation is provided to write off cost, less estimated residual values
of all tangible fixed assets over their expected useful lives. It is
calculated at the following rates:
Fixtures, fittings and equipment 15 - 33 1/3% reducing balance
Assets Held Under Lease Agreements
Tangible assets acquired under finance lease agreements are capitalised at
cost and are written off over the shorter of their expected working lives
or the lease term. The related finance costs are charged to the profit and
loss account appropriate to the terms of the agreements.
Payments under operating leases are charged to the profit and loss account
on a straight line basis over the term of the lease.
Pensions
The pension costs charged in the financial statement represent the
contributions payable by the company during the year in accordance with
SSAP 24.
Deferred Taxation
Provision is made for deferred taxation using the liability method in
respect of all timing differences to the extent that it is probable a
liability will crystallise in the foreseeable future.
F-63
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Operating Profit/(Loss)
<TABLE>
<CAPTION>
Year Ended March, 31
--------------------
1995 1996 1997
<S> <C> <C> <C>
Operating profit/(loss) for the year was
arrived at after charging:
Depreciation of tangible fixed assets (pounds) 8 (pounds) 12 (pounds) 15
Research and development:
Amortisation of development expenditure 33 39 46
Operating lease rentals of:
Plant and machinery 21 18 22
Land and buildings 27 15 29
Hire of plant and machinery 6 5 4
Auditors' remuneration 2 2 2
Directors remuneration 19 9 19
---- ---- ----
(pounds) 116 (pounds) 100 (pounds) 137
</TABLE>
3. Employees
<TABLE>
<CAPTION>
Year Ended March, 31
--------------------
1995 1996 1997
<S> <C> <C> <C>
Staff costs amounted to:
Wages and salaries (pounds) 188 (pounds) 195 (pounds) 250
Social security costs 16 18 22
Pension costs 10 10 11
---- ---- ----
(pounds) 214 (pounds) 223 (pounds) 283
==== ==== ====
</TABLE>
4. Interest Payable and Similar Charges
<TABLE>
<CAPTION>
Year Ended March, 31
--------------------
1995 1996 1997
<S> <C> <C> <C>
Bank loans and overdrafts (pounds) 3 (pounds) 6 (pounds) 14
==== ==== ====
</TABLE>
All loans and overdrafts are wholly repayable within five years.
5. Taxation on Profits from Ordinary Activities
<TABLE>
<CAPTION>
Year Ended March, 31
--------------------
1995 1996 1997
<S> <C> <C> <C>
UK corporation tax (pounds) 12 (pounds) - (pounds) -
==== ==== ====
</TABLE>
F-64
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Intangible Assets
Development costs
Costs
At March 31, 1995 (pounds) 217
Additions 85
---
At March 31, 1996 302
Additions 128
---
At March 31, 1997 (pounds) 430
===
Provisions for diminution in value
At March 31, 1995 (pounds) 94
Charge for year 39
---
At March 31, 1996 133
Charge for year 46
---
At March 31, 1997 (pounds) 179
===
Net book value
At March 31, 1996 (pounds) 169
===
At March 31, 1997 (pounds) 251
===
F-65
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Tangible Assets
Fixtures, fittings
and equipment
Costs
At March 31, 1995 (pounds) 44
Additions 26
--
At March 31, 1996 70
Additions 19
--
At March 31, 1997 (pounds) 89
==
Depreciation
At March 31, 1995 (pounds) 24
Charge for year 12
--
At March 31, 1996 36
Charge for year 15
--
At March 31, 1997 (pounds) 51
==
Net Book Value
At March 31, 1996 (pounds) 34
==
At March 31, 1997 (pounds) 38
==
8. Debtors
As at March 31,
---------------
1996 1997
Amounts due within one year:
Trade debtors (pounds) 101 (pounds) 76
Other debtors 16 12
--- ---
(pounds) 117 (pounds) 88
=== ===
F-66
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Creditors: Amounts falling due within one year
As at March 31,
---------------
1996 1997
Bank loans and overdrafts (pounds) 67 (pounds) 80
Trade creditors 94 86
Other taxation and social security 36 104
Other creditors 130 187
--- ---
(pounds) 327 (pounds) 457
=== ===
The company meets its day to day working capital requirements through an
overdraft facility which is repayable on demand. The facility was last
reviewed by the company's bankers on 16 June 1997 with review dates every
six months.
In August 1997 the Company received (pounds)200 from Dispatch Management
Services Corp. in anticipation of its acquisition of the Company. This
cash is to be retained by the Company whether or not the acquisition
proceeds.
The overdraft existing as at 30 June 1997 has now therefore been paid off
and the personal guarantee of (pounds)80 given by the directors as
security for the loan and overdraft (see note 20) has been removed. In
addition to this the directors have a loan account which it is the
directors' intention should be paid off prior to the acquisition.
The loan of (pounds)35 taken out in June 1996 (see note 10), continues to
be paid off over five years at eight hundred pounds per month.
10. Creditors: Amounts falling due after more than one year
As at March 31,
---------------
1996 1997
Loans
Wholly repayable within five years (pounds) 32 (pounds) 24
included in current liabilities (7) (7)
-- --
(pounds) 25 (pounds) 17
== ==
11. Pension Costs
The company operates a defined contribution scheme for the benefit of
certain employees. The fund is administered by trustees and is separate
from the company. Contributions charged to the profit and loss account in
the year amount to (pounds)11 (1996 : (pounds)10).
F-67
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
12. Share Capital
As at March 31,
---------------
1996 1997
Authorized
100 Ordinary shares of(pounds)1 each (pounds) 100 (pounds) 100
=== ===
Allotted, called up and fully paid
2 Ordinary shares of(pounds)1 each (pounds) 2 (pounds) 2
=== ===
13. Profit and Loss Account
As at March 31,
---------------
1996 1997
Accumulated losses at 1 April (pounds) (35) (pounds) (32)
Retained profit/(loss) for the year 3 (65)
--- ---
Accumulated losses at 31 March (pounds) (32) (pounds) (97)
=== ===
14. Reconciliation of Shareholders' Funds
Year Ended March 31,
--------------------
1996 1997
Profit/(loss) for the financial year (pounds) 3 (pounds) (65)
Shareholders' funds at the beginning
of the year (35) (32)
--- ---
Shareholders' funds at the end of the
year (pounds) (32) (pounds) (97)
==== ===
15. Reconciliation of Operating Profit to Net Cash Inflow From Operating
Activities
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Operating profit/(loss) (pounds) (112) (pounds) 9 (pounds) (51)
Depreciation charges 8 12 15
Amortization charges 33 39 46
(Increase)/decrease in debtors 61 (62) 29
Increase in creditors 62 55 117
---- --- ---
Net cash inflow from operating
activities (pounds) 52 (pounds) 53 (pounds) 156
==== === ===
</TABLE>
F-68
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Analysis of Cash Flows for Headings Netted in the Cash Flow Statement
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Returns on investments and servicing of finance
Interest paid (pounds) (3) (pounds) (6) (pounds) (14)
---- ---- ----
Net cash outflow from returns on investments
and servicing of finance (3) (6) (14)
==== ==== ====
Capital expenditure and financial investment
Purchase of tangible fixed assets (13) (26) (19)
Sale of fixed assets 1 -- --
Development costs (50) (85) (128)
---- ---- ----
Net cash outflow for capital expenditure
and financial investment (62) (111) (147)
==== ==== ====
Financing
Debt due beyond a year:
New secured loan payable within five years -- 32 --
Repayment of amounts borrowed -- -- (7)
---- ---- ----
Net cash inflow from financing -- 32 (7)
Net cash inflow from operating activities (pounds) 52 (pounds) 53 (pounds) 156
==== ==== ====
</TABLE>
17. Analysis of Changes in Net Debt
<TABLE>
<CAPTION>
At April At March At March
1, 1995 Cashflow 31, 1996 Cashflow 31, 1997
<S> <C> <C> <C> <C> <C>
Overdrafts 28 32 60 13 73
Debt due after 1 year -- 25 25 (8) 17
Debt due within 1 year -- 7 7 -- 7
--- --- --- --- ---
28 64 92 5 97
=== === === === ===
</TABLE>
F-69
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
18. Reconciliation of Net Cash Flow to Movement in Net Debt
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Decrease in cash in the year (pounds) (13) (pounds) (32) (pounds) (12)
Cash inflow from (increase)/decrease
in debt in the year - (32) 7
----- ----- -----
Increase in net debt from cashflows (13) (64) (5)
Net debt at beginning of year (15) (28) (92)
----- ----- -----
Net debt at the end of year (pounds) (28) (pounds) (92) (pounds) (97)
===== ===== =====
</TABLE>
19. Annual Commitments Under Operating Leases
The Company had annual commitments under non cancellable operating leases
as follows:
As At March 31,
--------------
1996 1997
Plant and machinery:
Within one year (pounds) 9 (pounds) 10
Between two and five years 17 17
--- ---
26 27
=== ===
Land and buildings:
Within one year - -
Between two and five years 29 29
--- ---
(pounds) 29 (pounds) 29
=== ===
20. Related Party Transaction
The following related parties have undertaken transactions with the
Company during the year:
The directors Rebecca and Roy Clark;
Fleetway Systems Services Limited - a company owned and controlled by both
the directors;
Fleetway Systems - a partnership in which the two directors
are joint partners.
The directors have a joint loan account with the Company which provided
the Company with interest free working capital during the year.
1996 1997
Directors loan (pounds) 53 (pounds) 60
F-70
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
The directors have provided a personal guarantee of (pounds)80 to the bank
as security for the loan and overdraft.
The company Fleetway Systems Services Limited (FSSL) sells computer
hardware which is often sold in conjunction with the programming and
software services of Brookside Systems and Programming Limited. The
following represents a summary of the transactions between the two
companies during the year.
1996 1997
Wages costs rebilled to FSSL (pounds) 37 (pounds)42
Hardware and car leasing costs rebilled to FSSL 25 73
Expenses rebilled from FSSL to Brookside 7 19
== ==
Amount payable to FSSL at year end (pounds) - (pounds)11
== ==
During the year transactions representing recharges of expenses incurred
on behalf of Fleetway Systems were made by the Company. All recharges
were made at arms-length and at a commercial rate.
1996 1997
Commissions paid to Fleetway Systems (pounds) 108 (pounds) 118
Costs recharged to Fleetway Systems 4 10
=== ===
Amounts payable to Fleetway Systems at the
year end (pounds) 10 (pounds) -
=== ===
21. Summary of Differences Between UK and US Generally Accepted Accounting
Practices (GAAP)
The financial statements included in this report have been prepared in
accordance with UK GAAP which differ in certain significant respects from
US GAAP. The main differences between UK GAAP and US GAAP which affect the
Company's net profit and net assets are set out below.
(i) Income Taxes
Under UK GAAP, deferred income taxes are accounted for to the extent
that it is considered probable that a liability or asset will
crystallise in the foreseeable future. Under US GAAP, deferred taxes
are accounted for on all temporary differences and a valuation
allowance is established to reduce deferred tax assets to the amount
which "more likely than not" will be realised in future tax returns.
Deferred tax amounts also arise as a result of the other US GAAP
adjustments.
The UK deferred tax asset can be reconciled as follows to the US
GAAP net deferred tax asset:
F-71
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
21. Summary of Differences Between UK and US Generally Accepted Accounting
Practices (GAAP) (Continued)
1996 1997
Deferred tax asset under UK GAAp (pounds) Nil (pounds) Nil
Tax effects on timing differences:
Tax losses 15 15
Capital allowances - -
-- --
Gross deferred tax assets in accordance with
US GAAP 15 22
-- --
Deferred tax valuation allowance (15) (22)
-- --
Net deferred tax assets in accordance with
US GAAP (pounds) Nil (pounds) Nil
=== ===
(ii) Effects on Conforming to US GAAP - Impact on Net Profit
The adjustments to reported net loss required to conform with US
GAAP are as follows:
Year Ended March 31,
--------------------
1996 1997
Net Profit/(Loss)
Net profit of the Group under UK GAAP (pounds) 3 (pounds) (65)
== ====
Net profit under US GAAP (pounds) 3 (pounds) (65)
== ====
(iii) Effects of Conforming to US GAAP - Impact on Net Equity
The adjustments to reported net equity required to conform to US
GAAP are as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1996 1997
<S> <C> <C>
Shareholders funds
Capital and reserves of the Company under UK GAAP (pounds) (32) (pounds) (12)
Adjustments:
Deferred tax - -
--- ---
Total US GAAP adjustments - -
--- ---
Approximate shareholders' deficit under
US GAAP (pounds) (32) (pounds) (12)
=== ===
</TABLE>
F-72
<PAGE>
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
21. Summary of Differences Between UK and US Generally Accepted Accounting
Practices (GAAP) (Continued)
(iv) Cash Flow Information -
The Company's financial statements include Statements of Cash Flows
in accordance with UK Accounting Standard FRS 1, "Cash Flow
Statements". The statement prepared under FRS 1 (revised 1996)
presents substantially the same information as that required under
US Statement of Financial Accounting Standard No 95 (FAS 95).
Under FRS 1 (revised 1996) cash flows are presented for (i)
operating activities; (ii) returns on investments and servicing of
finance; (iii) taxation; (iv) investing activities; and (v)
financing activities. FAS 95 only requires presentation of cash
flows from operating, investing and financing activities.
Cash flows under FRS 1 (revised 1996) in respect of interest
received, interest paid (net of that capitalised), interest on
finance leases and taxation would be included within operating
activities under FAS 95. Capitalised interest would be included in
investing activities under US GAAP.
Cash under FRS 1 (revised 1996) include cash in hand and deposits
repayable on demand less overdrafts repayable on demand. Under FAS
95 all short term borrowings and bank overdrafts are included in
financing activities.
The following statements summarise the statement of cash flows for
the Company as if they had been presented in accordance with US GAAP
and include the adjustments which reconcile cash and cash
equivalents under US GAAP to cash and cash equivalents reported
under UK GAAP.
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Net cash inflow from operating activities (pounds) 49 (pounds) 47 (pounds) 142
Net cash used in investing activities (62) (111) (147)
Net cash provided by financing activities 13 64 5
--- ---- ----
Net increase/(decrease) in cash and cash equivalents - - -
--- ---- ----
Cash under US GAAP at beginning of year - - -
Cash under US GAAP at end of year - - -
Bank overdrafts and other under UK GAAP at
end of year (28) (92) (97)
--- ---- ----
Cash/(overdraft) under UK GAAP at end of year (pounds) (28) (pounds) (92) (pounds) (97)
=== ==== ====
</TABLE>
F-73
<PAGE>
Report of Independent Accountants
To the Board of Directors and shareholders of
Bridge Wharf Investments Limited
We have audited the accompanying balance sheets of Bridge Wharf
Investments Limited as of June 30, 1997 and September 30, 1996, and the related
profit and loss accounts and statements of cash flows for nine months ended June
30, 1997 and each of the two years in the period ended September 30, 1996, all
expressed in pounds sterling and prepared on the basis set forth in Note 1 to
the financial statements. These financial statements are the responsibility of
the Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United Kingdom generally
accepted auditing standards which do not differ in any material respect from
auditing standards generally accepted in the United States. 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 the group at June
30, 1997 and September 30, 1996, and the results of the Group's operations and
its cash flows for the nine months ended June 30, 1997 and each of the two years
in the period ended September 30, 1996 in conformity with generally accepted
accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom
differ in certain significant respects from accounting principles generally
accepted in the United States. The application of the latter would have affected
the determination of the consolidated profit expressed in pounds sterling for
the nine months ended June 30, 1997 and each of the two years in the period
ended September 30, 1996 and the determination of consolidated shareholders
equity and consolidated financial position also expressed in pounds sterling at
June 30, 1997 and September 30, 1996. Note 26 to the consolidated financial
statements summarises this effect for the nine months ended June 30, 1997 and
the year ended September 30, 1996 and as at June 30, 1997 and September 30,
1996.
Price Waterhouse
London, England
October 15, 1997
F-74
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
BALANCE SHEETS
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
Year Ended Nine Months
September 30, Ended June 30,
------------- --------------
1996 1997
<S> <C> <C>
Fixed assets
Intangible assets (pounds) 89 (pounds) 78
Tangible assets 1,411 1,546
------ -----
1,500 1,624
Current assets
Debtors due within one year 3,036 3,626
Cash and deposits 635 889
---- ---
3,671 4,515
Creditors: amounts falling due within one year (2,797) (3,388)
------ -----
Net current assets 874 1,127
------ -----
Total assets less current liabilities (pounds) 2,374 (pounds) 2,751
====== ======
Creditors: amounts falling due after more
than one year (958) (983)
------ -----
(pounds) 1,416 (pounds) 1,768
====== ======
Capitals and reserves
Share capital - equity 75 75
Profit and loss account 1,341 1,693
----- -----
Total shareholders' funds (pounds) 1,416 (pounds) 1,768
====== ======
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
PROFIT AND LOSS ACCOUNT
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
Year Ended Nine Months
September 30, Ended June 30,
------------- ---------------
1995 1996 1997
<S> <C> <C> <C>
Turnover (pounds) 11,840 (pounds) 15,093 (pounds) 13,039
Cost of sales (8,813) (11,592) (10,370)
------ ------ ------
Gross profit 3,027 3,501 2,669
Distribution costs (359) (356) (278)
Administrative expenses (1,822) (2,097) (1,526)
Other operating income 5 1 3
------ ------ ------
Operating profit 851 1,049 868
Other interest receivable and similar income 17 10 4
Interest payable and similar charges (138) (194) (160)
------ ------ ------
Profit on ordinary activities before taxation 730 865 712
Taxation on profits from ordinary activities (225) (223) (216)
------ ------ ------
Profit on ordinary activities after taxation 505 642 496
Dividends (144) (192) (144)
------ ------ ------
Retained profit for the financial year (pounds) 361 (pounds) 450 (pounds) 352
====== ====== ======
</TABLE>
All amounts relate to continuing activities.
All recognised gains and losses are included in the profit and loss account.
See accompanying notes to financial statements.
F-76
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
STATEMENTS OF CASH FLOWS
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Cash inflows from
operating activities (pounds) 588 (pounds) 642 (pounds) 508
Returns on investments and
servicing of finance (265) (376) (300)
Taxation (234) (230) (255)
Capital expenditure and financial
investment (945) (271) (140)
---- ---- ----
Cash outflows before use of liquid
resources and financing (856) (235) (187)
Financing 968 73 143
---- ---- ----
Increase/(decrease) in cash in the year (pounds) 112 (pounds) (162) (pounds) (44)
==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-77
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies
These financial statements have been prepared under the historical cost
convention using the following accounting policies:
Turnover
The turnover shown in the profit and loss account represents amounts
invoiced during the year, exclusive of Value Added Tax.
Amortisation
Amortisaiton is calculated so as to write off the cost of an asset, net of
anticipated disposal proceeds, over the useful economic life of that asset
as follows:
Goodwill 10 years Straight line
Depreciation
Depreciation is calculated so as to write off the cost of an asset, net of
anticipated disposal proceeds, over the useful economic life of that asset
as follows:
Freehold property 2% Straight line
Equipment 25% reducing balance
Furniture, fixtures and fittings 25% reducing balance
Motor Vehicles 25% reducing balance
Hire purchase agreements
Assets held under hire purchase agreements are capitalised and disclosed
under tangible fixed assets at their fair value. The capital element of
the future payments is treated as a liability and the interest is charged
against the profit and loss account so as to produce a constant periodic
rate of charge on the remaining balance of the obligation for each
accounting period.
2. Turnover
Turnover and profit before tax are attributable to the one principal
activity of the company which is the provision of courier, messenger and
car transportation services.
3. Other operating income
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Insurance claims (pounds) 5 (pounds) 1 (pounds) 3
</TABLE>
F-78
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Operating Profit
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Operating profit for the year was arrived at
after charging:
Amortisation (pounds) 15 (pounds) 15 (pounds) 11
Profit on disposal of fixed assets - (4) -
Depreciation of tangible fixed assets 195 171 144
Operating lease rentals of:
Plant and machinery 32 32 21
Auditors' remuneration - Audit 9 9 6
- Non-Audit 2 4 2
(pounds) 253 (pounds) 227 (pounds) 184
==== ==== ====
The average number of employees including
directors employed by the group during the
year was as follows 79 102 120
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
The related staff costs amounted to:
Wages and salaries (pounds) 1,415 (pounds) 1,810 (pounds) 1,688
Social security costs 143 180 169
----- ----- -----
(pounds) 1,558 (pounds) 1,990 (pounds) 1,857
===== ===== =====
</TABLE>
5. Interest Receivable and Similar Income
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Bank interest receivable (pounds) 17 (pounds) 10 (pounds) 4
</TABLE>
F-79
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Interest Payable and Similar Charges
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Bank interest (pounds ) 54 (pounds) 70 (pounds) 70
Mortgage interest 25 55 41
Hire purchase interest charge 2 11 13
Shareholders' loan 25 26 14
Directors' loan interest 32 32 22
--- --- --------
(pounds) 138 (pounds) 194 (pounds) 160
==== ==== ====
</TABLE>
All loans and overdrafts are wholly repayable within five years.
7. Taxation on Profits from Ordinary Activities
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
UK corporation tax charge (pounds) 225 (pounds) 255 (pounds) 216
Underprovision in respect of prior years - (32) -
--- --- ---
(pounds) 225 (pounds) 223 (pounds) 216
=== === ===
</TABLE>
The corporation tax liabilities for the years ended September 30, 1996 and
1995 have been calculated based upon computations that have been submitted
to the Inland Revenue, however, no computations submitted since 1993 have
been agreed with the Inland Revenue and are subject to continuing
correspondence.
8. Dividends
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Paid on ordinary shares (pounds) 144 (pounds) 192 (pounds) 144
=== === ===
</TABLE>
F-80
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Intangible Assets
Goodwill
Cost:
Balance bought forward / carried forward for all periods (pounds) 145
---
Amortisation
Balance brought forward September 30, 1995 41
Amortisation charge for the year 15
---
Balance carried forward September 30, 1996 56
Amortisation change for the period 11
---
Balance carried forward at June 30 67
===
Net book value:
At September 30, 1996 89
---
At June 30, 1995 78
===
F-81
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
10. Tangible Assets
<TABLE>
<CAPTION>
Freehold Equipment Furniture, Motor Total
Property Fixtures and Vehicles
Fittings
<S> <C> <C> <C> <C> <C>
Cost
At September 30, 1995 (pounds) 712 (pounds) 650 (pounds) 193 (pounds) 127 (pounds) 1,682
Addition - 62 30 237 329
Disposals - - - (10) (10)
--- --- --- --- -----
At September 30, 1996 712 712 223 354 2,001
Addition - 8 - 279 287
Disposals - - - (15) (15)
--- --- --- --- -----
At June 30, 1997 712 720 223 618 2,273
Depreciation
At September 30, 1995 14 321 58 31 424
Disposals - - - (5) (5)
Charge 14 88 37 32 171
-- -- -- -- ---
At September 30, 1996 28 409 95 58 590
Disposals - - - (7) (7)
Charge 11 52 22 59 144
-- -- -- -- ---
At June 30, 1997 39 461 117 110 727
Net Book Value
At September 30, 1996 684 303 128 296 1,411
=== === === === =====
At September 30, 1997 (pounds) 673 (pounds) 259 (pounds) 106 (pounds) 508 (pounds) 1,546
=== === === === =====
</TABLE>
F-82
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
11. Cash and Deposits
September 30, June 30,
------------- --------
1996 1997
Cash at bank and in hand (pounds) 335 (pounds) 589
Deposits lodged as security 300 300
--- ---
(pounds) 635 (pounds) 889
=== ===
Pursuant to the acquisition of the business of Rapid Despatch in October 1993,
an amount of (pounds)300 has been lodged in an escrow account to act as security
for future commission payments to the previous owners of Rapid Despatch.
12. Debtors
As at September 30, As at June 30,
------------------- --------------
1996 1997
Amounts due within one year:
Trade debtors (pounds) 2,974 (pounds) 3,438
Prepayments and accrued income 62 188
----- -----
(pounds) 3,036 (pounds) 3,626
===== =====
13. Creditors: Amounts falling due within one year
As at September 30, As at June 30,
------------------- --------------
1996 1997
Bank overdrafts (secured) (pounds) 379 (pounds) 677
West Bromwich Building Society 8 10
Trade finance loan 765 976
Trade creditors 362 455
Other taxation and social security 700 568
Hire purchase agreements 78 122
Accruals 298 412
Corporation tax 207 168
----- -----
(pounds) 2,797 (pounds) 3,388
===== =====
The bank overdraft is secured by a fixed and floating charge over the
assets of the business. The trade finance loan is secured by a fixed
charge over the trade debtors reflected in these accounts.
F-83
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
14. Creditors: Amounts falling due after more than one year
As at September 30, As at June 30,
------------------- --------------
1996 1997
Other creditors:
Hire purchase agreements (pounds) 63 (pounds) 95
West Bromwich Building Society 471 464
Shareholders' loan 212 212
Directors' loan account 212 212
--- ---
(pounds) 958 (pounds) 983
=== ===
The mortgage is secured by a fixed charge over the freehold property of
the company. It is repayable over twenty years and interest is charged at
11.25% per annum fixed until November 11, 2000. The amount repayable after
five years is (pounds)425.
15. Share Capital
Authorised share capital
As at September 30, As at June 30,
------------------- --------------
1996 1997
1,000,000 Ordinary shares of
(pounds)1 each (pounds) 1,000 (pounds) 1,000
===== =====
Allotted, called up and fully
paid
Equity share capital:
75,000 ordinary shares of
(pounds)1 each (pounds) 75 (pounds) 75
----- -----
(pounds) 75 (pounds) 75
===== =====
16. Reserves
Profit and
Loss Account
As September 30, 1995 (pounds) 891
Profit for the year (pounds) 450
-----
At September 30, 1996 (pounds) 1,341
-----
Profit for the nine months (pounds) 352
At June 30, 1997 (pounds) 1,693
=====
F-84
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
17. Reconciliation of Shareholders' Funds
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1996 1997
Profit for the financial year (pounds)642 (pounds)496
Dividends (192) (144)
---- ------
Net increase in shareholders' funds 450 352
Shareholders' funds at the beginning of the year 966 1,416
---- ------
Shareholders' funds at the end of the year (pounds)1,416 (pounds)1,768
==== ======
18. Reconciliation of Operating Profit to Net Cash Inflow From Operating
Activities
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Operating profit (pounds)851 (pounds)1,049 (pounds)868
Amortisation 15 15 11
Depreciation charges 195 171 144
Profit on disposal of fixed asset -- (4) --
Increase in debtors (635) (1,055) (590)
Increase in creditors 162 466 75
---- ------ ----
Net cash inflow from operating activities (pounds)588 (pounds)642 (pounds)508
==== ====== ====
</TABLE>
F-85
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
19. Analysis of Cash Flows for Headings Netted in the Cash Flow Statement
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Returns on investments and servicing of finance
Interest received (pounds)17 (pounds)10 (pounds)4
Interest paid (136) (183) (147)
Finance charges on hire purchases (2) (11) (13)
Dividends paid (144) (192) (144)
---- ---- ----
Net cash outflow from returns on investments
and servicing of finance (pounds)(265) (pounds)(376) (pounds)(300)
---- ---- ----
Capital expenditure and financial investment
Purchase of tangible fixed assets (945) (281) (148)
Disposals -- 10 8
Net cash outflow for capital expenditure
and financial investment (pounds)(945) (pounds)(271) (pounds)(140)
==== ==== ====
Financing
Capital repayments hire purchases contracts (pounds)(8) (pounds)(42) (pounds)(63)
Net cash inflow/(outflow) from long term loans 487 (9) (6)
Net inflow from trade finance 489 124 212
---- ---- ----
Net cash inflow from financing (pounds)968 (pounds)73 (pounds)143
==== ==== ====
</TABLE>
F-86
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
20. Analysis of Changes in Net Debt
Cash at Bank and in Hand
<TABLE>
<CAPTION>
At September 30, Cash Non cash At September
1994 Flows flows 30, 1995
<S> <C> <C> <C> <C>
Cash at Bank (pounds)114 (pounds)201 (pounds)-- (pounds)315
Bank Overdrafts (108) (89) -- (197)
---- ---- ---- ----
6 112 -- 118
Debt due within one year (151) (489) -- (640)
Debt due after one year (425) (487) -- (912)
Hire purchase contracts -- 8 (142) (134)
---- ---- ---- ----
Net debt (pounds)(570) (pounds)(856) (pounds)(142) (pounds)(1,568)
At September 30, Cash Non cash At September
1995 Flows flows 30, 1996
Cash at Bank (pounds)315 (pounds)20 (pounds)-- (pounds)335
Bank Overdrafts (197) (182) -- (379)
---- ---- ---- ----
118 (162) (44)
Debt due within one year (640) (125) (8) (773)
Debt due after one year (912) 9 8 (895)
Hire purchase contracts (134) 42 (49) (141)
---- ---- ---- ----
Net debt (pounds)(1,568) (pounds)(236) (pounds)(49) (pounds)(1,853)
At September 30, Cash Non cash At September
1996 Flows flows 30, 1997
Cash at Bank (pounds)335 (pounds)254 (pounds)-- (pounds)589
Bank Overdrafts (379) (298) -- (677)
---- ---- ---- ----
(44) (44) (88)
Debt due within one year (773) (206) (7) (986)
Debt due after one year (895) -- 7 (888)
Hire purchase contracts (141) 63 (139) (217)
---- ---- ---- ----
Net debt (pounds)(1,853) (pounds)(187) (pounds)(139) (pounds)(2,179)
</TABLE>
F-87
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
21. Reconciliation of Net Cash Flow to Movement in Net Debt
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Increase in cash and cash equivalents in the period (pounds)112 (pounds)(162) (pounds)(44)
In-flows from debts due within one year (489) (125) (206)
In-flows from debt due after one year (487) 9 --
Inception of hire purchase leases (142) (49) (139)
Repayment of hire purchase leases 8 42 63
Net debt at beginning of year (570) (1,568) (1,853)
----- ------ ------
Net debt at end of year (pounds)(1,568) (pounds)(1,853) (pounds)(2,179)
===== ====== ======
</TABLE>
22. Contingent Liabilities
There is a legal dispute outstanding concerning amounts owed as commission
to a third party who introduced business to the company. The directors
consider, at present, adequate provisions have been established for this
potential liability.
23. Annual Commitments Under Hire Purchase Agreement
Future commitments under such agreements are as follows:
As at September 30, As at June 30,
------------------- --------------
1996 1997
Amounts payable within 1 year 79 140
Amounts payable between 2 to 5 years 75 93
Less: finance charges relating to future periods (13) (16)
--- ----
(pounds)141 (pounds)217
=== ====
24. Capital Commitments
There was no capital expenditure either authorised or contracted for as at
June 30, 1997, September 30, 1996 and September 30, 1995.
25. Interests of Directors in Transactions of the Company
During the periods the company paid the following to Smith Summerfield &
Lewis, a firm of chartered accountants, in which the two directors of the
company are partners. The payments were made for consultancy services
provided by the two directors.
Year to September 30, 1995 (pounds)120
Year to September 30, 1996 (pounds)84
Nine months to June 30, 1997 (pounds)65
26. Summary of Differences Between UK and US Generally Accepted Accounting
Practices (GAAP)
F-88
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
The financial statements included in this report have been prepared in
accordance with UK GAAP which differ in certain significant respects from
US GAAP. The main differences between UK GAAP and US GAAP which affect the
Group's net profit and net assets are set out below.
i) Income Taxes
Under UK GAAP, deferred income taxes are accounted for to the extent
that it is considered probable that a liability or asset will
crystallise in the foreseeable future. Under US GAAP, deferred taxes
are accounted for on all temporary differences and a valuation
allowance is established to reduce deferred tax assets to the amount
which "more likely than not" will be realised in future tax returns.
Deferred tax amounts also arise as a result of the other US GAAP
adjustments.
The UK deferred tax liability can be reconciled as follows to the US
GAAP net deferred tax liability:
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Deferred tax liability under UK GAAP (pounds)Nil (pounds)Nil (pounds)Nil
Tax effects on timing differences:
Tax losses -- -- --
Capital allowances 17 48 68
---- ---- ----
Gross deferred tax liability in accordance with
US GAAP 17 48 68
Deferred tax valuation allowance -- -- --
---- ---- ----
Net deferred tax liability in accordance with
US GAAP (pounds)17 (pounds)48 (pounds)68
==== ==== ====
The US GAAP provision is comprised as follows:
1995 1996 1997
UK Corporation tax (pounds)241 (pounds)254 (pounds)236
==== ==== ====
</TABLE>
F-89
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
26. Summary of Differences Between UK and US Generally Accepted Accounting
Practices (GAAP) (Continued)
ii) Effects on Conforming to US GAAP - Impact on Net Profit
The adjustments to reported net loss required to conform with US GAAP are
as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Net Profit
Net profit of the Group under UK GAAP (pounds)505 (pounds)642 (pounds)496
Adjustments:
Tax (17) (31) (20)
--- --- ---
Total US GAAP adjustment (17) (31) (20)
Net Profit under US GAAP (pounds)488 (pounds)611 (pounds)476
=== === ===
</TABLE>
iii) Effects of Conforming to US GAAP - Impact on Net Equity
The adjustments to reported net equity required to conform to US GAAP are
as follows:
As at September 30, As at June 30,
------------------- --------------
1996 1997
Shareholders' funds
Capital and reserves of the Group under UK GAAP (pounds)1,416 (pounds)1,768
Adjustments:
Deferred tax (48) (68)
----- -----
Shareholders' funds under US GAAP (pounds)1,368 (pounds)1,700
===== =====
F-90
<PAGE>
BRIDGE WHARF INVESTMENTS LIMITED
NOTES TO FINANCIAL STATEMENTS (Continued)
26. Summary of Differences Between UK and US Generally Accepted Accounting
Practices (GAAP) (Continued)
iv) Consolidated Cash Flow Information - Group
The company's financial statements include Consolidated Statements of Cash
Flows in accordance with UK Accounting Standard FRS 1, "Cash Flow
Statements". The statement prepared under FRS 1 (revised 1996) presents
substantially the same information as that required under US Statement of
Financial Accounting Standard No 95 (FAS 95).
Under FRS 1 (revised 1996) cash flows are presented for (i) operating
activities; (ii) returns on investments and servicing of finance; (iii)
taxation; (iv) investing activities; and (v) financing activities. FAS 95
only requires presentation of cash flows from operating investing and
financing activities.
Cash flows under FRS 1 (revised 1996) in respect of interest received,
interest paid (net of that capitalised), interest on finance leases and
taxation would be included within operating activities under FAS 95.
Capitalised interest would be included in investing activities under US
GAAP.
Cash under FRS 1 (revised 1996) includes cash in hand and deposits
repayable on demand less overdrafts repayable on demand. Under FAS 95 all
short term borrowings and bank overdrafts are included in financing
activities.
The following statements summarise the statement of cash flows for the
Group as if they had been presented in accordance with US GAAP and include
the adjustments which reconcile cash and cash equivalents under US GAAP to
cash and cash equivalents reported under UK GAAP.
<TABLE>
<CAPTION>
Nine Months
Year ended September 30, Ended June 30,
------------------------ --------------
1995 1996 1997
<S> <C> <C> <C>
Net cash inflow from operating activities (pounds)233 (pounds)227 (pounds)98
Net cash used in investing activities (945) (271) (140)
Net cash provided (used for) financing activities 335 (243) (213)
---- ---- ------
Net increase/(decrease) in cash and cash equivalents (377) (287) (255)
Cash under US GAAP at beginning of year (145) (522) (809)
---- ---- ------
Cash under US GAAP at end of year (522) (809) (1,064)
Trade Finance loan under UK GAAP at end of year 640 765 976
---- ---- ------
Net cash/(overdraft) under UK GAAP at end of year (pounds)118 (pounds)(44) (pounds)(88)
==== ==== ======
</TABLE>
F-91
<PAGE>
Report of Independent Accountants
To the Board of Directors and shareholders of
Security Despatch Limited
We have audited the accompanying consolidated balance sheets of Security
Despatch Limited and its subsidiaries (the "Group") as of March 31, 1997 and
1996, and the related consolidated statements of operations and change in cash
flows for each of the three years ended March 31, 1997, all expressed in pounds
sterling and prepared on the basis set forth in Note 1 to the consolidated
financial statements. These financial statements are the responsibility of the
Group's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United Kingdom generally
accepted auditing standards which do not differ in any material respect from
auditing standards generally accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the group at
March 31, 1997 and 1996, and the results of the Group's operations and its cash
flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles in the United Kingdom.
Accounting principles generally accepted in the United Kingdom differ in
certain significant respects from accounting principles generally accepted in
the United States. The application of the latter would have affected the
determination of the consolidated profit expressed in pounds sterling for each
of the three years in the period ended March 31, 1997 and the determination of
consolidated shareholders' equity and consolidated financial position also
expressed in pounds sterling at March 31, 1997 and 1996. Note 23 to the
consolidated financial statements summarises this effect for the years ended
March 31, 1997 and 1996, and as at March 31, 1997 and 1996.
Price Waterhouse
London, England
October 15, 1997
F-92
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
CONSOLIDATED BALANCE SHEETS
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
March 31, June 30,
--------- --------
1996 1997 1997
(Unaudited)
<S> <C> <C> <C>
Fixed assets
Tangible assets (pounds)91 (pounds)110 (pounds)107
------ ------ ------
Current assets
Debtors due within one year 1,021 1,106 1,156
Intra division 177 554 689
Debtors due in greater than one year -- 199 493
Cash at bank and in hand 31 -- --
------ ------ ------
1,229 1,859 2,338
Creditors: amounts falling due within one year (1,118) (1,468) (1,770)
------ ------ ------
Net current assets 111 391 568
------ ------ ------
Total assets less current liabilities (pounds)202 (pounds)501 (pounds)675
====== ====== ======
Capitals and reserves
Share capital - equity 137 143 143
Share capital - non equity 1,250 1,100 1,100
Share premium account 752 771 771
Capital redemption reserve 616 766 766
Profit and loss account (563) (289) (115)
Goodwill (1,990) (1,990) (1,990)
------ ------ ------
Total shareholders' funds (pounds)202 (pounds)501 (pounds)675
====== ====== ======
Equity shareholders' deficit (1,048) (1,601) (1,775)
Non equity shareholders' funds 1,250 1,100 1,100
------ ------ ------
(pounds)202 (pounds)501 (pounds)675
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-93
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
Year End March 31, Three Months
------------------ Ended June 30,
--------------
1995 1996 1997 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Turnover (pounds)4,858 (pounds)5,240 (pounds)5,900 1,382 1,564
Cost of sales 3,582 3,920 4,466 1,053 1,189
----- ----- ----- ----- -----
Gross profit 1,276 1,320 1,434 329 375
Administrative expenses 728 627 624 152 116
----- ----- ----- ----- -----
Operating profit 548 693 810 177 259
Interest payable and similar charges 16 24 13 5 11
----- ----- ----- ----- -----
Profit on ordinary activities before taxation 532 669 797 172 248
Taxation on profits from ordinary activities 105 220 239 57 74
----- ----- ----- ----- -----
Profit on ordinary activities after taxation 427 449 558 115 174
Dividends (non equity) 193 164 134 -- --
----- ----- ----- ----- -----
Retained profit for the financial year (pounds)234 (pounds)285 (pounds)424 (pounds)115 (pounds)174
===== ===== ===== ===== =====
</TABLE>
All amounts relate to continuing activities.
All recognised gains and losses are included in the profit and loss account.
See accompanying notes to financial statements.
F-94
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Pounds Sterling in Thousands)
<TABLE>
<CAPTION>
Year End March 31, Three Months
------------------ Ended June 30,
--------------
1995 1996 1997 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash inflows/(outflows) from
operating activities (pounds)539 (pounds)568 (pounds)570 (pounds)264 (pounds)(213)
Returns on investments and
servicing of finance (208) (188) (147) (5) (11)
Taxation (102) (97) (191) -- (16)
Capital expenditure and financial
investment (31) (51) (70) (18) (9)
---- ---- ---- ---- ----
Cash inflows/outflows before use of liquid
resources and financing 198 232 162 241 (249)
Financing - net redemption of shares (250) (295) (125) -- --
---- ---- ---- ---- ----
Increase/(decrease) in cash in the year (pounds)(52) (pounds)(63) (pounds)37 (pounds)241 (pounds)(249)
==== ==== ==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-95
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Basis of Accounting
The financial statements have been prepared under the historical cost
convention and are in accordance with applicable accounting standards. The
following accounting policies have been applied.
Prior to February 28, 1997 Security Despatch Limited was the group's
ultimate parent company. As part of a group reorganisation in February
1997 designed to enable some shareholders to realise their investment, a
newly incorporated company Security Business Services Limited acquired a
100% of the share capital of Security Despatch Limited. The acquisition
was completed through offering Security Despatch shareholders either
shares and loan stock in Security Business Services Limited or cash for
their Security Despatch Limited shares. The cash element of the offer was
financed through a (pounds)1.75 million loan from Barclays Bank.
In order to present meaningful comparable information, the financial
statements of Security Despatch Limited have been presented for all
periods with no adjustments made in the financial statements to reflect
the effect of the reorganisation.
The unaudited management accounts of Security Business Services Limited
indicate that in the period to March 31, 1997 no income was earned and
that expenses of (pounds)392 were charged, consisting primarily of a bonus
of (pounds)343 to the managing director and loan interest and facility
fees of (pounds)49. Fixed assets at March 31, 1997 consisted solely of the
investment in Security Despatch Limited. Net current liabilities at March
31, 1997 amounting to (pounds)210 consisted primarily of corporation tax
recoverable of (pounds)130, amounts payable in respect of payroll taxes of
(pounds)156 and amounts owed to Security Despatch Limited of (pounds)173.
Borrowings at March 31, 1997 consisted of a (pounds)1,750 loan from
Barclays Bank and loan stock held by the shareholders of (pounds)2,111. As
part of the proposed transaction the loan stock will be acquired by the
purchaser and the loan from Barclays Bank will be repaid and will not form
part of the ongoing funding.
The unaudited management accounts for the three month period ended June
30, 1997 indicate that an additional (pounds)69 was charged to the profit
and loss account, consisting of (pounds)22 salary payments to the managing
director, (pounds)7 fee payments to non executive directors and (pounds)40
interest charges. No movements occurred in fixed assets during the period.
Net current liabilities at June 30, 1997 amounting to (pounds)234
consisted primarily of corporation tax recoverable of (pounds)130 and
amounts owed to Security Despatch Limited of (pounds)348. During the
period (pounds)87 of the term loan was repaid to Barclays reducing the
amount to (pounds)1,663 at June 30, 1997. The loan stock remained
unchanged at (pounds)2,111 at June 30, 1997.
Basis of Consolidation and Preparation
The consolidated accounts include the company and its subsidiary
undertakings ("the Group"). The results of subsidiaries acquired are
included from the date of their acquisition. The group uses the
acquisition method of accounting to consolidate the results of subsidiary
undertakings.
Security Despatch Limited consists of a courier operation and a mailroom
management operation. The mailroom management operation business is being
retained by the existing management and will not form part of the
operations of the Group in the future. Therefore these financial
statements have been
F-96
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
prepared on a carve-out basis and only reflect the historical financial
position, results of operations, and cash flows of the courier operation
as it will go forward, and as if the courier operation had operated as a
stand alone Group since 1994.
Transactions between the courier operation and the mail room management
operation are herein referred to as related party transactions.
Goodwill arising on the acquisition of a subsidiary is the difference
between the fair value of the consideration paid and fair value of the
assets and liabilities acquired.
Goodwill is written off directly to reserves in the year in which it
arises.
Turnover
Turnover represents amounts invoiced, excluding value added tax, in
respect of the sale of services to customers.
Cost of Sales
Cost of sales includes wages and salaries costs incurred in the provision
of the messenger service because in the opinion of the directors this is
the most appropriate.
Depreciation
Deprecation is provided to write off cost, less estimated residual values
of all tangible fixed assets over their expected useful lives. It is
calculated at the following rates:
Radio equipment 25% per annum
Computers 33.33% per annum
Furniture and office equipment 20% per annum
Assets Held Under Lease Agreements
Tangible assets acquired under finance lease agreements are capitalised at
cost and are written off over the shorter of their expected working lives
or the lease term. The related finance costs are charged to the profit and
loss account appropriate to the terms of the agreements.
Payments under operating leases are charged to the profit and loss account
on a straight line basis over the term of the lease.
Deferred Taxation
Provision is made for deferred taxation using the liability method in
respect of all timing differences to the extent that it is probable a
liability will crystallise in the foreseeable future.
F-97
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interim Financial Data
The interim financial data as of June 30, 1997 and for the three months
ended June 30, 1997 and June 30, 1996 is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results for the interim periods.
2. Turnover
Turnover is derived from the group's operation of a courier service and is
earned entirely in the UK.
3. Operating Profit
<TABLE>
<CAPTION>
Year Ended March, 31
--------------------
1995 1996 1997
<S> <C> <C> <C>
Operating profit for the year was arrived at
after charging:
Depreciation of tangible fixed assets (pounds)50 (pounds)49 (pounds)51
Operating lease rentals of:
Plant and machinery 18 17 11
Land and buildings 33 34 34
Auditors' remuneration 9 9 7
----- ----- -----
(pounds)110 (pounds)109 (pounds)103
===== ===== =====
The average number of employees including
directors employed by the group during the
year was as follows 59 63 75
===== ===== =====
The related staff costs amounted to:
Wages and salaries (pounds)973 (pounds)1,100 (pounds)1,134
Social security costs 102 106 119
----- ----- -----
(pounds)1,075 (pounds)1,206 (pounds)1,253
===== ===== =====
</TABLE>
4. Interest Payable and Similar Charges
<TABLE>
<CAPTION>
Year Ended March, 31
--------------------
1995 1996 1997
<S> <C> <C> <C>
Bank loans and overdrafts (pounds)16 (pounds)24 (pounds)13
===== ===== =====
</TABLE>
All loans and overdrafts are wholly repayable within five years
F-98
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. Taxation on Profits from Ordinary Activities
<TABLE>
<CAPTION>
Year Ended March, 31
--------------------
1995 1996 1997
<S> <C> <C> <C>
UK corporation tax charge (pounds)105 (pounds)204 (pounds)239
Underprovision in respect of prior years -- 16 --
----- ---- ----
(pounds)105 (pounds)220 (pounds)239
===== ==== ====
</TABLE>
6. Dividends
<TABLE>
<CAPTION>
Year Ended March, 31
--------------------
1995 1996 1997
<S> <C> <C> <C>
Preference - paid (pounds)193 (pounds)164 (pounds)134
===== ==== ====
</TABLE>
7. Tangible Assets
<TABLE>
<CAPTION>
Radio Computers Furniture Total
Equipment and Office
Equipment
<S> <C> <C> <C> <C>
Cost
At March 31, 1995 (pounds)194 (pounds)109 (pounds)64 (pounds)367
Additions 20 20 11 51
--- --- --- ---
At March 31, 1996 214 129 75 418
Additions 12 35 23 70
--- --- --- ---
At March 31, 1997 (pounds)226 (pounds)164 (pounds)98 (pounds)488
=== === === ===
Depreciation
At March 31, 1995 (pounds)154 (pounds)86 (pounds)38 (pounds)278
Charge for year 21 15 13 49
--- --- --- ---
At March 31, 1996 175 101 51 327
Charge for year 19 21 11 51
--- --- --- ---
At March 31, 1997 (pounds)194 (pounds)122 (pounds)62 (pounds)378
=== === === ===
Net Book Value
At March 31, 1996 (pounds)39 (pounds)28 (pounds)24 (pounds)91
=== === === ===
At March 31, 1997 (pounds)32 (pounds)42 (pounds)36 (pounds)110
=== === === ===
</TABLE>
F-99
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Investments
Details of the subsidiary undertaking are as follows:
Name Country of Proportion Nature of Business
---------- ---------- ------------------
Registration of
------------ --
Voting
------
Rights 1995 1996 1997
------
Security Despatch Couriers
Limited England 100% Courier Courier Dormant
Security Despatch London
Limited England 100% Courier Courier Dormant
Security Despatch (Admin)
Limited England 100% Dormant Dormant Dormant
9. Debtors
<TABLE>
<CAPTION>
As at March 31,
---------------
1996 1997
<S> <C> <C>
Amounts due within one year:
Trade debtors (pounds)968 (pounds)1,077
Other debtors 6 --
Prepayments and accrued income 47 29
----- -----
(pounds)1,021 (pounds)1,106
===== =====
Amounts falling due after more than one year:
Amounts owed by parent undertaking (pounds)-- (pounds)199
===== =====
</TABLE>
10. Creditors: Amounts falling due within one year
<TABLE>
<CAPTION>
As at March 31,
---------------
1996 1997
<S> <C> <C>
Bank overdrafts (secured) (pounds)252 (pounds)184
Trade creditors 147 234
Other taxation and social security 385 583
Other creditors 82 84
Accruals and deferred income 77 160
Corporation tax 155 207
ACT payable 20 16
----- -----
(pounds)1,118 (pounds)1,468
===== =====
</TABLE>
The bank overdrafts are secured by a fixed and floating charge over the
assets of the company.
F-100
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Share Capital
<TABLE>
<CAPTION>
1995 1996 1997 1995 1996 1997
No No No
<S> <C> <C> <C> <C> <C> <C>
Authorized
Ordinary shares of 10p each 1,114,443 1,114,443 1,114,443 (pounds)111 (pounds)111 (pounds)111
"A" ordinary shares of (pounds)1 each 20,000 20,000 20,000 20 20 20
"B" ordinary shares of 10p each 592,728 592,728 592,728 59 59 59
"C" ordinary shares of 1p each 651,190 651,190 651,190 7 7 7
"D" ordinary shares of (pounds)1 each 20,000 20,000 20,000 20 20 20
11% cumulative preference shares
of (pounds)1 each 1,866,176 1,866,176 1,866,176 1,866 1,866 1,866
----- ----- -----
(pounds)2,083 (pounds)2,083 (pounds)2,083
===== ===== =====
Allotted, called up and fully paid
Ordinary shares of 10p each 668,974 678,974 788,140 (pounds)67 (pounds)68 (pounds)79
"A" ordinary shares of (pounds)1 each 10,167 10,167 -- 10 10 --
"B" ordinary shares of 10p each 592,728 592,728 592,728 59 59 59
"C" ordinary shares of 1p each -- -- 527,466 -- -- 5
--------- --------- ----- ----- -----
Total Equity Shares 1,281,869 1,098,334 136 137 143
11% cumulative preference shares
of (pounds)1 each (non equity) 1,250,000 1,100,000 1,550 1,250 1,100
----- ----- -----
(pounds)1,686 (pounds)1,387 (pounds)1,243
===== ===== =====
</TABLE>
i) During the year ended March 31,1995 250,000 preference shares were
redeemed at par.
ii) During the year ended March 31, 1996 300,000 preference shares were
redeemed at par.
iii) During the year ended March 31,1997:
a) 10,167 "A" ordinary shares of(pounds)1 each were exchanged for
89,166 ordinary shares of 10p each.
b) The warrant holders exercised their rights to acquire 527,466 "C"
ordinary shares of 1p each at a price of 1p per share.
c) Twenty thousand options granted on July 1993 were exercised at the
option price of 100p for each ordinary 10p share.
d) The rights were waived to the options granted in September 1993 for
156,230 ordinary 10p shares at an option price of 40p.
F-101
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
e) During the year, 150,000 preference shares were redeemed at par. It
is planned by the directors of the company to convert the preference
shares into ordinary shares post year end.
f) The ordinary shares, "B" ordinary shares, "C" ordinary shares and
"D" ordinary shares have one vote per share held, and the "A"
ordinary shares have eight votes per share held. The preference
shares have no voting rights.
All ordinary shares have equal rights to dividends and to the assets of
the company on winding up.
12. Reserves
<TABLE>
<CAPTION>
Share Capital Profit
Premium Redemption and Loss
Account Reserve Account Goodwill
<S> <C> <C> <C> <C>
At March 31, 1995 (pounds)748 (pounds)316 (pounds)(548) (pounds)(1,990)
Redemption of preference shares -- 300 (300) --
Profit for the year -- -- 285 --
New shares issued 4 -- -- --
---- ---- ---- ------
At March 31, 1996 752 616 (563) (1,990)
Redemption of preference shares -- 150 (150) --
Profit for the year -- -- 424 --
New shares issued 18 -- -- --
Share capital converted 1
---- ---- ---- ------
At March 31, 1997 (pounds)771 (pounds)766 (pounds)(289) (pounds)(1,990)
=== === ==== ======
</TABLE>
13. Reconciliation of Shareholders'
Funds
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1996 1997
<S> <C> <C>
Profit/(loss) for the financial year (pounds)449 (pounds)558
Dividends (164) (134)
----- -----
Retained profit for the financial year 285 424
New shares issued 5 25
Goodwill written off -- --
Redemption of preference shares at par (300) (150)
----- -----
Net increase/(decrease) in shareholders
funds (10) 299
Shareholders' funds at the beginning of
the year 212 202
---- ----
Shareholders' funds at the end of the
year (pounds)202 (pounds)501
==== ====
</TABLE>
F-102
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Reconciliation of Operating Profit to Net Cash Inflow From Operating
Activities
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Operating profit (pounds)548 (pounds)693 (pounds)810
Depreciation charges 50 49 51
Increase in debtors (110) (242) (660)
Increase in creditors 51 68 369
---- ---- ----
Net cash inflow from
operating activities (pounds)539 (pounds)568 (pounds)570
==== ==== ====
</TABLE>
15. Analysis of Cash Flows for Headings Netted in the Cash Flow Statement
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Returns on investments and
servicing of finance (pounds) (pounds) (pounds)
Interest paid (16) (24) (13)
Preference dividend paid (192) (164) (134)
---- ---- ----
Net cash outflow from returns
on investments and servicing
of finance (pounds)(208) (pounds)(188) (pounds)(147)
==== ==== ====
Capital expenditure and
financial investment
Purchase of tangible fixed
assets (31) (51) (70)
Net cash outflow for capital
expenditure and financial
investment (pounds)(31) (pounds)(51) (pounds)(70)
==== ==== ====
Financing
Issue of ordinary share capital -- 5 25
Redemption of preference share
capital (250) (300) (150)
---- ---- ----
Net cash outflow from financing (pounds)(250) (pounds)(295) (pounds)(125)
==== ==== ====
</TABLE>
F-103
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Analysis of Changes in Net Debt
<TABLE>
<CAPTION>
Cash at Bank Bank Net Debt
and in Hand Overdrafts
<S> <C> <C> <C>
At April 1, 1994 (pounds)103 (pounds)209 (pounds)106
Cash flows (71) (19) 52
--- -----------------
At March 31, 1995 32 190 158
Cash flows (1) 62 63
--- --- ---
At March 31, 1996 31 252 221
Cash flows (31) (68) (37)
--- --- ---
At March 31, 1997 (pounds)-- (pounds)184 (pounds)184
=== === ===
</TABLE>
17. Reconciliation of Net Cash Flow to Movement in Net Debt
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Increase in cash in the
year and movement in
net debt in the year (pounds)52 (pounds)63 (pounds)(37)
Net debt at beginning
of year 106 158 221
--- --- ---
Net debt at end of year (pounds)158 (pounds)221 (pounds)184
=== === ===
</TABLE>
18. Contingent Liabilities
At March 31, 1997 the company had guaranteed amounts advanced to its
parent, Security Business Services Limited. At the year end the potential
liability was (pounds)1,750 (1996: Nil, 1995: (pounds)190).
F-104
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
19. Annual Commitments Under Operating Leases
The Group had annual commitments under non cancelable operating leases as
follows:
<TABLE>
<CAPTION>
As At March 31,
---------------
1996 1997
<S> <C> <C>
Plant and machinery:
Within one year (pounds) 1,106 (pounds) 9,305
Between two and five years 16,153 1,929
------- ------
17,259 11,234
Land and buildings:
Within one year -- 34,010
Between two and five years 34,010 --
------- ------
34,010 34,010
(pounds)51,269 (pounds)45,244
======= =======
</TABLE>
20. Capital Commitments
There was no capital expenditure either authorised or contracted for at
March 31, 1995, March 31, 1996 and March 31, 1997.
21. Related party transactions
During the year ended March 31, 1997, in the ordinary course of business,
management services with a value of (pounds)12 (1996: (pounds)12, 1995:
(pounds)81) were received from a company in which D J Coghlan and J B
Greenbury have an interest.
The Group incurs common overhead costs for courier and mail room
management operations. These costs have been allocated to respective
operations based upon revenue generated by each operation and an estimate
of time spent by the employees on each operation. Management of the Group
believes that the current method of allocating common overhead is
reasonable. Overhead costs allocated to the mailroom management operation
for the years ended March 31, 1995, 1996 and 1997 were approximately
(pounds)20, (pounds)100 and (pounds)236 respectively. At March 31 , 1996
and 1997, the Group had receivables from the mail room management
operation of (pounds)554 and (pounds)689 respectively. These are payable
on demand and do not accrue interest.
22. Ultimate Parent Company
At March 31, 1997 the company's ultimate parent company was Security
Business Services Limited. Security Business Services Limited was
incorporated on February 27, 1997 and acquired 100% of the share capital
of the company on February 28, 1997. Prior to February 28, 1997 Security
Despatch Limited regarded itself as the ultimate parent company.
F-105
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Summary of Differences Between UK and US Generally Accepted Accounting
Practices (GAAP)
The consolidated financial statements included in this report have been
prepared in accordance with UK GAAP which differ in certain significant
respects from US GAAP. The main differences between UK GAAP and US GAAP
which affect the Group's consolidated net profit and net assets are set
out below.
a) Differences in measurement methods
i) Goodwill
Under UK GAAP, goodwill arising on acquisitions may be charged
against reserves in the year of acquisition. Negative goodwill,
being the excess of the fair value of the Group's share of net
tangible assets acquired over cost, is credited to reserves. Upon
subsequent disposal of an identification of impairment in respect of
an acquired asset or entity, the effect of any associated
positive/negative goodwill is eliminated from reserves and then
charged against/credited to profit and loss.
Under US GAAP, goodwill is capitalised in the balance sheet and is
subsequently amortised over its estimated useful economic life not
exceeding 40 years. In the event of negative goodwill arising, under
US GAAP the values assigned to non current assets acquired are
reduced accordingly.
For the purposes of restating shareholders' equity in accordance
with US GAAP, identifiable intangible assets and goodwill have been
reclassified as assets less accumulated amortisation based upon
their estimated useful economic lives. Identifiable intangible
assets and goodwill are amortised over a period of forty years on a
straight line basis.
ii) Income Taxes
Under UK GAAP, deferred income taxes are accounted for to the extent
that it is considered probable that a liability or asset will
crystallise in the foreseeable future. Under US GAAP, deferred taxes
are accounted for on all temporary differences and a valuation
allowance is established to reduce deferred tax assets to the amount
which "more likely than not" will be realised in future tax returns.
Deferred tax amounts also arise as a result of the other US GAAP
adjustments.
F-106
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The UK deferred tax asset can be reconciled as follows to the US GAAP net
deferred tax asset:
1996 1997
Deferred tax asset under UK GAAP (pounds)Nil (pounds)Nil
Tax effects on timing differences:
Tax losses -- --
Capital allowances 11 12
--- ---
Gross deferred tax assets in accordance with 11 12
US GAAP
Deferred tax valuation allowance Nil Nil
--- ---
Net deferred tax assets in accordance with
US GAAP (pounds)11 (pounds)12
=== ===
The US GAAP provision is comprised as follows:
1996 1997
UK Corporation tax (pounds)221 (pounds)238
=== ===
F-107
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Summary of Differences Between UK and US Generally Accepted Accounting
Practices (GAAP) (Continued)
iii) Effects on Conforming to US GAAP - Impact on Net Profit
The adjustments to reported net loss required to conform with US GAAP are
as follows:
Year Ended March 31,
--------------------
1996 1997
Net Profit
Net profit of the Group under UK GAAP (pounds) 449 (pounds) 558
Adjustments:
Amortisation of goodwill (50) (50)
Tax (1) 1
---- --
Total US GAAP adjustment (51) (49)
Net Profit under US GAAP (pounds) 398 (pounds) 509
==== ====
iv) Effects of Conforming to US
GAAP - Impact on Net Equity
The adjustments to reported net equity required to conform to US GAAP are as
follows:
Year Ended March 31,
--------------------
1996 1997
Shareholders' funds
Capital and reserves of the
Group under UK GAAP (pounds) 202 (pounds) 501
Adjustments:
Goodwill gross 1,990 1,990
Less: accumulated depreciation (284) (334)
Deferred tax 11 12
------ ------
Total US GAAP adjustments 1,717 1,668
------ ------
Shareholders' funds under
US GAAP (pounds) 1,919 (pounds) 2,169
====== ======
v) Consolidated Cash Flow Information - Group
The company's financial statements include Consolidated Statements of Cash Flows
in accordance with UK Accounting Standard FRS 1, "Cash Flow Statements". The
statement prepared under FRS 1 (revised 1996) presents substantially the same
information as that required under US Statement of Financial Accounting Standard
No 95 (FAS 95).
F-108
<PAGE>
SECURITY DESPATCH LIMITED
(excluding the mail room services operations)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under FRS 1 (revised 1996) cash flows are presented for (i) operating
activities; (ii) returns on investments and servicing of finance; (iii)
taxation; (iv) investing activities; and (v) financing activities. FAS 95 only
requires presentation of cash flows from operating investing and financing
activities.
Cash flows under FRS 1 (revised 1996) in respect of interest received, interest
paid (net of that capitalised), interest on finance leases and taxation would be
included within operating activities under FAS 95. Capitalised interest would be
included in investing activities under US GAAP.
Cash under FRS 1 (revised 1996) include cash in hand and deposits repayable on
demand less overdrafts repayable on demand. Under FAS 95 all short term
borrowings and bank overdrafts are included in financing activities.
The following statements summarise the statement of cash flows for the Group as
if they had been presented in accordance with US GAAP and include the
adjustments which reconcile cash and cash equivalents under US GAAP to cash and
cash equivalents reported under UK GAAP.
Year Ended March 31,
--------------------
1996 1997
Net cash inflow from operating activities (pounds) 447 (pounds) 336
Net cash used in investing activities (51) (70)
Net cash provided (used for) financing
activities (397) (327)
---- ----
Net increase/(decrease) in cash and cash
equivalents (1) (31)
Cash under US GAAP at beginning of year 32 31
---- ----
Cash under US GAAP at end of year 31 --
Bank overdrafts and other under UK GAAP at
end of year (252) (184)
---- ----
Net cash/(overdraft) under UK GAAP at end
of year (pounds) 221 (pounds) (184)
==== ====
F-109
<PAGE>
Report of Independant Accountants
To the Board of Directors and Stockholders of
Aero Special Delivery Service, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' deficiency and of cash flows present fairly, in
all material respects, the financial position of Aero Special Delivery Service,
Inc. at June 30, 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. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has recurring losses and a stockholder's
deficiency due to recorded liabilities for withholding taxes, interest and
penalties in dispute. The uncertainties related to these matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
Price Waterhouse LLP
San Francisco, California
September 9, 1997
F-110
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
BALANCE SHEETS
(Dollars in Thousands)
June 30,
1996 1997
Assets
Current assets
Cash and cash equivalents $ 79 $ 173
Accounts receivable, net 1,123 1,253
Prepaid and other current assets 122 249
------- -------
Total current assets 1,324 1,675
Property and equipment, net 341 442
------- -------
$ 1,665 $ 2,117
======= =======
Liabilities and Stockholder's Deficiency
Current liabilities
Accounts payable $ 222 $ 392
Accrued expenses 328 362
Accrued payroll taxes, interest and
penalties in dispute 1,936 2,681
Current portion of capital lease obligation 49 89
Borrowings under a line of credit and
notes payable 288 20
------- -------
Total current liabilities 2,823 3,544
Due to related party 544 589
Capital lease obligation 90 131
------- -------
Total liabilities 3,457 4,264
------- -------
Commitments and contingencies
Stockholder's deficiency
Common stock ($10 par value, 20 shares
authorized, issued and outstanding) 200 200
Accumulated deficit (1,992) (2,347)
------- -------
Total stockholder's deficiency (1,792) (2,147)
------- -------
$ 1,665 $ 2,117
======= =======
See accompanying notes to financial statements.
F-111
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
STATEMENT OF OPERATIONS
(Dollars in Thousands)
Years Ended
June 30,
1996 1997
Sales $ 10,496 $ 11,818
Cost of sales 5,972 6,887
-------- --------
Gross margin 4,524 4,931
-------- --------
Operating expenses 2,155 2,375
Sales and marketing 865 961
General and administrative expenses 886 940
Payroll taxes, interest and penalties
in dispute 522 745
Depreciation and amortization 77 168
-------- --------
Total expenses 4,505 5,189
-------- --------
Operating income (loss) 19 (258)
-------- --------
Related party interest expense 54 57
Other expense, net 28 40
-------- --------
82 97
-------- --------
Loss before provision for income taxes (63) (355)
Provision for income taxes -- --
-------- --------
Net loss $ (63) $ (355)
======== ========
See accompanying notes to financial statements.
F-112
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
(Dollars in Thousands)
Number Common Accumulated Total
of Shares Stock Deficit Deficit
Balance, June 30, 1995 20,000 $200 $(1,929) $(1,729)
Net loss for the year
ended June 30, 1996 (63) (63)
------ ---- ------- -------
Balance, June 30, 1996 20,000 200 (1,992) (1,792)
Net loss for the year
ended June 30, 1997 (355) (355)
------ ---- ------- -------
Balance, June 30, 1997 20,000 $200 $(2,347) $(2,147)
====== ==== ======= =======
See accompanying notes to financial statements.
F-113
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Years Ended
June 30,
1996 1997
Cash flows from operating activities:
Net loss $ (63) $(355)
Adjustments to reconcile net loss
to net cash provided by operating
activities
Depreciation and amortization 77 168
Loss on disposition of property and equipment 10 50
Changes in assets and liabilities
Accounts receivable 15 (130)
Prepaid and other current assets (41) (127)
Accounts payable (38) 170
Accrued expenses (40) 34
Accrued payroll taxes, interest and
penalties in dispute 522 745
----- -----
Net cash provided by operating activities 442 555
----- -----
Cash flows from investing activities
Purchases of property and equipment, net (132) (172)
----- -----
Net cash used for investing activities (132) (172)
----- -----
Cash flows from financing activities
Change in due to related party, net 34 45
Repayments under line of credit and notes
payable, net (230) (268)
Repayments of capital lease obligations (35) (66)
----- -----
Net cash used for financing activities (231) (289)
----- -----
Net increase in cash and cash equivalents 79 94
Cash and cash equivalents at beginning of
period -- 79
===== =====
Cash and cash equivalents at end of the
period $ 79 $ 173
===== =====
Supplemental cash flow information
Interest paid $ 55 $ 52
===== =====
Taxes paid, net of refunds received $ 1 $ (31)
===== =====
Supplemental disclosure of non-cash investing
and financing activities:
Acquisition of property and equipment
under capital leases $ 157 $ 147
===== =====
See accompanying notes to financial statements.
F-114
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Business Organization
Aero Special Delivery Service, Inc. (the "Company"), a California
corporation in business since 1968, provides same-day, on-demand delivery
services in the San Francisco Bay Area and has four dispatching locations
throughout Northern California.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to customers.
Cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of approximately three months or less at date of purchase to be
cash equivalents.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided
using the straight line method over the estimated useful lives of the
related assets, which range from three to five years. Leasehold
improvements are depreciated over the shorter of the lease term or the
asset's useful life which range from three to four years. Expenditures for
repairs and maintenance are charged to expense as incurred.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable and accrued expenses
approximates fair value because of the short maturity of these
instruments. It is not practical to estimate the fair value of amounts
payable to related party due to the nature of the relationship involved.
The estimated fair value of borrowings under the line of credit, notes
payable and capital lease obligations approximates their carrying value as
their interest rates approximate market rates for debt with similar terms
and average maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and, accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
F-115
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (continued)
Income taxes
The Company applies the liability method in accounting for income taxes in
accordance with Statement of Financial Accounting Standard No. 109 (SFAS
No. 109). Under this method, deferred tax assets and liabilities are
determined based on the differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Advertising
The Company advertises primarily through radio, yellow pages and news print
advertisements. Advertising costs are expensed as incurred and totaled $199
and $240 for the years ended June 30, 1996 and 1997, respectively.
3. Payroll Tax Assessments and Going Concern
The Company has received assessments from the Internal Revenue Service
("IRS") based on an audit of the Company's 1989-1993 federal payroll tax
returns. The assessments are based on the IRS's position that reimbursements
paid to owner-operator employees for automobile allowances constitute
additional compensation rather than payments made pursuant to an accountable
plan under section 62 (c) of the Internal Revenue Code or pursuant to a valid
vehicle rental arrangement. The Company and legal counsel are contesting the
IRS assessments, and in June 1996 the Company filed a refund suit in the U.S.
Court of Federal Claims after paying one employee's withholding taxes.
As of June 30, 1996 and 1997, the Company had recorded withholding tax
liabilities of $1,176 and $1,281, respectively, for the full amount of the
IRS's assessments, including interest and penalties. The Company has offered
to settle this matter for $400, but a settlement has not been reached. In
addition, because the Company's practices for the treatment of automobile
allowances paid to employees in 1994 and years subsequent may not be in
compliance with the IRS's position, the Company has accrued an additional
liability of $1,400 as of June 30, 1997 ($760 at June 30, 1996) to cover the
estimated withholding taxes, interest and penalties on similar allowances
paid in years subsequent to 1993.
Due to the recorded liabilities for the IRS assessments and additional
withholding taxes for years not yet audited by the IRS, the Company has
recurring losses and a stockholder's deficiency at June 30, 1996 and 1997.
The Company continues to operate as a going concern and the financial
statements for the years ended June 30, 1996 and 1997 have been prepared
on that basis. However, the uncertainties related to the Company's ability
to satisfy the IRS assessments and the unasserted claim for additional taxes,
interest and penalties raise substantial doubt about its ability to continue
as a going concern. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
F-116
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Allowance for Doubtful Accounts
The allowance for doubtful accounts consists of the following:
Balance Charged Balance
at to at
beginning costs and end of
of period expenses Write-offs period
Year ended June 30, 1996 $226 $200 $(254) $172
Year ended June 30, 1997 172 282 (267) 187
5. Property and Equipment
Property and equipment consists of the following:
June 30,
1996 1997
Vehicles $ 609 $ 609
Vehicles under capital leases 175 322
Furniture and equipment 48 102
Computer equipment 71 124
Leasehold improvements 76 82
----- ------
979 1,239
Accumulated depreciation and
amortization (638) (797)
----- ------
$ 341 $ 442
===== ======
F-117
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Accrued Expenses
Accrued expenses are comprised the following:
June 30,
1996 1997
Salaries and wages $125 $139
Payroll taxes 85 94
Accrued vacation 100 111
Other 18 18
---- ----
$328 $362
==== ====
7. Line of Credit and Notes Payable
At June 30, 1996, the Company had borrowed $57 under a line of credit
agreement with a bank. The line was unsecured and required monthly
interest payments. The line bore interest at the bank's prime rate plus
3-1/2% (11.75% at June 30, 1996). The outstanding balance was paid in full
in December 1996.
At June 30, 1996, the Company had a note payable with a balance
outstanding of $65. The note was unsecured, non-interest bearing and was
paid in full by December 1996.
At June 30, 1996 and 1997, the Company had a note payable with a balance
outstanding of $166 and $20, respectively. The note was unsecured, bore
interest at 8% and was paid in full in August 1997.
Capital lease liability
The Company has numerous delivery vehicles under various lease agreements,
which qualify as capital leases. Future minimum lease payments related to
these agreements are as follows:
Fiscal year
1998 $105
1999 81
2000 61
----
247
Less imputed interest (27)
----
220
Less: current portion (89)
----
$131
====
F-118
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Income Taxes
The following reconciles the federal income tax benefit computed at the
U.S. federal income tax rate to the provision for income taxes:
Year Ended
June 30,
1996 1997
Tax benefit computed at federal statutory
rate (34%) $(23) $(121)
State tax benefit (5) (22)
Adjustment to deferred tax asset valuation
allowance 23 139
Other 5 4
---- -----
$ -- $ --
==== =====
The Company has recorded a full valuation allowance for net deferred tax
assets which otherwise would have been recognized at June 30, 1996 and
1997 based on management's assessment of the ultimate realization of such
assets. Accordingly, no benefit has been recorded for the loss for the
years then ended.
Temporary differences which otherwise would give rise to deferred tax
assets and liabilities are as follows:
June 30,
1996 1997
Payroll taxes and interest in dispute $ 776 $ 1,075
Net operating loss carryforwards 436 135
Accrued vacation and interest -- 176
Cash basis to accrual basis adjustment (186) (153)
Others, net 32 (7)
------- -------
Net deferred tax asset 1,058 1,226
Valuation allowance (1,058) (1,226)
------- -------
$ -- $ --
======= =======
At June 30, 1997, the Company had available net operating loss
carryforwards of $370 for federal income tax purposes. The carryforwards
are limited to future taxable earnings of the Company and expire in 2009.
F-119
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Related Party Transactions and Balances
Due to related party consists of the following:
June 30,
1996 1997
Note payable to stockholder, interest
payable at 9%, due February 2000 $ 591 $ 591
Note payable to stockholder, interest
payable at 9%, due July 2000 28 48
Accrued interest 107 164
----- -----
726 803
Receivable from stockholder, non-interest
bearing, due on demand (182) (214)
----- -----
$ 544 $ 589
===== =====
10. Commitments and Contingencies
Operating leases
The Company leases certain office equipment and automobiles under
operating leases expiring on various dates through 2001. Future minimum
lease payments under operating leases that have noncancelable lease terms
at June 30, 1997, are as follows:
Fiscal year
1998 $213
1999 162
2000 127
2001 111
2002 9
----
$622
====
Rental expense charged to operations was $155 and $217 for the years ended
June 30, 1996 and 1997, respectively.
Litigation
In addition to the IRS assessments and additional withholding taxes in
dispute (Note 3), the Company is party to other legal proceedings arising
in the ordinary course of business. In the opinion of management, their
ultimate resolution will not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
F-120
<PAGE>
AERO SPECIAL DELIVERY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
11. Subsequent Events (Unaudited)
The Company and its stockholder have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which the
Company will merge with DMS. All outstanding shares of the Company will be
exchanged for cash and common stock of DMS concurrent with the
consummation of the initial public offering of the common stock of DMS.
F-121
<PAGE>
Report of Independent Accountants
To the Stockholder of
S-Car-Go Courier, Inc.
In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of S-Car-Go Courier,
Inc. at 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. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe our audit provides a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
San Francisco, California
August 29, 1997
F-122
<PAGE>
S-CAR-GO COURIER, INC.
BALANCE SHEETS
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 29 $ 75 $110
Accounts receivable 141 185 192
---- ---- ----
Total current assets 170 260 302
Intangible assets, net, 11 7 4
Property and equipment, net 24 18 32
Other assets 1 -- 10
---- ---- ----
$206 $285 $348
---- ---- ----
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7 $ 8 $ 3
Accrued expenses 30 117 46
Taxes payable 1 29 17
Deferred income taxes 43 21 60
Notes payable to related parties 36 16 102
---- ---- ----
Total current liabilities 117 191 228
---- ---- ----
Stockholders' equity
Common stock $1.00 par value; 1,000 shares
authorized 500 shares issued and outstanding 1 1 1
Retained earnings 88 93 119
---- ---- ----
Total stockholders' equity 89 94 120
---- ---- ----
$206 $285 $348
---- ---- ----
</TABLE>
See accompanying notes to financial statements.
F-123
<PAGE>
S-CAR-GO COURIER, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
December 31, June 30,
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $838 $1,155 $537 $704
Cost of sales 489 693 323 391
---- ------ ---- ----
Gross margin 349 462 214 313
---- ------ ---- ----
Operating expenses 96 140 64 78
Sales and marketing 32 87 44 87
General and administrative expenses 110 206 103 92
Depreciation and amortization 16 15 8 9
---- ------ ---- ----
Total expenses 254 448 219 266
---- ------ ---- ----
Operating income (loss) 95 14 (5) 47
Interest expense 2 2 1 4
---- ------ ---- ----
Income (loss) before provision for
income taxes 93 12 (6) 43
Provision for income taxes 40 7 (3) 17
---- ------ ---- ----
Net income (loss) $ 53 $ 5 $ (3) $ 26
==== ====== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-124
<PAGE>
S-CAR-GO COURIER, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
Number Common Retained Total
of Shares Stock Earnings Equity
<S> <C> <C> <C> <C>
Balance, December 31, 1994 500 $1 $35 $36
Net income for the year ended
December 31, 1995 53 53
--- -- ---- ----
Balance, December 31, 1995 500 1 88 89
Net income for the year ended
December 31, 1996 5 5
--- -- ---- ----
Balance, December 31, 1996 500 1 93 94
Net income for six months ended
June 30, 1997 (unaudited) 26 26
--- -- ---- ----
Balance, June 30, 1997 (unaudited) 500 $1 $119 $120
=== == ==== ====
</TABLE>
See accompanying notes to financial statements.
F-125
<PAGE>
S-CAR-GO COURIER, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months
Years Ended Ended
December 31, June 30,
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 53 $ 5 $ (3) $ 26
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 16 14 7 9
Changes in assets and liabilities:
Accounts receivable (51) (44) (68) (7)
Other assets -- 1 -- (10)
Accounts payable (19) 1 (5) (5)
Accrued expenses (35) 87 21 (71)
Income taxes payable -- 28 19 (12)
Deferred income taxes 39 (22) 20 39
---- ---- ---- -----
Net cash provided by operating activities 3 70 (9) (31)
---- ---- ---- -----
Cash flows from investing activities:
Purchases of property and equipment (4) (4) (4) (20)
---- ---- ---- -----
Net cash used for investing activities (4) (4) (4) (20)
---- ---- ---- -----
Cash flows from financing activities:
Repayment of notes to related parties, net (4) (20) (9) 86
---- ---- ---- -----
Net (decrease) increase in cash (5) 46 (22) 35
Cash at beginning of period 34 29 29 75
---- ---- ---- -----
Cash at end of period $ 29 $ 75 $ 7 $ 110
==== ==== ==== =====
</TABLE>
See accompanying notes to financial statements.
F-126
<PAGE>
S-CAR-GO COURIER, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
S-Car-Go Courier, Inc. (the "Company") was incorporated in 1992. The
Company provides same-day, on-demand delivery services to customers in and
around the San Francisco Bay Area. Two major customers comprised 23% an
29% of revenues in 1995 and 1996.
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 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 periods. Actual results could differ from those estimates.
Revenue recognition
Revenues are recognized upon delivery of packages to the customer.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets. Property and equipment consists of computer equipment and vehicles
with estimated useful lives of 5 years.
Fair value of financial instruments
The carrying amount of accounts receivable/payable and accrued expenses
approximates fair value because of the short maturity of these instruments.
The fair value of notes payable to related parties cannot be estimated due
to the related party relationships involved (Note 6).
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the Company
performs ongoing credit evaluations of its customers to reduce the risk of
loss.
Income taxes
The Company is a C-Corporation for federal and state income tax purposes.
The Company accounts for income taxes using the liability method under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" (FAS 109).
Unaudited interim financial statements
The interim financial data as of June 30, 1997 and for the six months ended
June 30, 1996 and June 30, 1997 is unaudited, however, in the opinion of
management, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results
for the interim periods.
F-127
<PAGE>
S-CAR-GO COURIER, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Intangible asset
The intangible asset is a covenant not to compete agreement entered into
with a former stockholder in connection with the redemption in 1994 of
common stock. Consideration paid for the covenant was $23, which is being
amortized over its life of 5 years.
3. Property and Equipment
Property and equipment consists of the following:
December 31,
1995 1996
Equipment $ 63 $ 67
Vehicles 12 12
---- ----
75 79
Less: Accumulated depreciation (51) (61)
---- ----
$ 24 $ 18
==== ====
Depreciation expense for the years ended December 31,
1995 and 1996 was $11 and $10.
4. Accrued Expenses
Accrued expenses consist of the following:
December 31,
1995 1996
Payroll and payroll taxes $19 $ 43
Bonus 11 63
Consulting -- 11
--- ----
Total accrued expenses $30 $117
=== ====
F-128
<PAGE>
S-CAR-GO COURIER, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
5. Income Taxes
The provision for income taxes consists of the following:
December 31,
1995 1996
Current tax expense
Federal $ 1 $ 23
State
-- 6
--- ----
1 29
--- ----
Deferred tax expense
Federal 30 (17)
State 9 (5)
--- ----
39 (22)
--- ----
$40 $ 7
=== ====
The provision for income taxes differs from income taxes computed by
applying the U.S. statutory federal income tax rate as a result of the
following:
December 31,
1995 1996
Taxes computed at federal statutory rate (34%) $ 31 $ 4
State taxes (net of federal benefit) 6 1
Other 3 2
----- -----
Provision for income taxes $ 40 $ 7
===== =====
Effective rate 43.0% 58.3%
===== =====
F-129
<PAGE>
S-CAR-GO COURIER, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
5. Income Taxes (continued)
Temporary differences giving rise to the Company's deferred tax
liabilities were as follows:
December 31,
1995 1996
Deferred tax liabilities:
Accrual basis receivables/payables, net $ 40 $ 20
Property and equipment 3 1
---- ----
$ 43 $ 21
==== ====
6. Related Party Transactions
Notes payable to related parties
In March 1994, the Company borrowed $50 from a relative of the stockholder.
The note matures in March 1998 and bears interest at 7% payable annually.
On May 31, 1997, the Company issued a note payable to the stockholder.
Principle is payable on demand and bears interest at 12% per annum, payable
monthly.
Investment in related party
In October 1994, San Francisco Dispatch Brokerage Center, Inc. ("SFDBC"),
a California Corporation, was formed for the purpose of performing the
dispatch, billing, accounting and other related functions for four
delivery service companies in San Francisco. Upon formation of SFDBC, the
Company contributed property and equipment to SFDBC in exchange for 20% of
its common stock. The value of the property and equipment was immaterial.
The Company accounts for this investment under the cost method as results
of applying the equity method would not differ materially.
The expenses of SFDBC are allocated among the four founding delivery service
companies based on the transactions and revenue volume of each. In addition,
the Company's stockholder serves as a non-compensated officer of SFDBC. The
total expenses attributed to the Company were $107 and $154 in 1995 and 1996,
respectively. SFDBC also provides similar services for another delivery
service company. The resulting profit is distributed to the founding
companies monthly. These profits totaled $11 and $14 in 1995 and 1996,
respectively.
7. Subsequent Events (Unaudited)
Merger
The Company and its stockholder have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which the Company
will merge with DMS. All outstanding shares of the Company will be
F-130
<PAGE>
S-CAR-GO COURIER, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
exchanged for cash and common stock of DMS concurrent with the
consummation of the initial public offering of the common stock of DMS.
F-131
<PAGE>
Report of Independent Accountants
To Gregory W. Austin
In our opinion, the accompanying statement of assets, liabilities
and net assets and the related statements of operations and changes in net
assets and of cash flows present fairly, in all material respects, the financial
position of Gregory W. Austin d/b/a Battery Point Messenger and Alpha Express at
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. These financial statements are your responsibility; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
San Francisco, California
August 29, 1997
F-132
<PAGE>
GREGORY W. AUSTIN, SOLE PROPRIETORSHIP
d/b/a BATTERY POINT MESSENGER and ALPHA EXPRESS
STATEMENT OF ASSETS, LIABILITIES AND NET ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 2 $ 2 $ 18
Accounts receivable 102 115 125
Prepaid and other current assets 7 9 6
---- ---- ----
Total current assets 111 126 149
Property and equipment, net 11 7 6
Intangible assets, net 27 21 18
---- ---- ----
$149 $154 $173
==== ==== ====
Liabilities and Net Assets
Current liabilities:
Accounts payable $ 6 $ 2 $ 3
Accrued payroll 6 10 13
Accrued customer list payable 12 -- --
Borrowings under line of credit 19 21 18
---- ---- ----
Total current liabilities 43 33 34
Net assets 106 121 139
---- ---- ----
$149 $154 $173
</TABLE>
==== ==== ====
See accompanying notes to financial statements.
F-133
<PAGE>
GREGORY W. AUSTIN, SOLE PROPRIETORSHIP
d/b/a BATTERY POINT MESSENGER and ALPHA EXPRESS
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended Six Months
December 31, Ended June 30
----- -----
1995 1996 1996 1997
----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 576 $ 732 $ 346 $ 405
Cost of sales 315 397 190 189
----- ----- ----- -----
Gross margin 261 335 156 216
----- ----- ----- -----
Operating expenses 82 113 53 58
Sales and marketing 3 24 12 7
General and administrative expenses 26 31 15 16
Depreciation and amortization 7 10 5 4
----- ----- ----- -----
118 178 85 85
----- ----- ----- -----
Operating income 143 157 71 131
Interest expense 2 3 2 1
----- ----- ----- -----
Excess of income over expenses (net income) 141 154 69 130
Net assets at beginning of period 46 106 106 121
Distributions to owner (81) (139) (47) (112)
----- ----- ----- -----
Net assets at end of period $ 106 $ 121 $ 128 $ 139
----- ----- ----- -----
Unaudited pro forma information:
Pro forma income before income taxes $ 141 $ 154 $ 69 $ 130
Provision for income taxes (56) (62) (28) (52)
----- ----- ----- -----
Pro forma net income $ 85 $ 92 $ 41 $ 78
===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-134
<PAGE>
GREGORY W. AUSTIN, SOLE PROPRIETORSHIP
d/b/a BATTERY POINT MESSENGER and ALPHA EXPRESS
STATEMENT OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years Ended Six Months
December 31, Ended June 30,
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Excess of income over expenses (net income) $ 141 $ 154 $ 69 $ 130
Adjustments to reconcile excess
of income over expenses
(net income) to cash provided by
operating activities:
Depreciation and amortization 7 10 5 4
Changes in assets and liabilities:
Accounts receivable (49) (13) 3 (10)
Prepaid and other current assets (4) (2) -- 3
Accounts payable 3 (4) (4) 1
Accrued expenses 1 4 5 3
----- ----- ---- -----
Net cash provided by operating activities 99 149 78 131
----- ----- ---- -----
Cash flows from investing activities:
Purchase of customer list (18) (12) (12) --
Purchases of property and equipment, net (10) -- -- --
----- ----- ---- -----
Net cash used for investing activities (28) (12) (12) --
----- ----- ---- -----
Cash flows from financing activities:
Change in borrowings under line of credit, net 9 2 3 (3)
Distributions to owner (81) (139) (47) (112)
----- ----- ---- -----
Net cash used for financing activities (72) (137) (44) (115)
----- ----- ---- -----
Net (decrease) increase in cash (1) -- 22 16
Cash at beginning of period 3 2 2 2
----- ----- ---- -----
Cash at end of period $ 2 $ 2 $ 24 $ 18
===== ===== ==== =====
</TABLE>
See accompanying notes to financial statements.
F-135
<PAGE>
GREGORY W. AUSTIN, SOLE PROPRIETORSHIP
d/b/a BATTERY POINT MESSENGER and ALPHA EXPRESS
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
Battery Point Messenger was founded in 1988 by Gregory W. Austin and
operates as a sole proprietorship. The financial statements are based on
the assets, liabilities and transactions recorded in the accounting
records of Gregory W. Austin dba Battery Point Messenger and Alpha
Express. All assets and liabilities of a personal nature not recorded in
such records have been excluded from the financial statements.
In May 1995 Battery Point Messenger purchased the customer list of Alpha
Express along with the rights to the use of such name. Battery Point
Messenger and Alpha Express (the Company) provide same-day, on-demand
delivery services predominately in the San Francisco central business
district. Deliveries are performed by bike messengers.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets. Property and equipment consists primarily of computer and
communications equipment and is being depreciated over 5 years.
Intangible asset
In May 1995, the Company purchased the customer lists of Alpha Express
accompanied by a covenant not to compete for five years from the seller.
The purchase price of $30 was capitalized and is being amortized over five
years using the straight-line method. Accumulated amortization was $3 and
$9 at December 31, 1995 and 1996. Amortization expense for the years ended
December 31, 1995 and 1996 was $3 and $6, respectively.
Fair value of financial instruments
The carrying amount of cash, accounts receivable/payable and accrued
expenses approximates fair value because of the short maturity of these
instruments. Additionally, interest rates on the line of credit is a rate
which approximate market rates for debt with similar terms.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
F-136
<PAGE>
GREGORY W. AUSTIN, SOLE PROPRIETORSHIP
d/b/a BATTERY POINT MESSENGER and ALPHA EXPRESS
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (Continued)
Advertising costs
The Company advertises through the use of color brochures and direct
mailings. Advertising costs are expensed as incurred and amounted to $2
and $20 for the years ended December 31, 1995 and 1996, respectively.
Income taxes
The Company is a sole proprietorship and, accordingly, income generated
from its operations is taxed at the individual level. Therefore, a
provision for income taxes has not been provided. However, proforma income
tax expense has been included in the statement of operations and changes
in net assets to reflect the estimated income tax expense the Company
would have incurred had it been a corporation for all periods presented.
Unaudited interim financial statements
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and June 30, 1997 is unaudited; however in the opinion
of management, the interim data includes all adjustments, consisting of
only normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
3. Property and Equipment
Property and equipment consists of the following:
December 31,
1995 1996
Communication equipment $ 24 $ 24
Computer equipment 11 11
Furniture and fixtures 2 2
Other 3 3
---- ----
40 40
Accumulated depreciation (29) (33)
---- ----
$ 11 $ 7
==== ====
Depreciation expense for the years ended December 31, 1995 and 1996 was
approximately $4 and $4, respectively.
4. Line of Credit
The Company has a $23 revolving business line of credit with its primary
banking institution. Principal and interest payments, which amount to 2%
of the ending monthly balance, are paid on a monthly basis. Annual
percentage rate was 13% and 13.5% at December 31, 1996 and 1995,
respectively.
F-137
<PAGE>
GREGORY W. AUSTIN, SOLE PROPRIETORSHIP
d/b/a BATTERY POINT MESSENGER and ALPHA EXPRESS
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
5. Related Parties
In October 1994, San Francisco Dispatch Brokerage Center, Inc. (SFDBC), a
California corporation, was formed for the purpose of performing the
dispatch, billing, accounting and other related functions for several
delivery services in San Francisco. Upon formation of SFDBC, the Company
contributed property and equipment to SFDBC in exchange for 20% of its
common stock. The value of the property and equipment was immaterial. The
Company accounts for this investment under the cost method as results of
applying the equity method would not differ materially.
Upon formation of SFDBC through February 28, 1997, Gregory W. Austin
served as an officer of SFDBC and was paid an annual salary of $24. All
salaries and expenses of SFDBC are allocated among the four founding
delivery service companies based on transactions and revenue volume of
each. SFDBC also provided similar services to other messenger companies.
The revenues earned on these services are distributed to the founding
delivery service companies monthly and have been classified as a reduction
of operating expenses as they are immaterial. The total expenses, net of
associate revenues, charged to the Company were $82 and $113 in 1995 and
1996, respectively.
6. Subsequent Events
Purchase of customer list
On July 1, 1997, the Company purchased the customer list of A to Z
Couriers (California) Inc. for $30. The customer list consisted of one
hundred sixty-three accounts that are now serviced by Battery Point
Messenger and Alpha Express.
7. Subsequent Events (Unaudited)
Merger
The Company has entered into a definitive agreement with Dispatch
Management Services Corp. ("DMS") pursuant to which the Company will merge
with the DMS. The Company's assets will be exchanged for cash and common
stock of DMS Corporation concurrent with the consummation of the initial
public offering of the common stock of DMS.
F-138
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Washington Express Services, Inc.
In our opinion, the accompanying balance sheets, and the related
statements of operations, of stockholders' equity (deficiency) and of cash flows
present fairly, in all material respects, the financial position of Washington
Express Services, Inc. at September 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Detroit, Michigan
August 29, 1997
F-139
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1995 1996 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash $ 19 $ 7 $ 43
Accounts receivable, net 685 681 866
Loan receivable - stockholder 90
Prepaid and other current assets 53 57 56
----- ------- -------
Total current assets 757 835 965
Property and equipment, net 157 242 443
Deposits 17 62 36
----- ------- -------
Total assets $ 931 $ 1,139 $ 1,444
===== ======= =======
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities
Line of credit $ 285 $ 403 $ 575
Accounts payable and accrued expenses 266 176 280
Deferred income tax liability 207 236 206
Obligations under capital leases 26 33 14
Notes payable 77 127
----- ------- -------
Total current liabilities 784 925 1,202
Long-term liabilities
Obligations under capital leases 53 73 100
Notes payable 59
Notes payable - stockholders 119 116 122
----- ------- -------
Total liabilities 956 1,114 1,483
----- ------- -------
Commitments
Stockholders' Equity
Common stock $.01 par value (100,000 shares
authorized; 9,332 issued and outstanding) and
additional paid-in capital 377 377 377
Advance to stockholder (Note 14) (135) (135) (190)
Accumulated deficit (267) (217) (226)
----- ------- -------
Total stockholders' equity (deficiency) (25) 25 (39)
----- ------- -------
Total liabilities and stockholders'
equity (deficiency) $ 931 $ 1,139 $ 1,444
===== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-140
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
STATEMENT OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended September 30, Ended June 30,
--------------------------- -------------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $5,881 $6,056 $ 5,800 $ 4,372 $ 4,341
Cost of sales 3,094 3,239 3,164 2,368 2,302
------ ------ ------- ------- -------
Gross margin 2,787 2,817 2,636 2,004 2,039
Selling, General and Administrative Expenses
Operating expenses 1,540 1,666 1,532 1,160 1,216
Sales and marketing 423 459 483 359 386
General and administrative expenses 540 435 390 300 316
Depreciation and amortization 79 67 91 53 83
------ ------ ------- ------- -------
Operating income 205 190 140 132 38
Other (income) expense
Interest expense 128 91 70 44 70
Other, net 5 4 (18) (13) (16)
------ ------ ------- ------- -------
Income (loss) before provision for income taxes 72 95 88 101 (16)
Provision (benefit) for income taxes 30 40 38 43 (7)
------ ------ ------- ------- -------
Net income (loss) $ 42 $ 55 $ 50 $ 58 $ (9)
====== ====== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-141
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Retained
Earnings Total
Common Advance to (Accumulated Stockholders'
Stock Stockholder Deficit) Equity (Deficiency)
----- ----------- ----------- -------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1993 $ 377 $ -- $(364) $13
Net income 42 42
----- ----- ----- ---
Balance at September 30, 1994 377 (322) 55
Advances to stockholder (135) (135)
Net income 55 55
----- ----- ----- ---
Balance at September 30, 1995 377 (135) (267) (25)
Net income 50 50
----- ----- ----- ---
Balance at September 30, 1996 377 (135) (217) 25
Net loss (unaudited) (9) (9)
Advances to stockholder (unaudited) (55) (55)
----- ----- ----- ---
Balance at June 30, 1997 (unaudited) $ 377 $(190) $(226) $(39)
===== ===== ===== ===
</TABLE>
See accompanying notes to financial statements.
F-142
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended September 30, June 30,
--------------------- -------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss) $ 42 $ 55 $ 50 $ 58 $ (9)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 70 66 91 53 83
Loss on disposal of assets 4 5 1 1
Deferred income taxes 28 (20) 29 35 (30)
Changes in operating assets and liabilities:
Accounts receivable (32) (1) 4 (196) (185)
Deposits 1 2 (45) (11) 26
Prepaid expenses 14 19 (4) (13) 1
Accounts payable and accrued expenses (81) 156 (90) (54) 104
Accrued interest payable - shareholders 28 8 8 6 6
----- ----- ----- ----- -----
Net cash provided by (used in) operating activities 74 290 44 (121) (4)
----- ----- ----- ----- -----
Investing activities
Net cash used in investing activities-purchase of
property and equipment (31) (21) (111) (91) (159)
----- ----- ----- ----- -----
Financing activities
Increase (reduction) in line of credit (25) (155) 118 241 172
Repayments from (advances to) stockholder 9 (41) (55)
Decrease (increase) in loan receivable - stockholder (90) (54) 90
Principal payments on notes payable - stockholders (18) (4) (11) (11)
Proceeds from notes payable 77 77 109
Principal payments on capital lease obligations (26) (50) (39) (26) (117)
----- ----- ----- ----- -----
Net cash provided by (used in) financing activities (60) (250) 55 227 199
----- ----- ----- ----- -----
Net increase (decrease) in cash (17) 19 (12) 15 36
Cash at beginning of period 17 -- 19 19 7
----- ----- ----- ----- -----
Cash at end of period $ -- $ 19 $ 7 $ 34 $ 43
===== ===== ===== ===== =====
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 100 $ 83 $ 62 $ 38 $ 64
===== ===== ===== ===== =====
Income taxes $ 15 $ 14 $ 51 $ 8 $ 23
===== ===== ===== ===== =====
Capital lease obligations incurred for
purchase of property and equipment $ -- $ 73 $ 66 $ 66 $ 125
===== ===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-143
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
Washington Express Services, Inc. (the "Company") provides same-day,
on-demand delivery services in the Washington, DC metropolitan area.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Property and equipment
Property and equipment are carried at cost. Depreciation is primarily
provided for using the modified accelerated cost recovery system over the
estimated useful lives of the related assets (5 to 31.5 years).
Fair value of financial instruments
The carrying amount of cash, accounts receivable/payable, notes
receivable/payable, accrued expenses and amounts payable under line of
credit agreements approximates fair value because of the short maturity of
these instruments. The estimated fair value of long-term debt and other
long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market
rates for debt with similar terms and average maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
Income taxes
The Company is a C-Corporation for federal and state income tax purposes.
The Company accounts for income taxes using the liability method under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" (FAS 109).
Unaudited Interim Financial Statements
The interim financial data as of June 30, 1997 and for the nine months
ended June 30, 1997 and June 30, 1996 is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results of the interim periods.
F-144
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
3. Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at end
of Period Expenses Write-offs of Period
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended September 30, 1994......................... $ 19 $ 60 $ (69) $ 10
Year ended September 30, 1995......................... $ 10 $ 25 $ (34) $ 1
Year ended September 30, 1996......................... $ 1 $ 6 $ (1) $ 6
</TABLE>
4. Prepaid and Other Current Assets
Prepaid and other current assets comprised the following:
September 30,
---------------
1995 1996
Prepaid workers compensation $ 30 $ 1
Prepaid insurance 9 17
Prepaid income taxes 19
Other 14 20
------ ------
Total prepaid and other current assets $ 53 $ 57
====== ======
5. Property and Equipment
Property and equipment comprised the following:
September 30,
---------------
1995 1996
Computer equipment $ 242 $ 381
Office equipment 230 222
Furniture and fixtures 35 38
Other 30 30
------ ------
537 671
Accumulated depreciation and amortization 380 429
------ ------
$ 157 $ 242
====== ======
Included in property and equipment at September 30, 1995 and 1996 are
assets acquired under capital leases in the gross amount of $162 and $228
and accumulated depreciation of $73 and $164, respectively. Related
depreciation expense aggregated $22, $33 and $91 for the years ended
September 30, 1994, 1995 and 1996, respectively.
F-145
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
6. Line of Credit
The Company maintains a $600 revolving line of credit with a financial
institution that expires on February 28, 1997. Pursuant to the terms of
the agreement, interest is payable monthly at the rate of prime plus 1.25%
(9.5% at December 31, 1996). The line of credit is secured by the
Company's accounts receivable and equipment, and is personally guaranteed
by the Company's shareholders. At September 30, 1996, the Company was in
violation of certain financial covenants of the agreement pertaining to
tangible net worth and leverage ratios. However, although the Company
continues to be in violation of certain financial covenants in the
agreement, subsequent to September 30, 1996, the line of credit agreement
was renewed with the financial institution such that it will currently
expire on February 28, 1998.
7. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses comprised the following:
September 30,
---------------
1995 1996
Accounts payable, trade $ 95 $ 60
Accrued Wages 65 65
Income taxes payable 45 26
Accrued courier commissions 54
Other 7 25
------ ------
Total accounts payable and accrued expenses $ 266 $ 176
====== ======
8. Income Taxes
The provision for income taxes comprises:
Year Ended September 30,
------------------------
1994 1995 1996
Current tax expense $ 2 $ 60 $ 9
Deferred tax expense 28 (20) 29
------ ------ ------
Provision for income taxes $ 30 $ 40 $ 38
====== ====== ======
Deferred income tax assets and liabilities result from timing differences
in the recognition of revenue and expense for tax and financial reporting
purposes. Principally from the use of the accrual method of accounting for
financial reporting purposes and the cash basis of reporting for tax
purposes, the Company has recorded current deferred income tax liabilities
of $207 and $236 at September 30, 1995 and 1996, respectively.
F-146
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
8. Income Taxes (continued)
The provision for income taxes differs from income taxes computed by
applying the U.S. statutory federal income tax rate as a result of the
following:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1994 1995 1996
<S> <C> <C> <C>
Taxes computed at federal statutory rate (35%) $ 25 $ 33 $ 31
State taxes (net of federal benefit) 1 8 2
Surcharge exemption -- (12) (8)
Non-deductible meals and entertainment -- 7 10
Non-deductible officers' life insurance -- 3 3
Other 4 1 --
------ ------ ------
Provision for income taxes $ 30 $ 40 $ 38
====== ====== ======
Effective tax rate 42% 42% 43%
====== ====== ======
</TABLE>
9. Capital Leases
The Company has entered into lease agreements for the use of equipment
expiring at various times through 1999 that are accounted for as capital
leases. The future minimum lease payments under the capital lease
agreements are as follows:
For the year ending September 30,
1997 $ 44
1998 43
1999 41
2000 1
----
Minimum lease payments 129
Less: amount representing interest 23
----
Present value of minimum lease payments 106
Less: current portion of capital lease obligations 33
----
Long-term portion of capital lease obligations $ 73
====
Subsequent to September 30, 1996, the Company entered into agreements for
the lease of additional equipment that expire at various times through
1999. Pursuant to the terms of the agreements, the minimum lease payments
aggregate $142, including interest in the aggregate amount of $23.
F-147
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
10. Notes Payable
The Company has an equipment loan that bears interest at 9.75% and is
payable in 36 equal installments through October, 1999. The Company was in
violation of certain financial covenants of the loan agreement for the
years ended September 30, 1995 and 1996, accordingly, the entire liability
is classified as a current liability on the accompanying balance sheet.
The minimum principal payments due under the loan agreement for the fiscal
years ended September 30 are as follows:
For the year ending September 30,
1997 $ 24
1998 26
1999 26
2000 1
---
$ 77
===
11. Commitments
The Company has entered into agreements for the lease of certain office
equipment and office space which expire at various times through November
2006. Future minimum rental payments required under leases that have
noncancelable lease terms in excess of one year at September 30, 1996 are
as follows:
For the year ending September 30,
1997 $ 48
1998 56
1999 50
2000 42
2001 43
Thereafter 246
----
$485
===
Rental expense charged to operations was approximately $58, $70 and $60
for the years ended September 30, 1994, 1995 and 1996, respectively.
12. Employee benefit plan
The Company maintains a defined contribution plan covering substantially
all of its employees. The Plan is a qualified savings plan under the
provisions of Section 401(k) of the Internal Revenue Code and allows
eligible employees to defer up to 15% of their compensation subject to the
maximum allowable limit. The Company matches one-third of the employee
contribution up to the first 9%. Plan participants are immediately vested
100% in their contributions and vest at the rate of 20% per year in
employer contributions with full vesting occurring after five years of
service. Employer contributions aggregated $19, $20 and $22 for the years
ended September 30, 1994, 1995 and 1996, respectively.
13. Stock Option Agreement
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". This statement is effective for
F-148
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
fiscal years beginning after December 15, 1995 and sets forth standards
for accounting for stock-based compensation. SFAS 123 allows the use of
either a "fair value" based method of accounting or the "intrinsic value"
based method determined in accordance with Accounting Principles Board
(APB) Opinion No. 25. The Company will elect to account for stock-based
compensation in accordance with the "intrinsic value" method of APB
Opinion No. 25.
In May 1991, the Company granted one of its employees the right to
purchase up to 500 shares of the Company's common stock at an exercise
price of $60 per share. The option initially expired on October 1, 1996,
but was shortly thereafter extended to October 31, 1997 with no other
revisions to the terms of the agreement. The option was exercised
subsequent to June 30, 1997 and the Company issued 500 shares of its
common stock to the employee at a price of $60 per share. In accordance
with APB No. 25, the Company has not recognized compensation expense
related either to the original issuance of this option or to its extension
based on management's estimate of the fair value of the common stock. No
other stock options were granted, exercised, forfeited or expired during
the years ended September 30, 1994, 1995 and 1996.
14. Related Party Transactions
The Company has entered into an agreement with a stockholder whereby the
Company has the right to purchase 3,557 shares of the Company's common
stock from the shareholder at an aggregate purchase price of $190. Such
shares represent approximately 38% of the Company's outstanding common
stock at September 30, 1996. At September 30, 1995 and 1996, the Company
advanced to the shareholder amounts aggregating $135 related to the
contemplated purchase of the 3,557 shares. In August 1997, the Company
exercised its rights pursuant to the agreement and purchased the 3,557
shares of its common stock in exchange for $190, accordingly, such amounts
advanced to the stockholder have been classified as stockholders' equity
on the accompanying balance sheets.
At September 30, 1996, loan receivable-stockholder comprised of a
short-term loan made to the Company's Chief Executive Officer (the
"Executive") during the year ended September 30, 1996. Pursuant to the
terms of an agreement, such loan will be repaid to the Company as the
Executive's 1997 fiscal year compensation is earned and in no event will
the loan be repaid later than September 30, 1997.
Notes payable-stockholders at September 30, 1995 and 1996 aggregated $119
and $116, including accrued interest of $38 and $46, respectively, and
represent unsecured loans made to the Company by two of its shareholders.
The shareholder loans are subordinate to the Company's obligations under
its line of credit agreement. Interest is accrued at the rate of 12% per
annum. Related interest expense charged to operations amounted to $6, $8
and $8 for the years ended September 30, 1994, 1995 and 1996,
respectively.
The Company rents office space in Fairfax, Virginia, from HPHC Associates,
a partnership in which certain shareholders of the Company are partners.
The rental of this space is provided for on a month-to-month basis with no
lease commitment. For the years ending September 30, 1995 and 1996,
related expenses charged to operations aggregated approximately $20 and
$11.
F-149
<PAGE>
WASHINGTON EXPRESS SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
15. Unaudited Subsequent Events
The Company and its stockholders have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which the
Company will merge with DMS. All outstanding shares of the Company will be
exchanged for cash and stock concurrent with the consummation of the
initial public offering of the common stock of DMS.
F-150
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholder of
MLQ Express, Inc.
In our opinion, the accompanying balance sheets and the related
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of MLQ Express, Inc. at
February 28, 1996 and 1997 and the results of its operations and its cash flows
for the three years in the period ended February 28, 1997 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Atlanta, Georgia
August 27, 1997
F-151
<PAGE>
MLQ EXPRESS, INC.
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
February 28, May 31,
1996 1997 1997
<S> <C> <C> <C>
Assets
Current Asset
Cash and cash equivalents $ 1 $ 1 $ 5
Accounts receivable, net 504 763 610
Prepaid and other current assets 96 124 84
------ ------ ------
Total current assets 601 888 699
Property and equipment, net 138 133 149
Other assets 95 86 92
------ ------ ------
$ 834 $1,107 $ 940
====== ====== ======
Liabilities and stockholder's equity
Current liabilities
Line of credit $ 115 $ -- $ --
Current maturities long-term debt 65 -- --
Accounts payable 19 97 27
Accrued expenses 122 179 102
Note payable - related parties -- 394 275
Current maturities long-term debt - related parties 110 -- --
Deferred income taxes 86 118 114
------ ------ ------
Total current liabilites 517 788 518
Long-term debt, net of current maturities 48 -- --
Long-term debt - related parties, net of current maturities 30 -- --
------ ------ ------
Total liabilities 595 788 518
------ ------ ------
Commitments and contingent liabilities
Stockholder's Equity
Common stock, $1.00 par value; 10,000 shares
authorized; 150 shares issued outstanding -- -- --
Additional paid-in capital 18 18 18
Retained earnings 221 301 404
------ ------ ------
Total stockholder's equity 239 319 422
------ ------ ------
$ 834 $1,107 $ 940
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-152
<PAGE>
MLQ EXPRESS, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
Year Ended February 28, May 31,
1995 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
Net sales $ 4,102 $ 4,053 $ 5,310 $ 1,179 $ 1,538
Cost of sales 2,372 2,430 3,296 708 909
------- ------- ------- ------- -------
Gross margin 1,730 1,623 2,014 471 629
Operating expenese 515 511 579 160 172
Sales and marketing 163 188 233 42 58
General and administrative expenses 1,124 853 991 205 257
Depreciation and amortization 88 91 94 24 18
------- ------- ------- ------- -------
Total expenses 1,890 1,643 1,897 431 505
------- ------- ------- ------- -------
Operating income (loss) (160) (20) 117 40 124
Other (income) expense
Interest expense 17 30 43 9 7
Other, net (52) (62) (38) (7) (13)
------- ------- ------- ------- -------
Income (loss) begore provision for income taxes (125) 12 112 38 130
Provision (benefit) for income taxes (6) 13 32 8 27
------- ------- ------- ------- -------
Net income (loss) $ (119) $ (1) $ 80 $ 30 $ 103
====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-153
<PAGE>
MLQ EXPRESS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, except share amounts)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Retained Stockholder's
Shares Amount Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1994 150 $ - $ 18 $ 341 $ 359
Net loss - - - (119) (119)
--- ----- ---- ----- -----
Balance at February 28, 1995 150 - 18 222 240
Net loss - - - (1) (1)
--- ----- ---- ----- -----
Balance at February 28, 1996 150 - 18 221 239
Net income - - - 80 80
--- ----- ---- ----- -----
Balance at February 28, 1997 150 $ $ 18 $ 301 $ 319
=== ===== ==== ===== =====
Balance at February 28, 1997 150 $ - $ 18 $ 301 $ 319
Net income (unaudited) - - - 103 103
--- ----- ---- ----- -----
Balance at May 31, 1997 (unaudited) 150 $ - $ 18 $ 404 $ 422
=== ===== ==== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-154
<PAGE>
MLQ EXPRESS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
(Unaudited)
Three months ended
Year Ended February 28, May 31,
1995 1996 1997 1996 1997
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (119) $ (1) $ 80 $ 30 $ 103
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 88 91 94 24 18
Changes in assets and liabilities
Accounts receivable (37) (17) (259) (110) 153
Prepaid and other current assets (9) (54) (28) (15) 40
Other assets (17) (22) (19) (6) (6)
Accounts payable 37 (22) 78 27 (70)
Accrued expenses -- (26) 57 21 (77)
Deferred income taxes (6) 13 32 8 (4)
------- ------- ------- ------- -------
Net cash provided (used) by
operating activities (63) (38) 35 (21) 157
------- ------- ------- ------- -------
Cash flows from investing activities
Purchases of property and equipment (102) (48) (61) (26) (34)
------- ------- ------- ------- -------
Net cash used for investing activities (102) (48) (61) (26) (34)
------- ------- ------- ------- -------
Cash flows from financing activities
(Increase) decrease in line of credit 85 30 (115) 35 --
Borrowings on notes payable 183 155 1,451 30 --
Payments on notes payable (135) (120) (1,310) (15) (119)
------- ------- ------- ------- -------
Net cash provided (used) by
financing activities 133 65 26 50 (119)
------- ------- ------- ------- -------
Net (decrease) increase in cash and equivalents (32) (21) -- 1 4
Cash and cash equivalents
at beginning of the period 54 22 1 1 1
------- ------- ------- ------- -------
Cash and cash equivalents at end of the period $ 22 $ 1 $ 1 $ 2 $ 5
======= ======= ======= ======= =======
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 8 $ 32 $ 45 $ 10 $ 7
Income taxes 57 44 -- -- --
</TABLE>
See accompanying notes to financial statements.
F-155
<PAGE>
MLQ EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Description Of Business And Summary Of Significant Accounting Policies
Business organization
The Company, previously Morgan, Lee, Quail and Associates, Inc., was
incorporated October 25, 1982. MLQ Express, Inc. ("MLQ" or the "Company"),
a Georgia Corporation, was re-named on June 6, 1986. The Company is
organized into two divisions. The courier division provides same-day,
on-demand delivery services in the greater Atlanta metropolitan area. The
attorney services division provides court house research and process
services to Law Firms, financial institutions, and environmental Firms
throughout the nation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when services are provided to customers.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method and accelerated methods over the estimated useful
lives of the related assets (5 to 39 years).
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes payable and accrued expenses approximates fair
value because of the short maturity of these instruments. The estimated
fair value of long-term debt approximates its carrying value.
Additionally, interest rates on outstanding debt are at rates which
approximate market rates for debt with similar terms and average
maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
F-156
<PAGE>
MLQ EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
Unaudited financial information
The interim financial data as of May 31, 1997 and for the three months
ended May 31, 1996 and 1997 is unaudited; however, in the opinion of the
Company, the interim data as of May 31, 1997 and for the three months ends
May 31, 1996 and 1997 includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for
the interim periods.
Intangible assets
Intangible assets represent the purchase price of acquired customer list.
Intangible assets are amortized on a straight-line basis over 60 months.
The customer list was acquired January 31, 1992 for $155. Accumulated
amortization amounted to $128 and $155 as of February 28, 1996 and 1997,
respectively.
Income taxes
The Company accounts for income taxes using the liability method under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes" (SFAS 109).
2. Allowance For Doubtful Accounts
Changes in allowance for doubtful accounts are as follows:
<TABLE>
<CAPTION>
Balance at Charged Balance
Beginning to at end
of Period Expense Write-offs of Period
<S> <C> <C> <C> <C>
Year ended February 28, 1995 $ -- $ 15 $ (7) $ 8
Year ended February 28, 1996 $ 8 $ 2 $ (2) $ 8
Year ended February 28, 1997 $ 8 $ 7 $ (4) $ 11
</TABLE>
3. Property And Equipment
Property and equipment consists of the following:
February 28,
1996 1997
Equipment $ 222 $ 247
Furniture and fixture 134 146
Other 53 51
------ ------
409 444
Less accumulated depreciation (271) (311)
------ ------
$ 138 $ 133
====== ======
F-157
<PAGE>
MLQ EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
Depreciation expense for the years ended February 28, 1995, 1996 and 1997
was approximately $57, $60 and $66, respectively.
4. Line Of Credit
The Company has a line of credit with a commercial bank with an available
limit of $150 which is due on demand, bears interest at prime and is
guaranteed by the sole stockholder. The line expires annually in May. As
of February 28, 1996, $115 was outstanding. There were no borrowings
outstanding as of February 28, 1997.
5. Accrued Expenses
Accrued expenses consist of the following:
February 28,
1996 1997
Payroll and payroll taxes $ 33 $ 56
Commissions 28 64
Profit sharing contribution 52 52
Other 9 7
----- -----
$ 122 $ 179
===== =====
6. Employee Benefits
The Company has a profit sharing plan for all employees who meet specified
age and service requirements. Total profit sharing expense amounted to
$49, $52 and $53 for the years ended February 28, 1995, 1996 and 1997,
respectively.
F-158
<PAGE>
MLQ EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
7. Income Taxes
A net operating loss of $125 was generated in 1995. The net operating loss
was used to offset against taxable income in 1996 and 1997, resulting in
no current income tax expense for those periods.
The provision for income taxes consist of:
Year Ended February 28,
-------------------------
1995 1996 1997
Current tax expense (benefit)
Federal $ -- $ -- $ --
State and local -- -- --
------ ------ ------
State and local -- -- --
Deferred tax expense (benefit) (6) 13 32
------ ------ ------
Provision for income taxes $ (6) $ 13 $ 32
====== ====== ======
Deferred taxes result from temporary differences in recognition of certain
items for federal income tax and financial reporting purposes. Deferred
tax liabilities are mainly attributable to the difference created due to
the Company's accrual method of financial reporting and cash basis method
of income tax filing.
8. Long-Term Debt
Long-term debt consists of the following:
February 28,
1996 1997
Term note payable to related party due August 1998;
with interest at prime due quarterly $ 30 $ --
Term note payable to related party due August 1997;
with interest at prime due maturity 60 --
Term note payable to related party due July 1996;
with interest at prime due maturity 50 --
Installment note payable due in annual installments
through December, 1998; with interest at prime
due quarterly 113 --
----- -----
253 --
Less current portion (175) --
----- -----
$ 78 $ --
===== =====
9. Related Party
The Company entered into a one year employment contract with its sole
stockholder, expiring July 31, 1998, that provides for a base salary and
benefits which approximates $200. The agreement includes non-compete
covenants. Additionally, the Company pays the premiums on a life insurance
policy for which
F-159
<PAGE>
MLQ EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
the sole stockholder is the beneficiary. Life insurance premiums paid by
the Company approximated $16, $11 and $19 for the years ended February 28,
1995, 1996 and 1997, respectively. The Company has prepaid lease payments
for a period of two years for an automobile used by the sole stockholder.
Lease expenses charged to operations approximates $7, $6 and $7 for the
years ended February 28, 1995, 1996 and 1997, respectively.
In 1996, the Company entered into a loan agreement (the "Agreement") with
its sole stockholder. The Agreement provided the funds to reduce all of
the Company's non-related party debt and for periodic borrowings for
working capital purposes. The Agreement bears interest at prime less 1/2
percent due quarterly, with the principal balance due on demand. The
outstanding balance at February 28, 1997 amounted to $394.
10. Commitments And Contingent Liabilities
Operating Leases
The Company leases office space under an operating lease agreement and
certain operating equipment on a month to month basis. The office space
lease agreement includes a rental escalation clause which increases annual
rental by 3.5% over the previous years rent. Future minimum lease payments
required under the noncancelable lease terms at February 28, 1997 are as
follows:
Fiscal year
1998 $ 126
1999 138
2000 78
2001 10
2002 10
Thereafter 6
-----
$ 368
=====
Rental expense charged to operations was approximately $76, $73 and $99
for the years ended February 28, 1995, 1996 and 1997, respectively.
Employment agreements
The Company has employment agreements with certain officers which expire
at various dates through November 30, 1997. The agreements provide for
salary and payment of other benefits. The aggregate commitment for future
salaries at February 28, 1997 excluding other benefits was $320 (see note
9).
F-160
<PAGE>
MLQ EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
11. Concentrations Of Credit Risk
The Company markets and sells its products to a broad base of clients. One
of the Company's clients, Turner Properties, Inc., accounted for
approximately 19% of net sales for the year ended February 28, 1997. No
other clients constituted 10% or more of net sales.
12. Business Segment
Summarized data for the Company's courier division and attorney services
division are as follows:
<TABLE>
<CAPTION>
Year Ended February 28,
1995 1996 1997
<S> <C> <C> <C>
Revenues - unaffiliated customers
Courier division $ 3,528 $ 3,550 $ 4,823
Attorney service division $ 574 $ 503 $ 487
Operating income (loss)
Courier division $ (104) $ 32 $ 112
Attorney service division (56) (52) 5
</TABLE>
Capital expenditures related to the above segments are not significant
Assets used in the above segments mainly consist of trade receivables.
13. Subsequent Events
The Company and its stockholder have entered into an agreement with
Dispatch Management Services Corp. ("DMS") pursuant to which the Company
will merge with DMS. All outstanding shares of the Company will be
exchanged for cash concurrent with the consummation of the initial public
offering of the common stock of DMS.
F-161
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
American Eagle Endeavors, Inc.
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
American Eagle Endeavors, Inc. and its subsidiaries at December 31, 1995 and
1996 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 6 to the
financial statements, the Company has negative working capital and has not
obtained a waiver with regard to its violations of certain bank covenants.
Alternative financing may be required if the financial institution decides to
act on its rights under default provisions of the loan agreement. The
uncertainties related to these matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plan in regard to
these matters are also described in Note 6. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Price Waterhouse LLP
Minneapolis, Minnesota
September 5, 1997
F-162
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
----------------- -------
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 61 $ 139 $ 295
Accounts receivable, net 903 843 675
Prepaid income taxes 34
Prepaid and other current assets 36 41 18
------- ------- -------
Total current assets 1,000 1,023 1,022
Notes receivable from officers 181 195
Other assets, net 9 14 14
Property and equipment, net 392 355 280
------- ------- -------
$ 1,401 $ 1,573 $ 1,511
======= ======= =======
Liabilities and Stockholders' Equity
Current liabilities
Bank line of credit $ 50 $ -- $ 350
Accounts payable 382 288 419
Accrued expenses 88 110 107
Current maturities of long-term debt 184 183 154
Current maturities of subordinated debt to stockholders 50 47 42
Accrued income taxes 3 240
------- ------- -------
Total current liabilities 757 868 1,072
Subordinated debt to stockholders 324 268 238
Long-term debt, less current maturities 196 50 13
Deferred income taxes 165 116 98
------- ------- -------
Total liabilities 1,442 1,302 1,421
Minority interest in subsidiary 16 29 16
Commitments and contingencies (note 12)
Stockholders' equity (accumulated deficit)
Common stock $0.01 par value; 10,000,000 shares
authorized; 10,500 shares issued and outstanding 1 1 1
Additional paid-in capital 156 156 156
Retained earnings (accumulated deficit) (214) 85 (83)
------- ------- -------
Total stockholders' equity (deficit) (57) 242 74
------- ------- -------
$ 1,401 $ 1,573 $ 1,511
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-163
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------- --------------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 7,063 $ 8,573 $ 8,536 $ 4,296 $ 3,483
Cost of sales 4,453 5,420 5,293 2,712 2,330
-------- --------- --------- --------- ---------
Gross margin 2,610 3,153 3,243 1,584 1,153
Operating expenses
Sales and marketing 1,330 1,528 1,535 781 687
General and administrative expenses 756 890 940 419 662
Depreciation and amortization 187 165 174 87 83
-------- --------- --------- --------- ---------
Operating income (loss) 337 570 594 297 (279)
-------- --------- --------- --------- ---------
Other (income) expense
Interest expense 125 103 62 36 35
Minority interest in subsidiary net income 6 (12) 13 6 (13)
Other, net (4) 20 (3) (10)
-------- --------- --------- --------- ---------
Income (loss) before provision for income taxes 206 483 499 258 (291)
Benefit (provision) for income taxes (80) (190) (200) (105) 123
-------- --------- --------- --------- ---------
Net income (loss) $ 126 $ 293 $ 299 $ 153 $ (168)
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-164
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
------------ Paid-in (Accumulated
Shares Amount Capital Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 10,500 $ 1 $ 156 $ (592) $ (435)
Net income 126 126
Dividends paid (41) (41)
-------- ------- -------- ---------- --------
Balance at December 31, 1994 10,500 1 156 (507) (350)
Net income 293 293
-------- ------- -------- ---------- --------
Balance at December 31, 1995 10,500 1 156 (214) (57)
Net income 299 299
-------- ------- -------- ---------- --------
Balance at December 31, 1996 10,500 1 156 85 242
Net loss (unaudited) (168) (168)
-------- ------- -------- ---------- --------
Balance at June 30, 1997 (unaudited) 10,500 $ 1 $ 156 $ (83) $ 74
======== ======= ======== ========== ========
</TABLE>
See accompanying notes to financial statements.
F-165
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
--------------------------------- --------------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 126 $ 293 $ 299 $ 153 $ (168)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities
Depreciation and amortization 187 165 174 87 83
Minority interest 6 (12) 13 6 (13)
Deferred taxes 76 165 (49) (165) (18)
Loss on disposal of fixed assets 3
Changes in assets and liabilities:
Accounts receivable (175) (94) 60 82 168
Prepaid and other assets 12 4 (10) 42 23
Accounts payable (91) 22 (94) (119) 131
Accrued expenses (28) (236) 22 (14) (3)
Income taxes payable 22 237 259 (274)
--------- --------- --------- --------- ---------
Net cash provided by (used for)
operating activities 116 329 652 331 (71)
--------- --------- --------- --------- ---------
Cash flows from investing activities
Increase in officer notes receivable (181) (180) (14)
Purchases of property and equipment, net (128) (44) (81) (13) (8)
--------- --------- --------- --------- ---------
Net cash used for investing activities (128) (44) (262) (193) (22)
--------- --------- --------- --------- ---------
Cash flows from financing activities
Increase (decrease) in line of credit, net 164 (364) (50) (50) 350
Payments on long-term debt, net (66) 95 (262) (146) (101)
Payment of dividends (41)
Net cash provided by (used for) --------- --------- --------- --------- ---------
financing activities 57 (269) (312) (196) 249
--------- --------- --------- --------- ---------
Net (decrease) increase in cash and equivalents 45 16 78 (58) 156
Cash and equivalents at beginning of the period 45 61 61 139
--------- --------- --------- --------- ---------
Cash and equivalents at end of the period $ 45 $ 61 $ 139 $ 3 $ 295
========= ========= ========= ========= =========
Schedule of noncash investing and financing activities:
Property and equipment acquired under
capital lease agreements $ -- $ -- $ 56 $ -- $ --
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ -- $ 4 $ 10 $ 10 $ 170
Interest $ 122 $ 108 $ 65 $ 54 $ --
</TABLE>
See accompanying notes to financial statements.
F-166
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
American Eagle Endeavors, Inc. and Subsidiaries (the "Company") is a
courier service and facilities traffic management firm. Primary offices
are located in Minneapolis, Minnesota and Phoenix, Arizona. The Company
offers traditional business courier services, such as on-call, same day,
and dock service, specialized transportation services tailored to
individual customer needs, and warehouse distribution services.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of American
Eagle Endeavors, Inc. and its majority-owned subsidiaries: American Eagle
Express, Inc. and American Eagle Express-Phoenix, Inc. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets. The estimated lives used for computing depreciation and
amortization are as follows:
Years
Transportation equipment 5 - 7
Equipment 5 - 7
Office furniture and fixtures 5 - 7
Leasehold improvements 4 - 5
Income taxes
Deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences, operating
loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the differences between the report amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
F-167
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable and accrued expenses
approximates fair value because of the short maturity of these
instruments. The estimated fair value of long-term debt and other
long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market
rates for debt with similar terms and average maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
Unaudited interim financial data
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 is unaudited; however, in the opinion of
Management, the Company has made all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
3. Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
of Period Expenses of Period Write-offs
<S> <C> <C> <C> <C>
Year ended December 31, 1994 $ 81 $ 20 $ (76) $ 25
Year ended December 31, 1995 $ 25 $ 38 $ (34) $ 29
Year ended December 31, 1996 $ 29 $ 40 $ (26) $ 43
</TABLE>
F-168
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
4. Property and Equipment
Property and equipment consists of the following:
December 31,
--------------------
1995 1996
Equipment $ 389 $ 468
Furniture and fixture 327 332
Vehicles 75 128
Leasehold improvements 101 101
------- --------
892 1,029
Accumulated depreciation and amortization (500) (674)
------- --------
$ 392 $ 355
======= ========
Property and equipment above includes leased equipment with a cost of $88
and $144 and accumulated depreciation of $42 and $63 at December 31, 1995
and 1996 respectively. Depreciation expense for the years ended December
31, 1994, 1995 and 1996 was $159, $162 and $174, respectively.
5. Accrued Expenses
Accrued expenses comprised the following:
December 31,
--------------------
1995 1996
Payroll and payroll taxes $ 41 $ 41
Accrued vacation 27 24
Other 20 45
-------- -------
Total accrued liabilities $ 88 $ 110
======== =======
6. Note Payable to Bank
The Company has a financing agreement with a bank consisting of a $350
line of credit and a term loan (see Note 7). Outstanding borrowings bear
interest at the bank's prime lending rate plus 1.5 percent (9.75 percent
at December 31, 1996), are subject to borrowing base availability, are
secured by substantially all Company assets, and are guaranteed by the
Company's stockholders. Outstanding borrowings against the line of credit
were $0 and $50 at December 31, 1996 and 1995, respectively.
The financing agreement contains provisions requiring compliance with
several financial covenants. At December 31, 1996, the Company was in
violation of certain covenants. A waiver of these covenant violations has
not been obtained from the financing institution.
F-169
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
7. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1996
<S> <C> <C>
Term note payable to bank, secured by substantially all Company assets,
due in monthly installments of $10, plus interest at
the bank's prime lending rate plus 1.5%, to April 1998 $ 250 $ 160
9.75% capital lease obligation, due in installments of $1,
including interest to January 2002, secured by equipment 46
10% equipment financing note, due in installments of $1,
including interest to January 1999, secured by equipment 24 17
Other equipment financing notes, due in 1997 20 10
Other, paid in 1996 86
--------- --------
380 233
Less current maturities 184 183
--------- --------
$ 196 $ 50
========= ========
</TABLE>
Approximate aggregate maturities of long-term debt as of December 31,
1996, are as follows:
Years Ending December 31:
1997 $ 183
1998 5
1999 8
2000 8
2001 9
Thereafter 10
-------
$ 233
=======
8. Subordinated Debt to Stockholders
Subordinated debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
<S> <C> <C>
6% stockholder note payable, due in semimonthly installments
of $2, including interest to August 2001, unsecured $ 269 $ 269
14% stockholder notes payable, due on or before September 1999,
unsecured 105 46
-------- --------
374 315
Less current maturities 50 47
-------- --------
$ 324 $ 268
======== ========
</TABLE>
These notes payable are subordinated to borrowings under its bank
financing agreement which allows monthly payments of $5.
F-170
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
9. Minimum Lease Payments
The Company leases certain office space, computerized satellite vehicle
tracking systems, vehicles, and office equipment under leases expiring on
various dates through 2001. Future minimum lease payments required under
leases that have noncancelable lease terms in excess of one year at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Capital Operating Noncancellable
Fiscal Year Leases Leases Subleases
<S> <C> <C> <C>
1997 $ 30 $ 431 $ (33)
1998 19 413 (33)
1999 11 399 (11)
2000 10 346
2001 10 83
Thereafter 11
Less interest portion 18
------- ------- --------
Net leases 73 $ 1,672 $ (77)
Less current portion 23 ======= ========
-------
$ 50
=======
</TABLE>
Rental expense charged to operations was approximately $170, $208, and
$211, and rental income was approximately $0, $22, and $24 for the years
ended December 31, 1994, 1995, and 1996, respectively.
10. Income Taxes
The provision for income taxes comprises:
Year Ended December 31,
-----------------------
1994 1995 1996
Current tax expense
Federal $ 3 $ 6 $ 212
State and local 1 2 37
---- ---- -----
4 8 249
Utilization of net operating loss carryforward 99 147
Deferred tax expense (benefit) (23) 35 (49)
---- ---- -----
Provision for income taxes $ 80 $190 $ 200
==== ==== =====
F-171
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
The provision for income taxes differs from income taxes computed by
applying the U.S. statutory federal income tax rate as a result of the
following:
Year Ended December 31,
-----------------------
1994 1995 1996
Taxes computed at federal statutory rate (35%) $ 72 $ 169 $175
State taxes (net of federal benefit) 10 50 25
Other (2) (29)
---- ----- ----
Provision for income taxes $ 80 $ 190 $200
==== ===== ====
Effective rate 39% 39% 40%
==== ===== ====
Temporary differences giving rise to the Company's deferred tax assets and
liabilities comprised the following:
December 31,
---------------
1995 1996
Deferred tax assets
Allowance for doubtful accounts $ 12 $ 43
Accrued liabilities 22 18
Other 11
----- -----
45 61
Deferred tax liabilities
Accrual to cash basis adjustment (210) (154)
Other (23)
----- -----
Net deferred tax liability $(165) $(116)
===== =====
11. Related Party Transactions
During 1996, note agreements were executed with two of the Company's
officers. The notes receivable bear interest at 5.5% and 6.25% annually,
and are payable in balloon payments in 1999. $181 of the notes remained
outstanding as of December 31, 1996.
Franchise fees of $40 were incurred in 1996 relative to the franchise
agreements described below.
12. Commitments and Contingencies
Franchise agreement
During 1996, the Company entered into five-year franchise agreements with
a national same-day service courier franchisor for both the Phoenix and
Minneapolis locations. The initial franchise fee was $20 for each location
and continuing management fees are 10% of applicable gross receipts, as
defined by the agreement. Subsequent to year end, the management fees were
reduced to 7.25% from 8.25%. The stockholders of the Company are also
minority stockholders in the franchisor. In addition, at December 31,
1996, the Company and one of its stockholders have guaranteed franchisor
debt obligations of $125 due in June 1997 and license payments totaling
approximately $1,806 payable through September 2007.
F-172
<PAGE>
AMERICAN EAGLE ENDEAVORS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
On September 16, 1997 the Company obtained a complete release from the
franchise agreement and all related commitments and contingencies other
than those related to the guaranteed debt obligations discussed above. In
exchange for this release the Company has agreed to release the franchisor
from all current or future claims against the franchisor and Company's
principal shareholders have forfeited their personal investments in the
franchisor. Based on the financial position of the franchisor, the
principal shareholders believe that the forfeited shares in the franchisor
have no value.
The franchiser is responsible for billing and collecting amounts from
customers approved by the Company and then submitting the receipts, less
the management fees, to the Company. Phoenix activated its franchise in
October and Minneapolis activated its franchise subsequent to year end.
Management fees paid to the franchisor totaled approximately $38 for the
year ended December 31, 1996. Also at year end, the gross receivable from
the franchisor relating to customer accounts was approximately $191.
13. Unaudited Subsequent Events
The Company and its stockholder have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which the
Company will merge with DMS. All outstanding shares of the Company will be
exchanged for cash and common stock of DMS concurrent with the
consummation of the initial public offering of the common stock of DMS.
Additionally, all obligations guaranteed by the Company, as described in
Note 12, will be assumed by DMS upon consummation of the initial public
offering.
Effective upon completion of the merger with DMS as described above, a
subsidiary of the Company has agreed to redeem all of the shares
constituting a 20% minority interest in the subsidiary. Upon completion of
this redemption, American Eagle Endeavors, Inc. will own 100% of all
subsidiaries.
On September 5, 1997 the Company's principal shareholders have agreed to
assume all of the subordinated debt to stockholder in exchange for equal
release of amounts owed to the Company
F-173
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Kangaroo Express of Colorado Springs, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Kangaroo Express of Colorado
Springs, Inc. (the "Company") at December 31, 1995 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Denver, Colorado
September 5, 1997
F-174
<PAGE>
KANGAROO EXPRESS OF COLORADO SPRINGS, INC.
BALANCE SHEETS
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31, June 30,
--------------- 1997
1995 1996 (Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash $ 33 $ 29 $ 62
Accounts receivable 253 305 308
Prepaid and other current assets 3 23 11
----- ----- -----
Total current assets 289 357 381
Property and equipment, net 141 138 129
Notes receivable, employees 8 11 6
Deposits 7 5 3
----- ----- -----
$ 445 $ 511 $ 519
===== ===== =====
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 30 $ 16 $ 28
Accrued payroll 48 70 44
Accrued vehicle leasing 28 32 26
Current maturities long-term debt 44 36 29
----- ----- -----
Total current liabilities 150 154 127
Deferred rent 16 16
Other long-term liabilities 200 300 300
Long-term debt 77 63 52
----- ----- -----
Total liabilities 427 533 495
Commitments and contingencies
Stockholders' Equity
Common stock $.001 par value; 100 shares
authorized, issued and outstanding
Additional paid-in capital 109 109 109
Retained earnings (deficit) (91) (131) (85)
----- ----- -----
$ 445 $ 511 $ 519
===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-175
<PAGE>
KANGAROO EXPRESS OF COLORADO SPRINGS, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
Years ended December 31, June 30,
--------------------------- -----------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 1,680 $ 2,032 $ 2,650 $ 1,336 $ 1,380
Cost of sales 1,130 1,387 1,878 923 949
------- ------- ------- ------- -------
Gross margin 550 645 772 413 431
Operating expenses 328 394 405 189 220
Sales and marketing 18 17 27 14 10
General and administrative expenses 213 211 265 133 94
Depreciation and amortization 41 42 50 17 25
------- ------- ------- ------- -------
Operating income (loss) (50) (19) 25 60 82
------- ------- ------- ------- -------
Other (income) expense
Interest expense 17 12 10 5 4
Other, net (8) (2) (2) (2) (3)
------- ------- ------- ------- -------
Net income (loss) $ (59) $ (29) $ 17 $ 57 $ 81
======= ======= ======= ======= =======
Unaudited pro forma information:
Pro forma net income (loss) before
provision for income taxes $ (51) $ (29) $ 17 $ 57 $ 81
Provision (benefit) for income taxes (22) (11) 6 21 30
------- ------- ------- ------- -------
Pro forma net income (loss) (see Note 2) $ (39) $ (18) $ 11 $ 36 $ 51
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-176
<PAGE>
KANGAROO EXPRESS OF COLORADO SPRINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common stock Additional Retained Total
------------------ paid-in earnings shareholders'
Shares Amount capital (deficit) equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 100 $ -- $ 109 $ 22 $ 131
Net loss (59) (59)
----- ----- ----- ----- -----
Balance at December 31, 1994 100 109 (37) 72
Net loss (29) (29)
Owner's withdrawal (25) (25)
----- ----- ----- ----- -----
Balance at December 31, 1995 100 109 (91) 18
Net income 17 17
Owners' withdrawal (57) (57)
----- ----- ----- ----- -----
Balance at December 31, 1996 100 109 (131) (22)
Net income (unaudited) 81 81
Owners' withdrawal (unaudited) (35) (35)
----- ----- ----- ----- -----
Balance at June 30, 1997 (unaudited) 100 $ -- $ 109 $ (85) $ 24
===== ===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-177
<PAGE>
KANGAROO EXPRESS OF COLORADO SPRINGS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
Years Ended December 31, June 30,
------------------------- ----------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (59) $ (29) $ 17 $ 57 $ 81
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 41 42 50 17 25
Gain on sale of property and equipment (5)
Changes in assets and liabilities:
Accounts receivable (69) (42) (52) (13) (3)
Prepaid expenses (28) 32 (20) 13
Other assets 29 (5) 1 3 1
Accounts payable (5) 17 (14) 1 12
Accrued payroll 10 11 22 1 (26)
Accrued vehicle leasing 8 11 4 1 (6)
Other long-term liabilities 100 100 100 50
Deferred rent 16 9
----- ----- ----- ----- -----
Net cash provided by operating activities 22 137 124 126 97
----- ----- ----- ----- -----
Cash flows from investing activities
Purchases of property and equipment (90) (59) (48) (47) (16)
Proceeds from sale of property and equipment 26 18
Increase in notes receivable, employees (4) (5) (4)
Proceeds from notes receivable, employees 12 3 4 4
----- ----- ----- ----- -----
Net cash used for investing activities (52) (42) (49) (51) (12)
----- ----- ----- ----- -----
Cash flows from financing activities
Proceeds from long-term debt 86 57 22 20
Principal payments on long-term debt (64) (97) (44) (23) (17)
Owners withdrawal (25) (57) (47) (35)
----- ----- ----- ----- -----
Net cash provided by (used for)
financing activities 22 (65) (79) (50) (52)
----- ----- ----- ----- -----
Net (decrease) increase in cash (8) 30 (4) 25 33
Cash at beginning of the period 11 3 33 33 29
----- ----- ----- ----- -----
Cash at end of the period $ 3 $ 33 $ 29 $ 58 $ 62
===== ===== ===== ===== =====
Supplemental disclosures of cash flow information:
Interest paid $ 17 $ 12 $ 10 $ 5 $ 4
Supplemental schedule of noncash investing and financing activities:
The Company sold fixed assets in exchange for notes receivable as follows:
Cost of assets sold $ 17 $ -- $ 25 $ 25 $ --
Accumulated depreciation on assets sold $ 14 $ -- $ 25 $ 25 $ --
Related notes receivable $ 8 $ -- $ 2 $ 2 $ --
</TABLE>
See accompanying notes to financial statements.
F-178
<PAGE>
KANGAROO EXPRESS OF COLORADO SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
Kangaroo Express (the "Company") provides same-day, on-demand delivery
services in the Colorado Springs and Denver metropolitan areas.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets (5 years).
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable and accrued expenses
approximates fair value because of the short maturity of these
instruments. The estimated fair value of long-term debt and other
long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market
rates for debt with similar terms and average maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
Income taxes
The Company has elected to be treated as a S-Corporation for federal and
state income taxes and, accordingly, any liability for income taxes are
the direct responsibility of the stockholder.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. At December 31, 1996,
the financial reporting bases of the Company's net assets are less than
the tax reporting bases by approximately $230.
The unaudited pro forma tax information included in the Statement of
Operations is presented in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as if the
Company had been subject to federal and state income taxes for the entire
periods presented.
F-179
<PAGE>
KANGAROO EXPRESS OF COLORADO SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Unaudited interim financial statements
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
3. Property and Equipment
Property and equipment consists of the following:
December 31,
----------------
1995 1996
Equipment $ 36 $ 43
Furniture and fixture 37 38
Vehicles 187 187
Leasehold improvements 16
----- -----
260 284
Accumulated depreciation and amortization (119) (146)
----- -----
$ 141 $ 138
===== =====
Depreciation expense for the years ended December 31, 1994, 1995 and 1996
was approximately $41, $42 and $50, respectively.
4. Long-Term Debt
Notes payable outstanding consists of the following:
December 31,
------------
1995 1996
Due March 24, 1996, bearing interest at 9.5%,
secured by a 1992 Toyota truck $ 1 $--
Due March 12, 1997, bearing interest at 7.5%,
secured by a 1992 Mitsubishi truck 8 1
Due February 18,1997, bearing interest at 7.59%,
secured by a 1993 Ford Escort 4 1
Due October 15, 1996, bearing interest at 8.5%,
secured by a 1993 Chevy Van 4
Due October 15, 1996, bearing interest at 8.5%,
secured by a 1993 Chevy Astro Van 4
Due February 4, 1999, bearing interest at 1.5%
over prime rate, secured by A/R and equipment 19 12
Due September 25, 1998, bearing interest at 8%,
secured by a 1994 Chevy Van 12 7
Due September 25, 1998, bearing interest at 8%,
secured by a 1994 Chevy Astro Van 12 7
Due May 9, 2000, bearing interest at 8.45%,
secured by a 1995 Chevy Van 20 16
F-180
<PAGE>
KANGAROO EXPRESS OF COLORADO SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
Due December 14, 2000, bearing interest at 8.5%,
secured by a 1995 GMC Truck 37 32
Due April 1, 2001, bearing interest at 8.5%,
secured by a 1994 GMC Van 18
Due July 1, 1997, bearing interest at 9.5%,
secured by a 1987 Toyota Truck 5
----- -----
Total 121 99
Less current portion (44) (36)
----- -----
$ 77 $ 63
===== =====
The above term loans were due to various banks.
On July 1, 1995, the Company entered into a credit agreement with a bank
for a $50 revolving line of credit. The line of credit bears interest at
the bank's prime rate plus 1.5%. This line of credit was replaced by a
similar $75 revolving line of credit, maturing on July 1, 1996. This line
of credit bears interest at the bank's prime rate plus 1% and was renewed
through July 1, 1997. The line is secured by all accounts receivable,
vehicles and computer systems. As of December 31, 1995 and 1996, no
balance was outstanding on this line of credit. On August 1, 1997 the
Company renewed their line of credit, increasing its borrowing capacity to
$100, bearing interest of 9.5% and a maturity date of August 1, 1998.
Maturities of long-term debt as of December 31, 1996 are summarized as
follows:
Fiscal year
1997 $ 36
1998 28
1999 19
2000 14
2001 2
-----
$ 99
=====
5. Operating Leases
The Company leases certain office equipment under operating leases
expiring on various dates through 2001. Future minimum lease payments
required under leases that have noncancelable lease terms in excess of one
year at December 31, 1996 are summarized as follows:
Fiscal year
1997 $ 63
1998 42
1999 27
2000 27
2001 5
-----
$ 164
=====
Rental expense charged to operations was approximately $15, $20 and $74
for the years ended December 31, 1994, 1995 and 1996, respectively.
6. Related Party Transactions
F-181
<PAGE>
KANGAROO EXPRESS OF COLORADO SPRINGS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
In 1994, the Company paid consulting fees of $24 to a company controlled
by a related party. In 1995, the Company paid off a note payable due to
shareholder in the amount of $35.
7. Unaudited Subsequent Events
The company and its stockholder have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which the
Company will merge with DMS. All outstanding shares of the Company will be
exchanged for cash and shares of DMS common stock concurrent with the
consummation of the initial public offering of the common stock of DMS.
F-182
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Transpeed Courier Services, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Transpeed Courier Services, Inc.
(the "Company") at 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. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
September 5, 1997
F-183
<PAGE>
TRANSPEED COURIER SERVICES, INC.
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 1 $ 47 $ 17
Accounts receivable, net of allowance for
doubtful accounts of $1 169 144 132
Prepaid and other current assets 31 40 17
---- ---- ----
Total current assets 201 231 166
Property and equipment, net 84 95 78
Other non-current assets 19 15
Goodwill and intangibles, net 46 34 29
---- ---- ----
$331 $379 $288
==== ==== ====
Liabilities and Stockholders' Equity
Current liabilities
Line of credit $100 $120 $114
Accounts payable 33 30 36
Accrued liabilities 36 47 60
Current maturities long-term debt 53 67 40
---- ---- ----
Total current liabilities 222 264 250
Long-term debt 30 26 28
---- ---- ----
Total liabilities 252 290 278
Commitments and contingencies
Stockholders' Equity
Common stock no par value; 40,000 shares
authorized; 32,000 issued and outstanding
Additional paid-in capital 1 1 1
Retained earnings 78 88 9
---- ---- ----
$331 $379 $288
==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-184
<PAGE>
TRANSPEED COURIER SERVICES, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
----------------- ----------------
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,100 $ 1,247 $ 593 $ 543
Cost of sales 746 764 378 339
------- ------- ------- -------
Gross margin 354 483 215 204
Operating expenses 214 298 139 202
Sales and marketing 46 58 26 24
General and administrative expenses 59 58 25 30
Depreciation and amortization 31 36 18 27
------- ------- ------- -------
Operating income (loss) 4 33 7 (79)
------- ------- ------- -------
Other (income) expense
Interest expense 15 19 8 11
Other, net 8 4 3 (11)
------- ------- ------- -------
Net income (loss) $ (19) $ 10 $ (4) $ (79)
======= ======= ======= =======
Unaudited pro forma information:
Pro forma net income (loss) before
provision for income taxes $ (19) $ 10 $ (4) $ (79)
Provision (benefit) for income taxes (3) 2 (1) (7)
------- ------- ------- -------
Pro forma net income (loss) $ (16) $ 8 $ (3) $ (72)
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-185
<PAGE>
TRANSPEED COURIER SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common stock Additional
----------------- paid-in Retained
Shares Amount capital earnings Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 32,000 $ -- $ 1 $ 103 $ 104
Net loss (19) (19)
Owners withdrawals (6) (6)
------- ------- ------- ------- -------
Balance at December 31, 1995 32,000 1 78 79
Net income 10 10
------- ------- ------- ------- -------
Balance at December 31, 1996 32,000 1 88 89
Net (loss) (unaudited) (79)
------- ------- ------- ------- -------
Balance at June 30, 1997 (unaudited) 32,000 $ -- $ 1 $ 9 $ 10
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-186
<PAGE>
TRANSPEED COURIER SERVICES, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year 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) $ (19) $ 10 $ (4) $ (79)
Adjustments to reconcile net income to net cash
provided by (used for) operating activities
Depreciation and amortization 31 36 18 27
Loss on sale of property and equipment 6 1
Changes in assets and liabilities net of effects of
the purchase of Maxwell Express Courier
Accounts receivable (78) 25 34 12
Prepaid expenses and other current assets (14) (9) 15 23
Accounts payable 25 (3) 10 6
Accrued liabilities 22 11 (12) 13
Other non-current assets (19) (10) 4
----- ----- ----- -----
Net cash provided by (used for) operating activities (33) 57 51 7
----- ----- ----- -----
Cash flows from investing activities
Purchases of property and equipment (57) (41) (2) (6)
Payment for purchase of Maxwell Express Courier,
net of cash acquired (28)
----- ----- ----- -----
Net cash used for investing activities (85) (41) (2) (6)
----- ----- ----- -----
Cash flows from financing activities
Increase (decrease) in line of credit 89 20 20 (5)
Proceeds from long-term debt 65 67 15
Principal payments on long-term debt (39) (57) (41) (41)
----- ----- ----- -----
Net cash provided by (used for) financing
activities 115 30 (21) (31)
----- ----- ----- -----
Net (decrease) increase in cash and cash equivalents (3) 46 28 (30)
Cash and cash equivalents at beginning of the period 4 1 1 47
----- ----- ----- -----
Cash and cash equivalents at end of the period $ 1 $ 47 $ 29 $ 17
===== ===== ===== =====
Supplemental disclosures of cash flow information:
Interest paid $ 14 $ 18 $ 8 $ 12
Supplemental schedule of noncash investing and financing activities:
The Company purchased Maxwell Express Courier in 1995 for $28. In conjunction
with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired $ 48
Cash paid 28
-----
Liabilities assumed $ 20
=====
</TABLE>
See accompanying notes to financial statements.
F-187
<PAGE>
TRANSPEED COURIER SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
Transpeed Courier Services, Inc., d/b/a 1-800-Courier "Denver", (the
"Company') is a full service courier company providing transportation of
time sensitive shipments between points in Colorado and national same-day
air courier service.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets ( 3 to 7 years).
Intangible assets
Intangible assets consists primarily of goodwill, a non-compete agreement,
trade names and customer lists, which are being amortized on a
straight-line basis over 5 years. The carrying value of the intangible
assets are assessed for the recoverability of management based on an
analysis of undiscounted expected future cash flows. The Company believes
that there has been no impairment thereof as of December 31, 1996.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable and accrued expenses approximates fair value because of
the short maturity of these instruments. The estimated fair value of
long-term debt approximates its carrying value. Additionally, interest
rates on outstanding debt are at rates which approximate market rates for
debt with similar terms and average maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collaterized and accordingly, the Company
performs ongoing credit evaluations of its customers to reduce the risk of
loss.
F-188
<PAGE>
TRANSPEED COURIER SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Income taxes
The Company has elected to be treated as a S-Corporation for federal and
state income taxes and, accordingly, any liability for income taxes are
the direct responsibility of the stockholders.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. At December 31, 1996,
the financial reporting bases of the Company's net assets exceeds the tax
reporting bases by approximately $124.
The unaudited pro forma tax information included in the Statements of
Operations is presented in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as if the
Company had been subject to federal and state income taxes for the entire
periods presented.
Unaudited Interim Financial Statements
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
3. Property and Equipment
Property and equipment consists of the following:
December 31,
---------------
1995 1996
Computers and equipment $ 48 $ 49
Furniture and fixture 9 9
Vehicles 75 103
----- -----
132 161
Accumulated depreciation and amortization (48) (66)
----- -----
$ 84 $ 95
===== =====
Depreciation expense for the years ended December 31, 1995 and 1996 was
approximately $22 and $24, respectively.
4. Acquisition of Maxwell Courier Express
On June 12, 1995, the Company acquired substantially all of the assets of
Maxwell Courier Express in exchange for total consideration of $48
consisting of cash and promissory notes. The acquisition was accounted for
using the purchase method and the excess of cost over fair value of the
asset acquired of $20 was allocated to goodwill, which is being amortized
on a straight-line basis over 5 years. The fair value of the acquired
assets and liabilities at the acquisition date are as follows:
Equipment $ 8
Non-compete agreement 20
Goodwill 20
------
$ 48
======
F-189
<PAGE>
TRANSPEED COURIER SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
5. Intangible Assets
Intangible assets consists of the following:
December 31,
-----------------
1995 1996
Goodwill $ 22 $ 22
Non-compete agreement 20 20
Customer list 18 18
Trade names 5 5
---- ----
65 65
Accumulated amortization (19) (31)
---- ----
$ 46 $ 34
==== ====
Amortization expense for the years ended December 31, 1995 and 1996 was
approximately $9 and $12, respectively.
6. Accrued Liabilities
Accrued liabilities comprised the following:
December 31,
-----------------
1995 1996
Payroll and payroll taxes $ 28 $ 33
Other 8 14
---- ----
$ 36 $ 47
==== ====
7. Long-Term Debt
Long-term debt outstanding consists of the following:
December 31,
------------
1995 1996
Notes payable to banks:
Due in monthly installments through December 29,
1996, bearing interest at 9.75%, secured by vehicle $ 2 $ --
Due in monthly installments through February 24,
1997, bearing interest at 11%, secured by vehicle 1
Due in monthly installments through February 24,
1997, bearing interest at 9.5%, secured by radios 5 2
Due in monthly installments through March 24,
1998, bearing interest at 11%, secured by equipment 16 9
F-190
<PAGE>
TRANSPEED COURIER SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
December 31,
------------
1995 1996
Notes payable to banks (continued):
Due in monthly installments though May 2, 1998,
bearing interest at 11%, secured by vehicle 13 9
Due in monthly installments through October 31,
1999, bearing interest at 10%, secured by vehicles 20
Due in monthly installments through November 26,
1999, bearing interest at 10%, secured by vehicle 6
Notes payable to corporations and individuals:
Due December 31, 1996, bearing interest at 10% 4
Due in monthly installments through June 1, 1998,
bearing interest at 10% 17 11
Due in monthly installments through September 9,
1997 at December 31, 1996 and August 9, 1996
at December 31, 1995, bearing interest at 9.5% 25 36
---- ----
Total 83 93
Less current portion (53) (67)
---- ----
$ 30 $ 26
==== ====
In October 1995, the Company entered into a credit agreement with a bank
for a $150 revolving line of credit. The line of credit bears interest at
the banks prime rate plus 1% (actual rate of 10.25% at December 31, 1995)
and matures on October 30, 1996. This line of credit was replaced with a
similar $150 revolving line of credit with an interest rate of 10% and
maturity date of November 18, 1997. Both lines of credit were secured by
all accounts receivable and equipment. As of December 31, 1995 and 1996
the balance outstanding on the line of credit was $100 and $120,
respectively.
Maturities of long-term debt as of December 31, 1996 are summarized as
follows:
Fiscal Year
1997 $ 67
1998 18
1999 8
----
$ 93
====
On August 1, 1997, the Company borrowed $50 from a bank. The note matures
on November 22, 1997, bears interest at the bank's prime rate plus 2.5%,
and is collateralized by a stockholder's home.
F-191
<PAGE>
TRANSPEED COURIER SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
8. Operating Leases
The Company leases certain office equipment under operating leases
expiring on various dates through 2000. Future minimum lease payments
required under leases that have noncancelable lease terms in excess of one
year at December 31, 1996 are as follows:
Fiscal year
1997 $ 81
1998 54
1999 49
2000 49
----
$233
====
Rental expense charged to operations was approximately $26 for the years
ended December 31, 1995 and 1996.
9. Subsequent Event
The company and its stockholders have entered into a definitive agreement
with DMS Corporation ("DMS") pursuant to which the Company will merge with
DMS. All outstanding shares of the Company will be exchanged for cash and
common stock of DMS concurrent with the consummation of an initial public
offering of the common stock of DMS.
F-192
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of National Messenger, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of National Messenger,
Inc. at November 30, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Los Angeles, California
September 4, 1997
F-193
<PAGE>
NATIONAL MESSENGER, INC.
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
November 30, May 31,
------------ ----------
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash $ 103 $ 90 $ 58
Accounts receivable, net of allowance
for doubtful accounts of $8, $22, and $23 205 309 320
Prepaid and other current assets 5 4 4
----- ----- -----
Total current assets 313 403 382
Property and equipment, net 3 50 47
----- ----- -----
$ 316 $ 453 $ 429
===== ===== =====
Liabilities and shareholders' equity (deficit)
Current liabilities
Accrued compensation $ 49 $ 67 $ 29
Advances from shareholders 70 70 70
----- ----- -----
Total current liabilities 119 137 99
----- ----- -----
Other long-term liabilities 200 300 300
----- ----- -----
Commitments
Shareholders' equity (deficit)
Common stock without par value; 100,000 shares
authorized; 1,800 shares issued and outstanding 2 2 2
Retained earnings (deficit) (5) 14 28
----- ----- -----
Total shareholders' equity (deficit) (3) 16 30
----- ----- -----
$ 316 $ 453 $ 429
===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-194
<PAGE>
NATIONAL MESSENGER, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Six months ended
November 30, May 31,
-------------- ----------------
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $1,728 $2,413 $1,123 $1,255
Cost of sales 1,029 1,446 719 749
------ ------ ------ ------
Gross margin 699 967 404 506
Operating expenses 123 154 74 77
Selling and marketing expenses 72 86 42 43
General and administrative expenses 321 454 219 185
Depreciation and amortization 7 13 7 17
------ ------ ------ ------
Income before provision for income taxes 176 260 62 184
Provision for income taxes 4 5 1 3
------ ------ ------ ------
Net income $ 172 $ 255 $ 61 $ 181
====== ====== ====== ======
Unaudited pro forma information (Note 2)
Income before provision for
income taxes 176 260 62 184
Pro forma provision for income taxes 70 104 25 74
------ ------ ------ ------
Pro forma net income $ 106 $ 156 $ 37 $ 110
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-195
<PAGE>
NATIONAL MESSENGER, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(Dollars in Thousands)
Common Retained
stock earnings
Shares Amount (deficit) Total
Balances at December 1, 1994 1,800 $ 2 $ 23 $ 25
Net income 172 172
Dividends paid (200) (200)
------ ------ ------ ------
Balances at November 30, 1995 1,800 2 (5) (3)
Net income 255 255
Dividends paid (236) (236)
------ ------ ------ ------
Balances at November 30, 1996 1,800 2 14 16
Net income (unaudited) 181 181
Dividends paid (unaudited) (167) (167)
------ ------ ------ ------
Balances at May 31, 1997 (Unaudited) 1,800 $ 2 $ 28 $ 30
====== ====== ====== ======
See accompanying notes to financial statements.
F-196
<PAGE>
NATIONAL MESSENGER, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Six months ended
November 30, May 31,
------------- ----------------
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 172 $ 255 $ 61 $ 181
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7 13 7 17
Provision for (recovery of) doubtful accounts 8 14 (1) 1
Changes in assets and liabilities
Accounts receivable (44) (118) -- (12)
Prepaid expenses and other current assets (5) 1 1 --
Other long-term liabilities 100 100 50 --
Accrued compensation 15 18 -- (38)
----- ----- ----- -----
Net cash provided by operating activities 253 283 118 149
----- ----- ----- -----
Cash flows used in investing activities
Purchases of property and equipment (3) (60) (48) (14)
----- ----- ----- -----
Cash flows used in financing activities
Dividends paid (200) (236) (115) (167)
----- ----- ----- -----
Net increase (decrease) in cash 50 (13) (45) (32)
Cash at beginning of the period 53 103 103 90
----- ----- ----- -----
Cash at end of the period $ 103 $ 90 $ 58 $ 58
===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-197
<PAGE>
NATIONAL MESSENGER, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
National Messenger, Inc. (the "Company") primarily provides same-day
pick-up and delivery services of documents and parcels to customers
throughout Southern California. The Company's operations are conducted
from its headquarters located in Costa Mesa, California and a branch
facility located in Ontario, California.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the related assets
(5 years).
Fair value of financial instruments
The carrying amount of cash, accounts receivable and accrued expenses
approximates fair value because of the short maturity of these
instruments. The fair value of advances from shareholders is not
determinable due to their related party nature.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss. Such losses have historically been immaterial and within
management expectations.
Changes in allowance for doubtful accounts consist of the following:
Balance at November 30, 1994 $ --
Charge to costs and expenses 8
------
Balance at November 30, 1995 8
Charge to costs and expenses 14
------
Balance at November 30, 1996 $ 22
======
F-198
<PAGE>
NATIONAL MESSENGER, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Income taxes
The Company has elected to be treated as a cash basis S-Corporation for
federal and state income tax purposes, and, accordingly, any liabilities
for federal income taxes are the direct responsibility of the
shareholders. The Company is only subject to California state income taxes
at a rate of 1.5 percent on taxable income.
The unaudited pro forma income tax information included in the Statements
of Operations is presented in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as if the
Company had been subject to federal and state income taxes for all periods
presented.
Unaudited interim financial statements
The interim financial data as of May 31, 1997 and for the six months ended
May 31, 1996 and 1997 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
3. Property and Equipment
Property and equipment, net consist of the following:
November 30,
-------------------
1995 1996
Furniture and fixtures $ 5 $ 5
Machinery and equipment 37 97
Vehicles 16 16
----- -----
58 118
Accumulated depreciation (55) (68)
----- -----
$ 3 $ 50
===== =====
4. Commitments
The Company leases its facilities under operating leases expiring on
various dates through 1998. Future minimum lease payments required under
leases that have noncancelable lease terms in excess of one year at
November 30, 1996 are as follows:
Fiscal year
1997 $ 37
1998 19
-----
$ 56
=====
Rental expense charged to operations was approximately $41 and $28 for the
years ended November 30, 1996 and 1995, respectively.
5. Related Party Transactions
The Company has non-interest bearing advances from shareholders totaling
$70 at November 30, 1996 and 1995. These advances are repayable upon
demand.
F-199
<PAGE>
NATIONAL MESSENGER, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
6. Unaudited Subsequent Events
The Company and its shareholders have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which DMS will
acquire certain assets and assume certain liabilities of the Company. The
acquired assets and assumed liabilities will be exchanged for cash and
shares of DMS common stock concurrent with the consummation of the initial
public offering of the common stock of DMS.
F-200
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of Profall, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Profall, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Los Angeles, California
September 15, 1997
F-201
<PAGE>
PROFALL, INC.
BALANCE SHEETS
(Dollars in Thousands)
December 31, June 30,
-------------- -----------
1995 1996 1997
(Unaudited)
Assets
Current assets:
Cash $ 1 $ -- $ 69
Accounts receivable 85 142 171
Prepaid and other current assets 5 3 2
----- ----- -----
Total current assets 91 145 242
Property and equipment, net 72 89 71
----- ----- -----
$ 163 $ 234 $ 313
===== ===== =====
Liabilities and shareholders' equity (deficit)
Current liabilities:
Accounts payable $ 38 $ 53 $ 38
Accrued compensation 33 46 39
Payables to affiliate 26 54 68
Notes payable 132 120 171
Advances from shareholders 293 303 303
Advances from affiliate 28 48 35
----- ----- -----
Total current liabilities 550 624 654
----- ----- -----
Commitments (Note 5)
Shareholders' equity (deficit):
Common stock, without par value; 1,000,000
shares authorized; 2,000 shares issued
and outstanding 10 10 10
Additional paid-in capital 21 46 59
Accumulated deficit (418) (446) (410)
----- ----- -----
Total shareholders' equity (deficit) (387) (390) (341)
----- ----- -----
$ 163 $ 234 $ 313
===== ===== =====
See accompanying notes to financial statements.
F-202
<PAGE>
PROFALL, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years ended Six months ended
December 31, June 30,
----------------- ----------------
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 993 $ 1,212 $ 533 $ 807
Cost of sales 588 687 325 405
------- ------- ------- -------
Gross margin 405 525 208 402
Operating expenses 215 271 124 158
General and administrative expenses 361 298 169 215
Depreciation and amortization 14 23 9 18
------- ------- ------- -------
Operating (loss) income (185) (67) (94) 11
------- ------- ------- -------
Other (income) expense
Interest expense 21 25 12 13
Other, net (42) (64) (37) (39)
------- ------- ------- -------
(Loss) income before provision for
income taxes (164) (28) (69) 37
Provision for income taxes -- -- -- 1
------- ------- ------- -------
Net (loss) income $ (164) $ (28) $ (69) $ 36
======= ======= ======= =======
Unaudited pro forma information (Note 2):
(Loss) income before provision
for income taxes (164) (28) (69) 37
Pro forma provision for income taxes -- -- -- 15
------- ------- ------- -------
Pro forma net (loss) income $ (164) $ (28) $ (69) $ 22
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-203
<PAGE>
PROFALL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Additional
Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 2,000 $ 10 $ -- $ (254) $ (244)
Net loss (164) (164)
Imputed interest on advances
from shareholders 21 21
------ ------ ------ ------ ------
Balances at December 31, 1995 2,000 10 21 (418) (387)
Net loss (28) (28)
Imputed interest on advances
from shareholders 25 25
------ ------ ------ ------ ------
Balances at December 31, 1996 2,000 10 46 (446) (390)
Net income (unaudited) 36 36
Imputed interest on advances
from shareholders (unaudited) 13 13
------ ------ ------ ------ ------
Balances at June 30, 1997 (Unaudited) 2,000 $ 10 $ 59 $ (410) $ (341)
====== ====== ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-204
<PAGE>
PROFALL, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
------------- ----------------
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(164) $ (28) $ (69) $ 36
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 14 23 9 18
Imputed interest on advances from shareholders 21 25 12 13
Changes in assets and liabilities:
Accounts receivable (13) (57) (26) (29)
Prepaid and other current assets (5) 2 1 1
Accounts payable 15 15 26 (15)
Accrued compensation 16 13 46 (7)
Payables to affiliate 22 28 14 14
----- ----- ----- -----
Net cash (used in) provided by operating activities (94) 21 13 31
----- ----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment (25) (40) (40) --
----- ----- ----- -----
Cash flows from financing activities:
Advances from shareholders 85 10 10 --
Advances from affiliate 28 20 20 --
Proceeds from notes payable -- -- -- 150
Repayments to affiliate -- -- -- (13)
Repayments of notes payable -- (12) (4) (99)
----- ----- ----- -----
Net cash provided by financing activities 113 18 26 38
----- ----- ----- -----
Net increase (decrease) in cash (6) (1) (1) 69
Cash at beginning of the period 7 1 1 --
----- ----- ----- -----
Cash at end of the period $ 1 $ -- $ -- $ 69
===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-205
<PAGE>
PROFALL, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
Profall, Inc. (dba 1-800 Courier) (the "Company") primarily provides
same-day pick-up and delivery services of documents and parcels to
customers throughout Southern California. The Company's operations are
conducted from its headquarters located in Santa Fe Springs, California.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets (5 years).
Fair value of financial instruments
The carrying amount of cash, accounts receivable and payable, accrued
expenses and debt approximates fair value because of the short maturity of
these instruments. The fair value of advances from shareholders and
affiliates is not determinable due to their related party nature.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. One customer accounted for $154 of net sales in 1996. Accounts
receivable related to this customer totaled $24 at December 31, 1996.
Receivables are not collateralized and accordingly, the Company performs
ongoing credit evaluations of its customers to reduce the risk of loss.
Such losses have historically been immaterial and within management
expectations.
Income taxes
The Company has elected to be treated as a cash basis S-Corporation for
federal and state income tax purposes, and, accordingly, any liabilities
for federal income taxes are the direct responsibility of the
shareholders. The Company is only subject to California state income taxes
at a rate of 1.5 percent on taxable income.
The unaudited pro forma income tax information included in the Statements
of Operations is presented in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as if the
Company had been subject to federal and state income taxes for all periods
presented.
F-206
<PAGE>
PROFALL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Unaudited Interim Financial Statements
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
3. Property and Equipment
Property and equipment, net consist of the following:
December 31,
------------------
1995 1996
Vehicles $ 93 $ 133
Accumulated depreciation (21) (44)
----- -----
$ 72 $ 89
===== =====
4. Notes Payable
Notes payable consist of the following:
December 31,
------------------
1995 1996
Note payable secured by a vehicle;
payments, including interest at 9%
per annum, are due monthly through
November, 1998 $ 23 $ 16
Note payable to franchisor substantially
repaid with proceeds from loan
obtained from a bank subsequent
to December 31, 1996 (see below) 109 104
----- -----
$ 132 $ 120
===== =====
Subsequent to December 31, 1996, the Company obtained a loan and an
available line of credit from a bank, each in the amount of $150. The loan
and the line of credit are payable on demand. The loan provides for sixty
equal, monthly principal payments with interest at 2.5% above the bank's
base rate, as defined (totaling 11% per annum at May 27, 1997). The line
of credit expires in May 1998 and borrowings thereunder bear interest at
2.0% above the banks base rate (totaling 10.5% per annum at May 27, 1997).
The loan and the line of credit are guaranteed by the shareholders of the
Company. As of June 30, 1997, the Company had not drawn on the line of
credit.
5. Commitments
The Company operates under a franchise agreement with Express-It Courier
Systems, Inc. The agreement is effective for an initial term of five years
expiring in September 1999 during which the Company can only terminate the
agreement with the consent of the franchiser. The Company has the right to
renew the franchise for two successive five year periods.
Pursuant to the terms of the agreement, the franchiser provides continuing
services including billings and collections, customer service and
training. The Company was required to remit fees for such
F-207
<PAGE>
PROFALL, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
services ranging from 14% to 19% and 10% to 14% of gross receipts, as
defined, in 1995 and 1996, respectively. Subsequent to December 31, 1996
the fees for such services range from 8% to 10% of gross receipts, as
defined. Under this agreement the Company paid $183 and $143 in 1995 and
1996, respectively. These amounts are included in general and
administrative expenses in the accompanying financial statements.
The Company leases certain equipment under noncancelable lease
obligations. Total rental expense under such operating leases was
approximately $0 and $40 in 1995 and 1996, respectively. Minimum rental
payments at December 31, 1996 under noncancelable operating leases that
have initial or remaining lease terms in excess of one year are as
follows:
1997 $62
1998 63
1999 63
2000 20
---
208
===
6. Related Party Transactions
The Company has non-interest bearing advances from shareholders and an
affiliate at December 31, 1995 and 1996 totaling $321 and $351,
respectively. Interest has been imputed at prevailing market rates
aggregating $21 and $25 for the years ended December 31, 1995 and 1996,
respectively.
The Company's operations are conducted from within a facility leased and
occupied by an affiliate. No formal sublease agreement exists. Charges for
rent expense are based on occupied space and aggregated $21 and $23 for
the years ended December 31, 1995 and 1996, respectively. These charges
have been provided for in general and administrative expenses and included
in payables to affiliate in the accompanying financial statements.
Sales to an affiliate of the Company totaled $21 and $53 in 1995 and 1996,
respectively. Accounts receivable from such affiliate aggregated $3 and $6
at December 31, 1995 and 1996, respectively.
7. Unaudited Subsequent Events
The Company and its shareholders have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which DMS will
acquire certain assets and assume certain liabilities of the Company. The
acquired assets and assumed liabilities will be exchanged for cash and
shares of DMS common stock concurrent with the consummation of the initial
public offering of the common stock of DMS.
Upon consummation of the merger described above, the Company's franchise
agreement outlined in Note 5 will be terminated.
F-208
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholder of
A & W Couriers, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders'equity and of cash flows present fairly, in all
material respects, the financial position of A&W Couriers, Inc. at 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. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Austin, Texas
September 12, 1997
F-209
<PAGE>
A&W COURIERS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 97 $131 $178
Investments 21 21 20
Accounts receivable, less allowances for 141 148 157
doubtful accounts of $30
Prepaid and other current assets 29 29 21
---- ---- ----
Total current assets 288 329 376
Property and equipment, net 33 21 52
Other assets 7 10 10
---- ---- ----
$328 $360 $438
==== ==== ====
Liabilities and Stockholders'Equity
Current liabilities
Accounts payable and accrued expenses $ 33 $ 36 $ 43
Accrued commissions - related parties 171 211 227
---- ---- ----
Total current liabilities 204 247 270
Commitments and contingencies
Stockholders'equity:
Common stock $1.00 par value; 40,000 shares
authorized; 2,632 shares issued and outstanding 3 3 3
Additional paid-in capital 58 58 58
Retained earnings 63 52 107
---- ---- ----
124 113 168
---- ---- ----
$328 $360 $438
==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-210
<PAGE>
A&W COURIERS, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------- -------------------------
1995 1996 1996 1997
------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,461 $ 1,560 $ 783 $ 841
Cost of sales 893 940 469 485
------- ------- ------- -------
Gross margin 568 620 314 356
Selling, general and administrative
expenses
Operating expenses 198 228 123 129
Sales and marketing 127 102 48 44
General expenses 323 289 133 115
Depreciation 11 10 5 4
------- ------- ------- -------
659 629 309 292
------- ------- ------- -------
Operating income (loss) (91) (9) 5 64
Interest income 4 4 2 2
Other income (expense) 15 (2) 2 2
------- ------- ------- -------
Income before provision for income taxes (72) (7) 9 68
Income tax expense 3 4 -- 13
------- ------- ------- -------
Net income (loss) $ (75) $ (11) $ 9 $ 55
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-211
<PAGE>
A&W COURIERS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional
Common stock paid-in Retained
Shares Amount capital earnings Total
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 3 $ 3 $ 58 $138 $199
Net loss (75) (75)
---- ---- ---- ---- ----
Balance at December 31, 1995 3 3 58 63 124
Net loss (11) (11)
---- ---- ---- ---- ----
Balance at December 31, 1996 3 3 58 52 113
Net income (unaudited) 55 55
---- ---- ---- ---- ----
Balance at June 30, 1997 (unaudited) 3 $ 3 $ 58 $107 $168
==== ==== ==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-212
<PAGE>
A&W COURIER, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
----------------------- -------------------------
1995 1996 1996 1997
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (75) $ (11) $ 9 $ 55
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities
Depreciation 11 10 5 4
Loss on disposal of equipment -- 2 -- --
Unrealized gain on short-term
investments (2) -- (4) --
Changes in assets and liabilities:
Accounts receivable (24) (7) (32) (9)
Prepaid and other current assets -- -- (2) 10
Other assets (4) (3) (2) --
Accounts payable (5) 2 1 (3)
Accrued expenses 52 41 19 25
----- ----- ----- -----
Net cash provided by (used for)
operating activities (47) 34 (6) 82
----- ----- ----- -----
Cash flows from investing activities
Purchases of property and equipment (13) -- -- (35)
----- ----- ----- -----
Net cash used for investing
activities (13) -- -- (35)
----- ----- ----- -----
Net increase (decrease) in cash and
equivalents (60) 34 (6) 47
Cash and equivalents at beginning of period 157 97 97 131
----- ----- ----- -----
Cash and equivalents at end of period $ 97 $ 131 $ 91 $ 178
----- ----- ----- -----
Supplemental disclosures of cash paid
for income taxes $ -- $ 3 $ 3 $ 4
----- ----- ----- -----
</TABLE>
See accompanying notes to financial statements.
F-213
<PAGE>
F-214
<PAGE>
A&W COURIERS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
A&W Couriers, Inc. (the "Company") provides same-day, on-demand delivery
services in the Houston, Texas metropolitan area.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Investments
Investments consist of equity securities and corporate bonds. Under the
Provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", the
Company classifies its investments as trading securities with unrealized
gains and losses included in earnings. Unrealized gains of $5 and $- are
included in the statement of operations for the years ended December 31,
1995 and 1996, respectively.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
accelerated methods over the estimated useful lives of the related assets,
generally five years.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable and accrued expenses approximates fair value because of
the short maturity of these instruments.
Concentration of credit risk
Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
Income taxes
The Company is a C-Corporation for federal and state income tax purposes.
The Company accounts for income taxes using the asset and liability method
under the provisions of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109). Under FAS 109, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory rates applicable to future
years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. Additionally, the effect
on deferred taxes of a change in tax rates is recognized in earnings in
the period that includes the enactment date.
F-215
<PAGE>
A&W COURIERS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
Unaudited interim financial statements
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the
results for the interim periods.
3. Prepaid and Other Current Assets
Prepaid and other current assets comprised the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Prepaid expenses $ 26 $ 28 $ 18
Other 3 1 3
---- ---- ----
$ 29 $ 29 $ 21
==== ==== ====
</TABLE>
4. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Equipment $ 43 $ 43 $ 78
Furniture and fixtures 12 12 12
Vehicles 26 23 23
---- ---- ----
81 78 113
Accumulated depreciation 48 57 61
---- ---- ----
$ 33 $ 21 $ 52
==== ==== ====
</TABLE>
5. Accrued Expenses
Accrued expenses comprised the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
---- ---- ----
(unaudited)
<S> <C> <C> <C>
Payroll and payroll taxes $ 18 $ 16 $ 17
Accrued commissions - other 8 11 11
Other 7 9 15
---- ---- ----
Total accrued expenses $ 33 $ 36 $ 43
==== ==== ====
</TABLE>
F-216
<PAGE>
6. Income Taxes
The provision for income taxes is comprised of current Federal income tax
expense of $3 and $3 for the years ended December 31, 1995 and 1996,
respectively.
The provision for income taxes differs from income taxes computed by
applying the U.S. statutory federal income tax rate as a result of the
following:
<TABLE>
<CAPTION>
Six Months ended
Year Ended December 31, June 30,
1995 1996 1997
---- ---- ----------------
(unaudited)
<S> <C> <C> <C>
Taxes computed at federal statutory rate (15%) $ (11) $ (1) $ 10
Change in valuation allowance 13 3 3
Other 1 1 --
----- ----- -----
$ 3 $ 3 $ 13
----- ----- -----
Effective rate 4% 43% 19%
===== ===== =====
</TABLE>
Temporary differences giving rise to the Company's deferred tax assets
comprised the following:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996 1997
---- ------------ --------
unaudited)
<S> <C> <C> <C>
Deferred tax assets
Accounts receivable allowances $ 5 $ 5 $ 4
Accrued liabilities 30 36 39
Other 6 3 3
---- ---- ----
41 44 46
Deferred tax liabilities - prepaid expenses (4) (4) (3)
---- ---- ----
37 40 43
Less valuation allowance (37) (40) (43)
---- ---- ----
$ -- $ -- $ --
==== ==== ====
</TABLE>
A valuation allowance has been provided based on management's assessment
of the ultimate realization of the deferred tax assets.
F-217
<PAGE>
7. Related Party Transactions
At December 31, 1995 and 1996, the Company had commissions payable to
current and former shareholders of the Company of $171 and $211,
respectively. Commissions are generally calculated as 4% of revenue and
are payable on demand.
8. Commitments and Contingencies
The Company leases certain office equipment under operating leases
expiring on various dates through 2001. Future minimum lease payments
required under leases that have noncancelable lease terms in excess of one
year at December 31, 1996 are as follows:
Fiscal year
1997 $ 28
1998 28
1999 28
2000 30
2001 10
-----
$ 124
=====
Rental expense charged to operations was approximately $24 and $26 for the
years ended December 1, 1995 and 1996, respectively.
The Company is, from time to time, a party to litigation arising in the
normal course of business, most of which involve claims for personal
injury and property damage incurred in connection with its operations.
Management believes that none of these actions will have a material
adverse impact on the financial position, results of operations or cash
flows of the Company.
9. Unaudited Subsequent Event
The Company and its stockholder have entered into a definitive agreement
with Dispatch Management Services Corp. ("DMS") pursuant to which DMS will
acquire the outstanding shares of the Company. The acquired shares will be
exchanged for cash and shares of DMS common stock concurrent with the
consummation of the initial public offering of the common stock of DMS.
F-218
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Fleetfoot Max, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of shareholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Fleetfoot Max, Inc.
at August 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended August 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Seattle, Washington
October 7, 1997
F-219
<PAGE>
FLEETFOOT MAX, INC.
BALANCE SHEETS
(Dollars in Thousands)
August 31,
----------------
1996 1997
Assets
Current assets:
Cash and cash equivalents $ 26 $ 40
Accounts receivable, net 249 295
Prepaid assets 19 3
----- -----
Total current assets 294 338
Property and equipment, net 107 103
Deferred tax asset 61 14
Investments 20
Deposits 27 27
----- -----
Total assets $ 489 $ 502
===== =====
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 7 $ 12
Accrued expenses 106 127
Notes payable 4
Current maturities long-term debt 192 176
Current portion of capital lease obligation 13 6
----- -----
Total current liabilities 322 321
Long-term debt, net of current maturities 236 149
Capital lease obligation, net of current portion 22
----- -----
Total liabilities 558 492
Commitments and contingencies (Notes 6 and 10)
Shareholders' equity (deficit):
Common stock, par value $0.05 per share;
500,000,000 shares authorized; 1,000,000
shares issued and 212,857 shares outstanding 50 50
Additional paid-in capital 33 33
Retained earnings (accumulated deficit) (26) 53
----- -----
57 136
Less: common stock in treasury at cost
(787,143 shares) (126) (126)
----- -----
Total shareholders' equity (deficit) (69) 10
----- -----
Total liabilities and shareholders'
equity (deficit) $ 489 $ 502
===== =====
See accompanying notes to financial statements.
F-220
<PAGE>
FLEETFOOT MAX, INC.
STATEMENT OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years ended August 31,
-----------------------------
1995 1996 1997
<S> <C> <C> <C>
Net sales $ 1,702 $ 2,042 $ 2,427
Cost of sales 1,015 1,220 1,557
------- ------- -------
Gross margin 687 822 870
Operating expenses 306 351 380
Sales and marketing 21 20 23
General and administrative 259 257 279
Depreciation and amortization 64 53 52
------- ------- -------
Operating income 37 141 136
Other (income) expense
Interest expense 72 59 54
Other, net (11) (18) (44)
------- ------- -------
Income (loss) before provision for
income taxes (24) 100 126
Provision for (benefit attributable to)
income taxes (61) 47
------- ------- -------
Net income (loss) $ (24) $ 161 $ 79
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-221
<PAGE>
FLEETFOOT MAX, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Retained
Capital Earnings Treasury Total
Common Stock In Excess (Accumulated Common Equity
Shares Par Value of Par Deficit) Stock (Deficit)
<S> <C> <C> <C> <C> <C> <C>
August 31, 1994 1,000 $ 50 $ 33 $ (163) $ (126) $ (206)
Net loss (24) (24)
------ ------ ------ ------ ------ ------
Balances at,
August 31, 1995 1,000 50 33 (187) (126) (230)
Net income 161 161
------ ------ ------ ------ ------ ------
Balances at,
August 31, 1996 1,000 50 33 (26) (126) (69)
Net income 79 79
------ ------ ------ ------ ------ ------
Balances at,
August, 1997 1,000 $ 50 $ 33 $ 53 $ (126) $ 10
====== ====== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-222
<PAGE>
FLEETFOOT MAX, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years ended August 31,
-----------------------
1995 1996 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (24) $ 161 $ 79
Adjustments to reconcile net income (loss)
to net cash provided by (used for) operating
activities:
Depreciation and amortization 64 53 52
(Gain) loss on sale of property and equipment (10) (1) 4
Changes in assets and liabilities:
Accounts receivable (61) (27) (46)
Prepaid assets (3) 16
Deposits (2) (6)
Accounts payable (6) 5
Accrued expenses 13 5 21
Deferred tax asset (61) 47
----- ----- -----
Net cash provided by (used for)
operating activities (20) 115 178
----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment (6) (21) (24)
Investments (20)
Proceeds from sale of assets 12 2 2
----- ----- -----
Net cash provided by (used for)
investing activities 6 (19) (42)
----- ----- -----
Cash flows from financing activities:
Repayment of notes payable (7) (4)
Repayment of long-term liabilities (47) (53) (103)
Repayment of capital lease obligations (2) (15) (15)
----- ----- -----
Net cash used for financing activities (49) (75) (122)
----- ----- -----
Net increase (decrease) in cash and equivalents (63) 21 14
Cash and equivalents at beginning of the period 68 5 26
----- ----- -----
Cash and equivalents at end of the period $ 5 $ 26 $ 40
===== ===== =====
Supplemental schedule of noncash investing and financing activities
Property and equipment acquired under
capital lease $ 30 $ -- $ 30
===== ===== =====
Interest paid $ 72 $ 58 $ 51
===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-223
<PAGE>
FLEETFOOT MAX, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
Fleetfoot Max, Inc. (the "Company") was incorporated in 1980 under the
laws of the state of Washington. The Company provides same day, on demand
delivery services in the Seattle Commercial Zone which extends from
Everett to Tacoma and all of the eastern communities of King County.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of approximately
three months or less at date of purchase to be cash equivalents.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets (5 to 7 years). Capital leases are stated at the present value of
the future minimum lease payments and amortized over the life of the
lease. Capital lease amortization is included in depreciation expense.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable, notes receivable/payable and accrued expenses
approximates fair value because of the short maturity of these
instruments. The estimated fair value of long-term debt and other
long-term liabilities approximates its carrying value. Additionally,
interest rates on outstanding debt are at rates which approximate market
rates for debt with similar terms and average maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to a
concentration of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss.
Income taxes
The Company is a C-Corporation for federal income tax purposes. The
Company accounts for income taxes using the liability method under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes".
Deferred tax assets and liabilities arise primarily as a result of net
operating loss carry-forwards and differences in the method of accounting
for depreciation.
F-224
<PAGE>
FLEETFOOT MAX, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
2. Summary of Significant Accounting Policies (continued)
Earnings per share
Information regarding earnings per share has not been provided because the
capital structure is not indicative of the capital structure subsequent to
the agreement with Dispatch Management Services Corp. ("DMS") as further
discussed in Note 11.
3. Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Balance
Beginning at end
of Period Write-offs of Period
--------- ---------- ---------
<S> <C> <C> <C>
Year ended August 31, 1995 ..... $ 9 $ 11 $ 12
Year ended August 31, 1996 ..... $ 12 $ 12 $ 13
Year ended August 31, 1997 ..... $ 13 $ 2 $ 15
</TABLE>
4. Property and Equipment
Property and equipment consists of the following:
August 31,
-------------------
1996 1997
Equipment $ 162 $ 183
Furniture and fixtures 12 5
Vehicles 123 64
Leasehold improvements 54 63
------- -------
351 315
Accumulated depreciation and amortization (244) (212)
------- --------
$ 107 $ 103
======= =======
Depreciation expense for the years ended August 31, 1995, 1996, and 1997
was approximately $64, $53 and $52, respectively.
Equipment includes the cost of equipment of $30 held by the Company under
capital lease agreements described in Note 6 for both years ending August
31, 1996 and 1997. The accumulated amortization relating to these assets
aggregated $18 and $0, respectively, at August 31, 1996 and 1997.
F-225
<PAGE>
FLEETFOOT MAX, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
5. Accrued Expenses
Accrued expenses comprised the following:
<TABLE>
<CAPTION>
August 31,
-------------------
1996 1997
<S> <C> <C>
Payroll and payroll taxes $ 66 $ 85
Deferred salaries 22 22
Other 18 20
------- -------
Total accrued expenses $ 106 $ 127
======= =======
</TABLE>
6. Leases
The Company leases certain office space under operating lease agreements
and certain office equipment under capital and operating leases expiring
on various dates through 1999. Future minimum lease payments required
under leases that have noncancelable lease terms in excess of one year at
August 31, 1997 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Fiscal year Leases Leases
------- ---------
<S> <C> <C>
1998 $ 10 $ 108
1999 10 87
2000 10 25
2001 6
---- ------
Total minimum lease payments 36 $ 220
======
Amount representing interest 8
----
Present value of net minimum payments 28
Current portion 6
----
$ 22
====
</TABLE>
Rental expense attributed to office space was approximately $45, $42 and
$43 for the years ended August 31, 1995, 1996 and 1997, respectively.
F-226
<PAGE>
FLEETFOOT MAX, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
7. Long-term Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
August 31,
-------------------
1996 1997
<S> <C> <C>
Government agency note $ 178 $ 143
Convertible debentures with majority
shareholder and other related parties 150 115
Unsecured promissory note with majority
shareholder 70 58
Other subordinated notes 30 9
------- -------
428 325
Less: current portion (192) (176)
------- -------
$ 236 $ 149
======= =======
</TABLE>
On January 14, 1994, the Company received a U.S. Small Business
Administration Note of $250. The note accrues interest at the prime rate
plus 2.75% per annum which was 11.0% and 11.25% at August 31, 1996, and
1997, respectively. Interest is accrued, due and payable monthly, in
installments, including principal, until December 14, 2000. The note is
collateralized by all properties acquired with the proceeds of this loan
and certain vehicles and equipment.
Convertible debentures were issued to the majority shareholder of the
Company and other related parties between July 31, 1990 and March 10,
1993. The holder of the note has the option at any time to convert the
principal amount outstanding into common shares of the Company at a
conversion price of $2.50 for one common share. The debenture notes accrue
interest at 15% per annum and interest is accrued, due and payable
monthly. The Company is obligated to repay the principal five years from
the date of agreements. Principle may be prepaid, in whole or in part, at
any time, without penalty. As of August 31, 1997, $115 of the debentures
were past due and continued accruing interest per the existing terms of
the note. In September 1997, Fleetfoot Max's President converted $110 of
convertible debentures into 44,000 shares of Fleetfoot Max, Inc. common
stock.
On March 5, 1991, the Company entered into a $115 promissory note
agreement with the majority shareholder of the Company. The note accrues
interest at a rate of 12% per annum. Principal and interest are payable in
monthly installments of $2 until March 2001.
Other subordinated notes consist of a leasehold improvement loan and
miscellaneous vehicle loans. The loans accrue interest at rates between
7.25% and 10% and mature on multiple dates between fiscal 1995 and fiscal
1998.
F-227
<PAGE>
7. Long-term Debt (continued)
Fixed and determinable maturities of long-term debt at August 31, 1997 are
as follows:
Year ending August 31,
1998 $ 176
1999 58
2000 65
2001 26
------
$ 325
======
8. Income Taxes
The provision for income taxes comprised the following:
<TABLE>
<CAPTION>
Year ended August 31,
-------------------------------
1995 1996 1997
<S> <C> <C> <C>
Current tax expense (benefit) $ (9) $ 38 $ 45
Deferred tax expense (benefit) (1) (7) 2
Change in valuation allowance 10 (92)
------- ----- ------
Provision for (benefit attributable
to) income taxes $ -- $ (61) $ 47
======= ===== ======
</TABLE>
Temporary differences giving rise to the Company's deferred tax assets and
liabilities comprised the following:
<TABLE>
<CAPTION>
August 31,
-------------------
1996 1997
<S> <C> <C>
Net operating loss $ 50 $ 5
Depreciation and amortization 4 1
A/R reserve and accrued liabilities 7 8
----- -----
Net deferred tax asset $ 61 $ 14
===== =====
</TABLE>
At August 31, 1997, the Company has a net operating loss carry-forward of
approximately $13 which will expire in the year 2014, if not previously
utilized. Should certain changes in the Company's ownership occur, there
could be a limitation on the utilization of its net operating loss.
The effective income tax rate varies from the statutory tax rate for the
year ended August 31, 1996 primarily due to the Company eliminating the
previously recorded valuation allowance for deferred tax assets based
management's assessment of the likelihood of realizing such deferred tax
assets.
F-228
<PAGE>
9. Related Party Transactions
In 1991, the Company entered into a royalty agreement with ABC Messengers,
an unrelated party. On November 29, 1993, Fleetfoot Max's President and
General Manager purchased the royalty contract from ABC Messengers.
Pursuant to the agreement the President and General Manager of Fleetfoot
Max, Inc. received a monthly royalty of 10 - 16% of sales related to ABC
Messengers' customer base for the remaining period of the outstanding
contract. Amounts paid under the royalty agreement to the related parties
were $54, $54 and $5 for the years ending August 31, 1995, 1996 and 1997,
respectively. The agreement expired in September 1996.
10. Litigation
Certain pending litigation relating to matters that are in the ordinary
course of the Company's business activities are not expected to have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
11. Unaudited Subsequent Events
The Company and its shareholder have entered into a definitive agreement
with Dispatch Management Services Corp. pursuant to which the Company will
merge with DMS. All outstanding shares of the Company will be exchanged
for cash and shares of DMS common stock concurrent with the consummation
of the initial public offering of the common stock of DMS.
F-229
<PAGE>
Report of Independent Accountants
To the Stockholder of Expressit Couriers, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders'equity and of cash flows present fairly,
in all material respects, the financial position of Expressit Couriers, Inc.
(the "Company") at December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Detroit, Michigan
September 5, 1997
F-230
<PAGE>
EXPRESSIT COURIERS, INC.
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
------------- June 30,
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2 $ 1 $ 22
Accounts receivable, net 170 94 88
Prepaid and other current assets 18 15 24
---- ---- ----
Total current assets 190 110 134
Property and equipment, net 170 111 77
Stockholder receivable 38 61 66
Initial franchise fee 18
---- ---- ----
$398 $282 $295
==== ==== ====
Liabilities and Stockholders'Equity
Current liabilities:
Line of credit $ 67 $ 61 $ 58
Accounts payable 112 118 110
Accrued expenses 22 30 26
Current maturities long-term debt 61 45 20
---- ---- ----
Total current liabilities 262 254 214
Long-term debt 56 11
---- ---- ----
Total liabilities 318 265 214
Commitments and contingencies
Stockholders'Equity
Common stock; no par value; 15,000 shares
authorized; 1,000 issued and outstanding 1 1 1
Retained earnings 79 16 80
---- ---- ----
$398 $282 $295
==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-231
<PAGE>
EXPRESSIT COURIERS, INC.
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
--------------------------- ----------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 2,173 $ 1,703 $ 1,343 $ 696 $ 717
Cost of sales 1,408 1,135 897 461 436
------- ------- ------- ------- -------
Gross margin 765 568 446 235 281
Operating expenses 303 210 231 137 76
Sales and marketing expenses 84 61 27 5 17
General and administrative expenses 393 223 177 79 96
Depreciation and amortization 25 41 44 22 19
------- ------- ------- ------- -------
Operating income (loss) (40) 33 (33) (8) 73
------- ------- ------- ------- -------
Other income (expense)
Interest expense (17) (12) (16) (9) (5)
Other, net 15 (14) (2) (4)
------- ------- ------- ------- -------
Net income (loss) $ (57) $ 36 $ (63) $ (19) $ 64
======= ======= ======= ======= =======
Unaudited pro forma information:
Pro forma net income (loss) before provision
for income taxes $ (57) $ 36 $ (63) $ (19) $ 64
Benefit (provision) for income taxes 20 (16) 24 7 (25)
------- ------- ------- ------- -------
Pro forma net income (loss) (see Note 2) $ (37) $ 20 $ (39) $ (12) $ 39
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-232
<PAGE>
EXPRESSIT COURIERS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Total
------------------------ Retained Stockholder's
Shares Amount Earnings Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1993 1,000 $ 1 $ 100 $ 101
Net (loss) (57) (57)
------ ------ ------ ------
Balance at December 31, 1994 1,000 1 43 44
Net income 36 36
------ ------ ------ ------
Balance at December 31, 1995 1,000 1 79 80
Net (loss) (63) (63)
------ ------ ------ ------
Balance at December 31, 1996 1,000 $ 1 $ 16 $ 17
====== ====== ====== ======
Net income (unaudited) 64 64
------ ------ ------ ------
Balance at June 30, 1997 (unaudited) 1,000 $ 1 $ 80 $ 81
====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-233
<PAGE>
EXPRESSIT COURIERS, INC.
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (57) $ 36 $ (63) $ (19) $ 64
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating
activities:
Depreciation and amortization 25 41 44 22 19
(Gain)/loss on sale of property and equipment (15) 14 2 4
Changes in assets and liabilities:
Accounts receivable (13) 10 76 48 6
Prepaid and other current assets 21 9 3 (4) (9)
Stockholder receivable (11) (26) (23) (19) (5)
Accounts payable 36 49 6 (4) (8)
Accrued expenses (28) (39) 8 9 (4)
----- ----- ----- ----- -----
Net cash provided by (used for)
operating activities (27) 65 65 35 67
----- ----- ----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment (120) (84) (4) (3)
Purchase of franchise (20)
Proceeds from sale of property 27 5 5 16
----- ----- ----- ----- -----
Net cash used for investing activities (120) (57) 1 5 (7)
----- ----- ----- ----- -----
Cash flows from financing activities:
Increase (decrease) in line of credit 19 (1) (6) (3) (3)
Payments on long-term debt (43) (54) (63) (37) (36)
Proceeds from borrowings 143 43 2
----- ----- ----- ----- -----
Net cash provided by (used for)
financing activities 119 (12) (67) (40) (39)
----- ----- ----- ----- -----
Net increase (decrease) in cash and equivalents: (28) (4) (1) 21
Cash and equivalents at beginning of the period 34 6 2 2 1
----- ----- ----- ----- -----
Cash and equivalents at end of the period $ 6 $ 2 $ 1 $ 2 $ 22
===== ===== ===== ===== =====
Cash paid for interest $ 17 $ 12 $ 16 $ 9 $ 5
===== ===== ===== ===== =====
</TABLE>
See accompanying notes to financial statements.
F-234
<PAGE>
EXPRESSIT COURIERS, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
Expressit Couriers, Inc. (the Company) provides same-day, on-demand
delivery services in the Boston, Massachusetts metropolitan area. In
September 1996, the Company entered into a franchise agreement with
800-Courier, Inc. using the name and business system of 800-Courier, Inc.
Under the franchise agreement, the Company pays a fee of 8-1/4% of the
Company's gross courier receipts to 800-Courier, Inc. In 1997, the Company
paid an initial franchise fee of $20. Additionally, 1996 franchise fees
approximated $28.
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 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 periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Property and equipment
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets.
Initial franchise fee
Amortized using the straight-line method over five years.
Fair value of financial instruments
The carrying amount of cash and cash equivalents, accounts
receivable/payable and accrued expenses approximates fair value because of
the short maturity of these instruments. The estimated fair value of
long-term debt approximates its carrying value as interest rates on
outstanding debt are at rates which approximate market rates for debt with
similar terms and average maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collaterized and accordingly, the Company
performs ongoing credit evaluations of its customers to reduce the risk of
loss.
Approximately 33% of 1996 net sales were from three customers; at December
31,1996, approximately 33% of accounts receivable were from these
customers.
Income taxes
The Company has elected to have its income taxed under Section 1362 of the
Internal Revenue Code (the Subchapter S Corporation Election) which
provides that, in lieu of federal corporate income taxes, the shareholder
is taxed on the Company's income.
There are differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. At December 31, 1996,
the carrying amounts of the Company's net assets exceeds the tax bases by
approximately $21.
F-235
<PAGE>
EXPRESSIT COURIERS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
The unaudited pro forma income tax information included in the Statement
of Operations is presented in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as if the
Company had been subject to federal and state income taxes for the entire
periods presented.
Unaudited Interim Financial data
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and 1997 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of
normal recurring items, necessary for a fair statement of the results for
the interim periods.
3. Accounts Receivable
Accounts Receivable comprised the following:
<TABLE>
<CAPTION>
December 31
------------------
1995 1996
<S> <C> <C>
Accounts receivable, trade $ 178 $ 102
Allowance for doubtful accounts (8) (8)
------ -----
$ 170 $ 94
====== =====
</TABLE>
Allowance for doubtful accounts comprised the following:
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and end of
of period expenses Write-offs period
<S> <C> <C> <C> <C>
Year ended December 31, 1994 $ 6 $ 4 $ - $ 10
Year ended December 31, 1995 $ 10 $ 2 $ (4) $ 8
Year ended December 31, 1996 $ 8 $ 8 $ (8) $ 8
</TABLE>
4. Prepaid and Other Current Assets
Prepaid and other current assets comprised the following:
<TABLE>
<CAPTION>
December 31
1995 1996
<S> <C> <C>
Prepaid insurance $ 7 8
Security deposits 9 5
Other 2 2
------- ------
$ 18 15
======= ======
</TABLE>
F-236
<PAGE>
EXPRESSIT COURIERS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
5. Property and Equipment
Property and equipment comprised the following:
<TABLE>
<CAPTION>
Estimated December 31
useful life 1995 1996
<S> <C> <C> <C>
Radio equipment 5 years $ 66 $ 66
Office equipment 7 years 30 35
Vehicles 5 years 154 121
Other 39 years 6 6
------- -------
256 228
Accumulated depreciation and amortization (86) (117)
------- -------
$ 170 $ 111
======= =======
</TABLE>
Vehicles with an aggregate cost and accumulated depreciation of $71 and
$21, respectively, in 1995 and $57 and $29, respectively, in 1996, are
recorded under capital leases.
6. Accrued Expenses
Accrued expenses comprised the following:
<TABLE>
<CAPTION>
December 31
1995 1996
<S> <C> <C>
Payroll and payroll taxes $ 14 $ 23
Other 8 7
------- -------
Total accrued expenses $ 22 $ 30
======= =======
</TABLE>
7. Long-Term Debt
Long-term debt comprised the following:
<TABLE>
<CAPTION>
December 31
1995 1996
<S> <C> <C>
Bank line of credit $ 67 $ 61
Bank term loan 28 11
Notes payable 42 28
Capital lease obligations 47 17
------- -------
Total 184 117
Less - current portion 128 106
------- -------
Long-term debt $ 56 $ 11
======= =======
</TABLE>
The Bank line of credit is payable on demand and provides for maximum
borrowings of $75. Interest accrues at the bank's prime rate plus 1.75%
(10.0% at December 31, 1996).
The Bank term loan is secured by all the assets of the Company and
guaranteed by the stockholder of the Company. The loan is payable through
August 1997 in monthly principal payments of $1 plus interest at the
bank's prime rate plus 2% (10.25% at December 31, 1996).
F-237
<PAGE>
EXPRESSIT COURIERS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
Notes payable are secured by certain vehicles. The notes are payable in
monthly aggregate principal amounts of $1 plus interest 8.5% through
August 1998.
The Company leases certain equipment under arrangements which have been
classified as capital leases. The leases have minimum monthly payments of
$2 and are secured by certain equipment utilized in the business. The
leases are further guaranteed by the shareholder of the Company.
Aggregate annual payments on long-term debt are: 1997 - $106; 1998 - $11.
At the end of the lease terms, the Company has the option to purchase the
vehicles under capital lease arrangements for minor amounts.
8. Operating Leases
The Company leases certain premium seating at a Boston sports arena under
a license agreement expiring on September 30, 2004. Future minimum license
and ticket fee payments required under the agreement are as follows:
Fiscal year
1997 $ 22
1998 23
1999 23
2000 23
2001 through 2004 73
-----
$ 164
=====
Rental expense was approximately $22 for the years ended December 31,
1994, 1995 and 1996.
9. Related Party Transactions
The Company leases office space from a realty trust where the stockholder
of the Company is the beneficiary. The lease expires on July 31, 1998 with
an option to renew for one year. Rent expenses related to this lease
agreement approximated $13 in 1994, 1995 and 1996.
Included in accounts receivable is $38 and $61 in 1995 and 1996,
respectively, receivable from the stockholder of the Company. There are no
formal repayment terms.
10. Commitments and Contingencies
The Company was self-insured for workers' compensation insurance for the
periods September 22, 1995 to December 27, 1995 and June 29, 1996 through
December 2, 1996. In the opinion of the Company, the liability, if any,
arising from workers' compensation claims relating to these periods will
not have a material effect on the Company's financial position or the
results of its operations.
There are pending actions and contingencies arising out of the ordinary
conduct of business. In the opinion of the Company, the liability, if any,
arising from these actions will not have a material effect on the
Company's financial position or the results of its operations.
11. Subsequent Event (Unaudited)
The company and its stockholder have entered into a definitive agreement
with Dispatch Management Services Corp. (DMS) pursuant to which the
Company will merge with DMS. All outstanding shares of the Company will be
F-238
<PAGE>
EXPRESSIT COURIERS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
exchanged for cash concurrent with the consummation of the initial public
offering of the common stock of DMS.
F-239
<PAGE>
Report of Independent Accountants
To the Stockholders of
Express Enterprise, Inc. - Ground Operations
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in stockholders' equity, and of cash flows present
fairly, in all material respects, the financial position of the Ground
Operations of Express Enterprise, Inc (the Company), at 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. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Detroit, Michigan
September 4, 1997
F-240
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
------------------ June 30,
1995 1996 1997
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets
Cash $ -- $ 13 $ --
Accounts receivable, net 74 90 158
Accrued Income 10
---- ---- ----
Total current assets 84 103 158
Property and equipment, net 55 61 42
Deposits 14 14 14
Amount receivable from an affiliate 101 131 111
---- ---- ----
$254 $309 $325
==== ==== ====
Liabilities and Stockholders' Equity
Current liabilities
Book overdraft $ 13 $ -- $ 50
Accounts payable 42 44 47
Accrued expenses 63 80 31
Current maturities of long-term debt
and capital lease obligations 43 46 40
---- ---- ----
Total current liabilities 161 170 168
Long-term debt, net of current portion 56 60 48
Capital lease obligation, net of current portion 6 24 22
---- ---- ----
Total liabilities 223 254 238
Commitments and contingencies
Stockholders' equity
Common stock; $1.0 par value; 50,000 shares
authorized;
1,000 shares issued and outstanding 1 1 1
Retained earnings - Ground Operations 30 54 86
---- ---- ----
31 55 87
---- ---- ----
$254 $309 $325
==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-241
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
-------------------- ----------------
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,344 $1,612 $815 $993
Cost of sales 812 986 518 617
------- ------ ---- ----
Gross margin 532 626 297 376
Operating expenses 202 246 130 155
Sales and marketing 30 16 10 14
General and administrative expenses 238 277 99 143
Depreciation 53 47 26 24
------- ------ ---- ----
523 586 265 336
------- ------ ---- ----
Operating income 9 40 32 40
Other (income) expense
Interest expense 16 16 8 8
Gain on sale of fixed assets (3)
------- ------ ---- ----
Net (loss) income $ (4) $ 24 $ 24 $ 32
======= ====== ==== ====
Unaudited pro forma information
Pro forma net income before provision for income tax $ (4) $ 24 $ 24 $ 32
Provision for income taxes 8 8 11
------- ------ ---- ----
Pro forma net (loss) income $ (4) $ 16 $ 16 $ 21
======= ====== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-242
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Retained
Common stock earnings -
----------------- Ground
Shares Amount Operations Total
<S> <C> <C> <C> <C>
Balance at December 31, 1994 1,000 $ 1 $ 34 $ 35
Net loss (4) (4)
----- ----- ------ ------
Balance at December 31, 1995 1,000 1 30 31
Net income 24 24
----- ----- ------ ------
Balance at December 31, 1996 1,000 1 54 55
Net income (unaudited) 32 32
----- ----- ------ ------
Balance at June 30, 1997 (unaudited) 1,000 $ 1 $ 86 $ 87
===== ===== ====== ======
</TABLE>
See accompanying notes to financial statements.
F-243
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
--------------- ----------------
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net (loss) income $ (4) $ 24 $ 24 $ 32
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities
Depreciation 53 47 26 24
Changes in assets and liabilities:
Accounts receivable (14) (16) (44) (68)
Other current assets (10) 10 10 --
Accounts payable and overdraft 37 (11) 35 53
Accrued expenses 63 17 (24) (49)
Amount receivable from affiliate (61) (30) 24 20
Other assets (2)
---- ---- ---- ----
Net cash provided by (used in) operating
activities 62 41 51 12
---- ---- ---- ----
Cash flows from investing activities
Purchases of equipment (35) (53) (22) (5)
---- ---- ---- ----
Net cash used for investing activities (35) (53) (22) (5)
---- ---- ---- ----
Cash flows from financing activities
Proceeds from long-term loans 32 50
Repayment of long-term loans (56) (60) (22) (11)
Proceeds from capital lease obligation 46
Repayment of capital lease obligation (4) (11) (7) (9)
---- ---- ---- ----
Net cash provided by (used for) financing
activities (28) 25 (29) (20)
---- ---- ---- ----
Net (decrease) increase in cash (1) 13 -- (13)
Cash at beginning of
the period 1 -- -- 13
---- ---- ---- ----
Cash at the end of the period $ -- $ 13 $ -- $ --
==== ==== ==== ====
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 16 $ 16 $ 8 $ 8
==== ==== ==== ====
</TABLE>
See accompanying notes to financial statements.
F-244
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. Business Organization
Express Enterprise, Inc., operates business as Express Messenger Services,
Inc., (the Company) provides same-day, on-demand delivery and logistics
services in the Detroit, Michigan metropolitan area.
2. Summary of Significant Accounting Policies
Basis of presentation
Effective January 1, 1997, the Company transferred its air operations to
another affiliate, Express Core, Inc. As a result of this transfer, all
the related assets and liabilities of the air operations were transferred
at net book value. These financial statements have been prepared on a
carve-out basis and exclude the air operations for all periods presented.
Transactions between the ground operations and the air operations are
herein referred to as "related party" transactions.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Revenue recognition
Revenues are recognized when packages are delivered to the customer.
Property and equipment
Vehicles, equipment under capital lease, leasehold improvements and
equipment are carried at cost. Depreciation is provided using the
accelerated method over the estimated useful lives of the related assets
(generally five years). Assets subject to capital leases are amortized
using the accelerated method over the estimated useful lives, or over the
terms of the leases, if shorter.
Fair value of financial instruments
The carrying amount of cash, accounts receivable/payable, and accrued
expenses approximates fair value because of the short maturity of these
instruments. The estimated fair value of long-term debt and capital lease
obligations approximates its carrying value. Additionally, interest rates
on outstanding debt are at rates which approximate market rates for debt
with similar terms and average maturities.
Concentration of credit risk
Financial instruments which potentially expose the Company to a
concentrations of credit risk consist principally of trade accounts
receivable. Receivables are not collateralized and accordingly, the
Company performs ongoing credit evaluations of its customers to reduce the
risk of loss. In 1995 and 1996, the Company's two largest customers
accounted for approximately 25% of sales.
Income taxes
The Company files consolidated federal and state income returns for both
ground and air operations. As discussed in Note 2, the unaudited pro forma
income tax information included in the Statement of Operations is
presented in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes", as if the Company's ground
operations had been individually subject to Federal and State income taxes
for the entire periods presented.
F-245
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
There are differences between the financial statement carrying amounts and
the tax bases of existing asset and liabilities. At December 31, 1995 and
1996, the tax basis of the Company's net assets exceed the financial
reporting bases by approximately $24 and $12, respectively.
Unaudited Interim Financial Statements
The interim financial data as of June 30, 1997 and for the six months
ended June 30, 1996 and June 30, 1997, is unaudited; however, in the
opinion of the Company, the interim data includes all adjustments,
consisting only or normal recurring adjustments, necessary for a fair
statement of the results for the interim periods.
3. Allowance for Doubtful Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance
beginning costs and at end
of period expenses Write-offs of period
<S> <C> <C> <C> <C>
Year ended December 31, 1995 $ -- $ -- $ -- $ --
Year ended December 31, 1996 $ -- $ 10 $ -- $ 10
</TABLE>
4. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1995 1996
<S> <C> <C>
Leasehold improvement $ 3 $ 3
Furniture and equipment 77 65
Vehicles 210 69
Equipment under capital lease 7 58
--------- ---------
297 195
Accumulated depreciation and amortization (242) (134)
--------- ---------
$ 55 $ 61
========= ==========
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1996 was
approximately $53 and $47, respectively.
As of December 31, 1996, vehicles amounting to approximately $80 and
equipment under capital leases of approximately $58 are secured as a
collateral for long-term debt and capital lease obligations of the
Company.
F-246
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
5. Accrued Expenses
Accrued expenses comprised the following:
<TABLE>
<CAPTION>
December 31,
1995 1996
<S> <C> <C>
Payroll and payroll taxes $ 60 $ 75
Accrued vacation 3 2
Other 3
----- -----
Total accrued liabilities $ 63 $ 80
===== =====
</TABLE>
6. Operating Leases
The Company leases all of its employees, including the officers of the
Company, from a staffing corporation based in Chicago, Illinois. The
expenses related to the employees, including fringe benefits and payable
taxes, for the years ended December 31, 1995 and 1996 was approximately
$389 and $528, respectively.
The Company leases various vehicles and equipment under operating lease
agreements. Rent expense related to these leases for the years ended
December 31, 1995 and 1996 was $38 and $84, respectively.
The Company leases its facility in Romulus, Michigan, under a
noncancellable operating lease. The agreement provides for minimum lease
payments and additional rentals based upon common area expenses. The lease
contains renewal as well as purchase operations. Rent expense related to
the lease for the years ended December 31, 1995 and 1996 was $67 and $67,
respectively.
Minimum lease payments for the fiscal years ending December 31:
<TABLE>
<S> <C>
1997 $ 112
1998 48
-----
$ 160
=====
</TABLE>
F-247
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
7. Long-Term Debt
The Company's long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1995 1996
<S> <C> <C>
Installment note due in monthly installments of $814,
which includes interest at 10%, expiring February 2001 $ 32 $ 38
Installment note due in monthly installments of $308,
which includes interest at 16%, expiring February 1997 4 1
Installment note due in monthly installments of $451,
which includes interest at 7.5%, expiring June 1998 12 8
Installment note due in monthly installments of $411,
which includes interest at 9.5%, expiring April 1998 10 7
Installment note due in monthly installments of $194,
which includes interest at 7.75%, expiring April 1999 6 5
Installment note due in monthly installments of $511,
which includes interest at 7.75%, expiring October 1998 21 16
Installment note due in monthly installments of $394,
which includes interest at 10.7%, expiring November 1999 4 12
Installment note payable on a vehicle, monthly payments
are $407, includes interest at 14%, expiring June 1996 3
Installment note due in monthly installments of $309,
which includes interest at 7.4%, expiring April 1997 4 1
Installment note payable on vehicle, monthly payments
are $234, including interest at 11.5%, expiring June 1998 2
------ ------
Total long-term debt 98 88
Less - current portion of long-term debt 42 28
------ ------
$ 56 $ 60
====== ======
<CAPTION>
The following is a summary of principal maturities of long-term debt as of
December 31, 1996:
1997 $ 28
1998 22
1999 18
2000 10
2001 10
------
$ 88
======
</TABLE>
Interest expense on the long-term debt for the period ended December 31,
1996 and 1995 was $16 and $16, respectively.
F-248
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
8. Capital Lease Obligations
The Company has acquired various equipment under the provisions of capital
lease agreements. These lease obligations consist of:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
<S> <C> <C>
Capital lease obligation due in monthly installments
of $143, payable through June 1997 $ 3 $ 1
Capital lease obligation, due in monthly installments
of $194, payable through December 1997 4 2
Capital lease obligation, due in monthly installments
of $313, payable through May 1999 10
Capital lease obligation due in monthly installments
of $697, payable through September 1998 15
Capital lease obligation due in monthly installments
of $837, payable through April 1999 24
-------- --------
Total minimum lease payments 7 52
Amount representing interest 10
-------- --------
Present value of net minimum lease payment 7 42
Less current maturities 1 18
-------- --------
$ 6 $ 24
======== ========
<CAPTION>
The following is a summary of future minimum lease payments due under
capital lease arrangements as of December 31, 1996:
1997 $ 18
1998 18
1999 6
--------
$ 42
========
</TABLE>
9. Related Party Transactions
The Company incurs common overhead costs for ground and air divisions.
These costs have been allocated to respective divisions based upon revenue
generated by each division and estimate of time spent by the employees on
each division. Management of the Company believes the current allocation
method of allocating common overhead is reasonable. Overhead costs
allocated to air divisions for the period ended December 31, 1995 and 1996
was approximately $27 and $104 respectively. At December 31, 1995 and
1996, the Company had receivable from the air division of the Company of
$101 and $131, respectively. This receivable is receivable on demand and
does not accrue interest.
10. Commitments and Contingencies
Litigation
The Company is, from time to time, a party to litigation arising in the
normal course of business, most of which involve claims for personal
injury and property damage incurred in connection with its obligation.
Management believes that none of these actions will have a material impact
on the Company's financial position, results of operations, or cash flows.
F-249
<PAGE>
EXPRESS ENTERPRISE, INC. - GROUND OPERATIONS
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in Thousands)
11. Subsequent Events (Unaudited)
The Company and its stockholders have entered into a definitive agreement
with Dispatch Management Services Corp. (DMS) pursuant to which DMS Corp.
will acquire certain assets and assume certain liabilities of the Company.
The acquired assets and assumed liabilities will be exchanged for cash and
shares of DMS Corp. common stock concurrent with the consummation of the
initial public offering of the common stock of DMS Corp.
F-250
<PAGE>
Report of Independent Auditors
The Stockholder
RJK Enterprises Inc. (D.B.A. Deadline Express)
We have audited the accompanying balance sheet of RJK Enterprises Inc.
(the "Company"), as of December 31, 1996, and the related statements of
operations and accumulated deficit and cash flows for the period from March 6,
1996 to December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the financial position of RJK Enterprises Inc. at
December 31, 1996 and the results of its operations and its cash flows for the
period from March 6, 1996 to December 31, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
August 20, 1997
F-251
<PAGE>
RJK ENTERPRISES INC.
(D.B.A. DEADLINE EXPRESS)
BALANCE SHEETS
<TABLE>
<CAPTION>
December June 30,
31, 1996 1997
-------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Accounts receivable $ 127,270 $ 119,297
Prepaid expenses and other current assets 2,502 6,306
Due from officer 10,000 10,000
-------------------------------
Total current assets 139,772 135,603
Furniture and fixtures, at cost 11,000 11,000
Accumulated depreciation (1,572) (2,358)
-------------------------------
Net furniture and fixtures 9,428 8,642
Other assets 4,000 4,000
-------------------------------
$ 153,200 $ 148,245
===============================
Liabilities and stockholder's deficit
Current liabilities:
Accounts payable and accrued expenses $ 61,155 $ 65,149
Management services (Note 3) 25,434 28,977
-------------------------------
Total current liabilities 86,589 94,126
Loans payable to stockholder (Note 2) 67,000 67,000
Common stock, no par value, 1000 shares authorized, issued and 1,000 1,000
outstanding
Accumulated deficit (1,389) (13,881)
-------------------------------
Net stockholder's deficit (389) (12,881)
-------------------------------
$ 153,200 $ 148,245
===============================
</TABLE>
See accompanying notes to financial statements.
F-252
<PAGE>
RJK ENTERPRISES INC.
(D.B.A. DEADLINE EXPRESS)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Period from
Period from March 6,
March 6, 1996 to Six months ended
1996 to December June 30, June 30,
31, 1996 1996 1997
-------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Revenue from courier services $ 1,177,265 $ 486,562 $ 622,213
-------------------------------------------------------
Management services (Note 3) 753,446 297,926 393,206
Selling, general and administrative expenses 429,617 180,204 282,510
-------------------------------------------------------
1,183,063 478,130 675,716
-------------------------------------------------------
Operating income (loss) (5,798) 8,432 (53,503)
Other income (Note 4) 4,409 - 41,011
-------------------------------------------------------
Net income (loss) (1,389) 8,432 (12,492)
Accumulated deficit at beginning of period - - (1,389)
-------------------------------------------------------
Accumulated deficit at end of period $ (1,389) $ 8,432 $ (13,881)
=======================================================
</TABLE>
See accompanying notes to financial statements.
F-253
<PAGE>
RJK ENTERPRISES INC.
(D.B.A. DEADLINE EXPRESS)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
March 6, 1996 to March 6, 1996 Six months ended
December 31, 1996 to June 30, 1996 June 30, 1997
------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Operating activities
Net loss $ (1,389) $ 8,432 $ (12,492)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation 1,572 629 786
Changes in operating assets and liabilities net of effect
of acquisition of JRED Enterprises, Inc. in 1996 (Note 1):
Accounts receivable (5,050) (53,585) 7,973
Prepaid expenses and other current assets (2,502) - (3,804)
Due from officer (10,000) - -
Accounts payable and accrued expenses (84,302) (3,440) 3,994
Management services 25,434 - 3,543
-----------------------------------------------------
Net cash used in operating activities (76,237) (47,964) -
Investing activities
Cash acquired (Note 1) 8,237 8,237 -
-----------------------------------------------------
Net cash provided by investing activities 8,237 8,237 -
Financing activities
Issuance of common stock 1,000 1,000 -
Net increase in loans payable to stockholder 67,000 67,000 -
-----------------------------------------------------
Net cash provided by financing activities 68,000 68,000 -
-----------------------------------------------------
Net increase in cash and cash equivalents - 28,273 -
Cash and cash equivalents at beginning of period - - -
-----------------------------------------------------
Cash and cash equivalents at end of period $ - $ 28,273 $ -
=====================================================
</TABLE>
See accompanying notes to financial statements.
F-254
<PAGE>
RJK ENTERPRISES INC.
(D.B.A. DEADLINE EXPRESS)
NOTES TO FINANCIAL STATEMENTS
Periods from March 6, 1996 to December 31, 1996 and from March 6, 1996
to June 30, 1996 and for the Six Months ended June 30, 1997
(Information as of June 30, 1997 and for the Period from March 6, 1996
to June 30, 1996 and for the Six Months ended June 30, 1997 is unaudited)
1. Organization and Summary of Significant Accounting Policies
Organization
RJK Enterprises Inc. "D.B.A. Deadline Express" (the "Company") was
incorporated on March 6, 1996 in the State of Illinois. The Company
operates as a courier service covering the Chicago area. Effective March 8,
1996, the Company acquired certain assets and liabilities of JRED
Enterprises, Inc. "D.B.A. Deadline Express" pursuant to an assignment for
the benefit of the creditors of JRED Enterprises, Inc. "D.B.A. Deadline
Express". The assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Assets:
Cash $ 8,237
Accounts receivable 122,220
Furniture and fixtures 11,000
Deposit and other assets 4,000
------------
$ 145,457
============
Liabilities:
Accounts payable and accrued expenses $ 145,457
============
</TABLE>
Summary of Significant Accounting Policies
Depreciation
Depreciation of furniture and fixtures is provided for on an accelerated
method over the estimated useful lives (five years) of the assets.
Revenue Recognition
Courier services revenues are recognized in the period in which they are
earned.
Cash Equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
Income Taxes
The Company operates under the provisions of Subchapter S of the Internal
Revenue Code and, consequently, in not subject to federal income tax;
rather the stockholder is liable for individual income taxes on his share
of taxable income.
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 amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Unaudited Information
The unaudited financial statements as of June 30, 1997, for the period from
March 6, 1996 to June 30, 1996 and for the six months ended June 30, 1997
reflect adjustments, all of which are of a normal recurring nature, which
are, in the opinion of management, necessary to a fair presentation. The
results for the interim periods presented are not necessarily indicative of
full year results.
F-255
<PAGE>
RJK ENTERPRISES INC.
(D.B.A. DEADLINE EXPRESS)
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Loans Payable to Stockholder
Loans payable to stockholder consist of amounts due to the Company's
stockholder. Such loans are interest-free and are not payable prior to
September 8, 1998.
3. Management Services
The Company has an agreement with Union Services of Chicago Inc. ("USC") (a
company owned by an officer of the Company). Under the terms of this
agreement, USC provides various services including the administration and
payment of wages, payroll taxes and workers' compensation. USC is
compensated for such services based on a formula, as defined. The agreement
has no defined term and will continue until terminated with 30 days notice
by either party.
4. Commitments and Contingencies
Lease Commitments
Office space is leased under an operating lease expiring on August 31,
1997. The leases provides for minimum monthly rent of $2,525, plus expense
escalations.
Rent expense amounted to approximately $2,600 per month. Other income
primarily represents rental income from the sub-leasing of a portion of the
office space on a month-to-month basis.
F-256
<PAGE>
- - - - --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in the
Prospectus in connection with the offer made in the Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or by any of the Underwriters. The Prospectus does not
constitute an offer to sell or the solicitation of any offer to buy any security
other than the shares of Common Stock offered by the Prospectus, nor does it
constitute an offer to sell or a solicitation of any offer to buy the shares of
Common Stock by anyone in any jurisdiction in which such an 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 offer or solicitation. Neither the delivery of the 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.
Until ______________, 1997, all dealers effecting transactions in the
registered securities, 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.
----------
Table of Contents Page
----
Prospectus Summary .............................
Risk Factors ...................................
The Company ....................................
Use of Proceeds ................................
Dividend Policy ................................
Capitalization .................................
Dilution .......................................
Selected Pro Forma Combined ....................
Founding Companies' Financial Data ............
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .....................
Business .......................................
Management .....................................
Certain Transactions ...........................
Principal Stockholders .........................
Description of Capital Stock ...................
Shares Eligible for Future Sale ................
Underwriting ...................................
Legal Matters ..................................
Experts ........................................
Additional Information .........................
Index to Financial Statements .................. F-1
- - - - --------------------------------------------------------------------------------
[ ] Shares
Dispatch Management
Services Corp.
Common Stock
----------
PROSPECTUS
----------
Prudential Securities Incorporated
November __, 1997
- - - - --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
SEC Registration Fee .................. $24,394
NASD Filing Fee ....................... 9,000
Nasdaq National Market Listing Fee ....
Accounting Fees and Expenses ..........
Legal Fees and Expenses ...............
Printing Expenses .....................
Transfer Agent's Fees .................
Miscellaneous .........................
-------
Total .............................. $
=======
(1) The amounts set forth above, except for the SEC and NASD fees, are in each
case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware (the "DGCL") empowers a corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
made to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) of Section 145
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification provided for by Section 145
shall not be deemed exclusive of any other rights to which the indemnified party
may be entitled; that indemnification provided for by Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee
<PAGE>
or agent and shall inure to the benefit of such person's heirs, executors and
administrators; and empowers the corporation to purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such whether or not the corporation would have the power to
indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director provided that such provision shall not eliminate
or limit the liability of a director: (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from
which the director derived an improper personal benefit.
Article Eighth of the Company's Certificate of Incorporation, as amended,
states that:
"No director of the corporation shall be liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit."
In addition, Article VIII of the Company's Bylaws further provides that
the Company shall indemnify its officers and directors against any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative brought by any party,
the Company or on behalf of the Company by reason of the fact that they are an
officer or director of the Company, or servicing at request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. Such expenses may be advanced by the Company
upon receipt of an undertaking by the officer or director to repay such amount
if it is determined that they are not entitled to indemnification. The Company
will continue to provide such indemnification to any person who has ceased to be
an officer or director of the Company.
The Company intends to enter into indemnification agreements with each of
its executive officers and directors which indemnifies such person to the
fullest extent permitted by its Certificate of Incorporation, its Bylaws and the
DGCL. The Company also intends to obtain directors and officers liability
insurance.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify, under certain
conditions, the Company against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is certain information concerning all sales of securities
by the Company during the past three years that were not registered under the
Securities Act.
(a) The Company was incorporated in September 1997. The Company is the
successor in interest by merger to Dispatch Management Services, LLC ("DMS
LLC"), a Nevada limited liability company that was formed in November 1996 to
pursue a consolidation of the courier industry. Prior to the merger of DMS LLC
into the Company, DMS LLC issued membership interests to certain employees and
third-party investors of DMS LLC. The Company is also the successor in interest
by merger of Kiwi Express Software, L.L.C., a Delaware limited liability company
that provides software and operations systems to courier firms, including ______
Founding Companies. The offer and sale of these membership interests and shares
of DMS LLC
<PAGE>
and Kiwi Express was exempt from registration under the Securities Act of 1933
in reliance on Section 4(2) thereof because the offers and sales were made to
sophisticated investors who had access to information about the Company and were
able to bear the risk of loss of their investment.
(b) During the [third] quarter of 1997, [_______] shares of Common Stock
were issued to persons who will become officers, directors, key employees or
holders of more than 5% of the stock of the Company at a per share price of
$[________]. The offers and sales of these shares were exempt from registration
under the Securities Act of 1933 in reliance on Section 4(2) thereof because the
offers and sales were made to sophisticated investors or executive officers or
directors of the Company who had access to the information about the Company and
were able to bear the risk of loss of their investment.
Although the issuances of Common Stock to senior executives and to former
stockholders of the Founding Companies may be integrated among themselves, in
reliance on the safe harbor provided by Rule 152 under the Securities Act of
1933 for transactions not involving any public offering even if the issuer
subsequently files a registration statement, such Common Stock should not be
integrated with the issuance of Common Stock in the registered public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit
- - - - -------
*1.1 -- Form of Underwriting Agreement.
2.1 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., Early Bird Courier Service, LLC and Total
Management, LLC and Michael Fiorito.
2.2 -- Agreement, dated as of September 15, 1997, by and among Dispatch
Management Services Corp., Aero Special Delivery Service, Inc. and
Jeanne Sparks.
2.3 -- Agreement, dated as of September 30, 1997, by and among Dispatch
Management Services Corp., Bullit Courier Services, Inc. and Theo
Nicholoudis.
2.4 -- Agreement, dated as of September 16, 1997, by and among Dispatch
Management Services Corp., Security Business Services, Ltd., James
Brett Greenbury, Kelly Donovan, Scawton Limited, Lyon-Hurwell Limited,
Arazan Limited and Foreign & Colonial Enterprise Trust plc.
2.5 -- Agreement, dated as of September 11, 1997, by and among Dispatch
Management Services Corp., American Eagle Endeavors, Inc., Barry
Anderson, Cheryl O'Toole and Lawrence O'Toole.
*2.6 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., Atlantic Freight Systems, Inc., Thomas
Bartley and Perry Barbonuolo.
2.7 -- Agreement, dated as of September 10, 1997, by and among Dispatch
Management Services Corp., Express It Couriers, Inc. and James M.
Shaughnessy.
2.8 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., Washington Express Services, Inc., Gilbert
D. Carpel, Michael D. Holder, Michael K. Miller and Peter Butler.
<PAGE>
2.9 -- Agreement, dated as of September 26, 1997, by and among Dispatch
Management Services Corp., MLQ Express, Inc. and John W. Wilcox, Jr.
2.10 -- Agreement, dated as of September 19, 1997, by and among Dispatch
Management Services Corp., Time Couriers, LLC, Tom Cromwell, William
Knipman, Michael Stone, Peter Begley, Thomas Hagerty, Kimberly Cilley,
Christopher Hart, and DMS Subsidiary Number _____.
2.11 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., Eveready Express Corp., Marlene R. Spirt and
Mary B. Spirt.
2.12 -- Agreement, dated as of September 14, 1997, by and among Dispatch
Management Services Corp., Kangaroo Express of Colorado Springs, Inc.
and Doris Orner.
2.13 -- Agreement, dated as of September 10, 1997, by and among Dispatch
Management Services Corp., National Messenger, Inc., Robert D. Swineford
and Steven B. Swineford.
2.14 -- Agreement, dated as of September 10, 1997, by and among Dispatch
Management Services Corp., Fleetfoot Max, Inc., Gary Brose, The King
Company, KPM, Helen King, Robert Lewis, Jim Brose, Barbara Lawrence,
Robert L. King, John Sangster, Patsy Sangster, PB Securities for the
benefit of Robert L. King, PB Securities for the benefit of Helen King,
Gordon Lawrence, Pat Lawrence, Melissa Lawrence, K. Lawrence and
Creative Consulting Corp.
2.15 -- Agreement, dated as of September 12, 1991, by and among Dispatch
Management Services Corp., Profall, Inc., Thomas Westfall, Alyson
Westfall, David Prosser, Adrienne Prosser and DMS Subsidiary Number
_____.
2.16 -- Agreement, dated as of September 11, 1997, by and among Dispatch
Management Services Corp., Express Enterprises, Inc., Paul J. Alberts
and Donald E. Stoelt.
2.17 -- Agreement, dated as of October 23, 1997, by and among Dispatch
Management Services Corp., A & W Couriers, inc. and Joan Levy.
2.18 -- Agreement, dated as of October 10, 1997, by and among Dispatch
Management Services Corp., Express It, Inc., and Dave Clancy.
2.19 -- Agreement, dated as of September 18, 1997, by and among Dispatch
Management Services Corp., Deadline Acquisition Corp, Edward V
Blanchard, Jr., Melba Anne Hill and Scott T. Milakovich.
2.20 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., Kiwicorp Limited, Lynette Williams, Tom
Finlay and DMS Subsidiary Number ____.
2.21 -- Agreement, dated as of September 10, 1997, by and among Dispatch
Management Services Corp., Transpeed Courier Services, Inc., Richard A.
Folkman, Stacey J. Folkman, Trey Lewis and Evelyn R. Folkman.
2.22 -- Agreement, dated as of September 15, 1997, by and among Dispatch
Management Services Corp., Clover Supply Inc., and John J. Walker.
2.23 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., S Car Go Courier, Inc. and Michael Cowles.
<PAGE>
2.24 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., Christian Delivery & Chair Service, Inc., Leo
J. Gould and DMS Subsidiary Number ______.
2.25 -- Agreement, dated as of October 9, 1997, by and among Dispatch Management
Services Corp., Striders Courier, Inc., Tammy K. Patterson and Merlene
Y. Mores.
2.26 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp. and Gregory Austin, trading as Battery Point
Messengers.
2.27 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., Christopher Grealish, Inc. and Christopher
Grealish.
2.28 -- Agreement, dated as of September 17, 1997, by and among Dispatch
Management Services Corp., United Messengers, Inc. and Maria Kennedy.
2.29 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., Christopher Neal and DMS Subsidiary Number
_______.
2.30 -- Agreement, dated as of October 4, 1997, by and among Dispatch Management
Services Corp, TimeCycle Couriers, Inc., Eric D. Nordberg and Jeffrey
Appeltans.
2.31 -- Agreement, dated as of September 10, 1997, by and among Dispatch
Management Services Corp., Rocket Courier Services, Inc., Sean Leonce,
Grace Leonce and Samer Hassan.
2.32 -- Agreement, dated as of September 14, 1997, by and among Dispatch
Management Services Corp. and Michael Studebaker.
2.33 -- Agreement, dated as of September 10, 1997, by and among Dispatch
Management Services Corp., Delivery Incorporated and Gary Brose.
2.34 -- Agreement, dated as of September 12, 1997, by and among Dispatch
Management Services Corp., AFS Courier Systems, Inc. and Frank L.
Mullins.
2.35 -- Share Purchase Agreement, dated as of August 20, 1997, by and among
Dispatch Management Services LLC, Alice Rebecca Clark, Roy Clark,
Trustees of the Roy Clark (Life Interest) Settlement 1997, Trustees of
the Alice Rebecca Clark (Discretionary) Settlement 1997, Matthew Clark,
Simon Clark and Brookside Systems and Programming Limited.
2.36 -- Agreement, dated as of October 6, 1997, by and among Dispatch Management
Services Corp., Bridge Wharf Investments Limited and Riverbank Limited.
2.37 -- Brand Manager Agreement, dated as of September 14, 1997, between
Dispatch Management Services Corp. and Barry Anderson (Minneapolis).
2.38 -- Brand Manager Agreement, dated as of September 12, 1997, between
Dispatch Management Services Corp. and Frank L. Mullins.
2.39 -- Brand Manager Agreement, dated as of September 25, 1997, between
Dispatch Management Services Corp. and Leo J. Gould and Jodi Gould.
<PAGE>
2.40 -- Brand Manager Agreement, dated as of [_________], between Dispatch
Management Services Corp. and John J. Walker.
2.41 -- Brand Manager Agreement, dated as of [_________], between Dispatch
Management Services Corp. and Dave Clancy.
2.42 -- Brand Manager Agreement, dated as of [_________] between Dispatch
Management Services Corp. and Allen Orner.
2.43 -- Brand Manager Agreement, dated as of September 12, 1997, between
Dispatch Management Services Corp. and Kiwicorp Limited.
2.44 -- Brand Manager Agreement, dated as of October 9, 1997, between Dispatch
Management Services Corp. and Tammy K. Patterson and Merlene Y. Flores.
2.45 -- Brand Manager Agreement, dated as of October 8, 1997, between Dispatch
Management Services Corp. and Tom Cromwell and Peter Begley.
2.46 -- Brand Manager Agreement, dated as of [_________], between Dispatch
Management Services Corp. and Jeff Appeltans and Eric D. Nordberg.
2.47 -- Brand Manager Agreement, dated as of [_________], between Dispatch
Management Services Corp. and Marla Kennedy.
2.48 -- Brand Manager Agreement, dated as of September 10, 1997, between
Dispatch Management Services Corp. and James Michael Shaughnessy.
2.49 -- Brand Manager Agreement, dated as of September __, 1997, between
Dispatch Management Services Corp. and Barry Anderson (Phoenix).
2.50 -- Brand Manager Agreement, dated as of [_________], between Dispatch
Management Services Corp. and Joan Levy.
2.51 -- Brand Manager Agreement, dated as of September 21, 1997, between
Dispatch Management Services Corp. and Christopher Neal.
2.52 -- Brand Manager Agreement, dated as of September 12, 1997, between
Dispatch Management Services Corp., Leon Spirt and Jack Spirt.
2.53 -- Brand Manager Agreement, dated as of September 12, 1997, between
Dispatch Management Services Corp. and Dispatch Management Services
Corp. of the National Capital Area, Inc.
2.54 -- Brand Manager Agreement, dated as of September 15, 1997, between
Dispatch Management Services Corp. and The Delivery Company Limited.
3.1 -- Form of Certificate of Incorporation.
3.2 -- Amended and Restated Bylaws.
*4.1 -- Specimen Common Stock Certificate.
<PAGE>
*5.1 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to the
legality of the securities being registered.
*10.1 -- Form of Officer and Director Indemnification Agreement.
*10.2 -- Form of Employment Agreement.
*10.3 -- Form of Non-Competition Agreement.
*10.4 -- 1997 Stock Incentive Plan.
*23.1 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5.1).
23.2 -- Consent of Price Waterhouse.
23.3 -- Consent of Ernst & Young LLP.
23.4 -- Consents to Become Directors.
24.1 -- Powers of Attorney (included in signature page).
27 -- Financial Data Schedule.
- - - - ----------
* To be filed by amendment. All other exhibits are filed herewith.
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
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 the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus flied 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) That for the purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 10th day of November, 1997.
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda M. Jenkinson
-----------------------------------
Linda M. Jenkinson
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose name and
signature appears below constitutes and appoints Linda M. Jenkinson, R. Gregory
Kidd and Marko Bogoievski each of them, his or her true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and any and all Registration Statements filed
pursuant to Rule 462 under the Securities Act, and to file the same with all
exhibits thereto, and all documents in connection therewith, with the
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his or her substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
DISPATCH MANAGEMENT SERVICES CORP.
Signature Title Date
- - - - --------- ----- ----
/s/ Linda M. Jenkinson Chief Executive Officer
- - - - --------------------------- and Director November 10, 1997
Linda M. Jenkinson
Chief Executive Officer
/s/ R. Gregory Kidd Chairman
- - - - --------------------------- November 10, 1997
R. Gregory Kidd
Chairman
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
*1.1 Form of Underwriting Agreement.
2.1 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., Early Bird Courier
Service, LLC and Total Management, LLC and Michael Fiorito.
2.2 Agreement, dated as of September 15, 1997, by and among
Dispatch Management Services Corp., Aero Special Delivery
Service, Inc. and Jeanne Sparks.
2.3 Agreement, dated as of September 30, 1997, by and among
Dispatch Management Services Corp., Bullit Courier Services,
Inc. and Theo Nicholoudis.
2.4 Agreement, dated as of September 16, 1997, by and among
Dispatch Management Services Corp., Security Business
Services, Ltd., James Brett Greenbury, Kelly Donovan, Scawton
Limited, Lyon-Hurwell Limited, Arazan Limited and Foreign &
Colonial Enterprise Trust plc.
2.5 Agreement, dated as of September 11, 1997, by and among
Dispatch Management Services Corp., American Eagle Endeavors,
Inc., Barry Anderson, Cheryl O'Toole and Lawrence O'Toole.
*2.6 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., Atlantic Freight Systems,
Inc., Thomas Bartley and Perry Barbonuolo.
2.7 Agreement, dated as of September 10, 1997, by and among
Dispatch Management Services Corp., Express It Couriers, Inc.
and James M. Shaughnessy.
2.8 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., Washington Express
Services, Inc., Gilbert D. Carpel, Michael D. Holder, Michael
K. Miller and Peter Butler.
<PAGE>
2.9 Agreement, dated as of September 26, 1997, by and among
Dispatch Management Services Corp., MLQ Express, Inc. and John
W. Wilcox, Jr.
2.10 Agreement, dated as of September 19, 1997, by and among
Dispatch Management Services Corp., Time Couriers, LLC, Tom
Cromwell, William Knipman, Michael Stone, Peter Begley, Thomas
Hagerty, Kimberly Cilley, Christopher Hart, and DMS Subsidiary
Number _____.
2.11 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., Eveready Express Corp.,
Marlene R. Spirt and Mary B. Spirt.
2.12 Agreement, dated as of September 14, 1997, by and among
Dispatch Management Services Corp., Kangaroo Express of
Colorado Springs, Inc. and Doris Orner.
2.13 Agreement, dated as of September 10, 1997, by and among
Dispatch Management Services Corp., National Messenger, Inc.,
Robert D. Swineford and Steven B. Swineford.
2.14 Agreement, dated as of September 10, 1997, by and among
Dispatch Management Services Corp., Fleetfoot Max, Inc., Gary
Brose, The King Company, KPM, Helen King, Robert Lewis, Jim
Brose, Barbara Lawrence, Robert L. King, John Sangster, Patsy
Sangster, PB Securities for the benefit of Robert L. King, PB
Securities for the benefit of Helen King, Gordon Lawrence, Pat
Lawrence, Melissa Lawrence, K. Lawrence and Creative
Consulting Corp.
2.15 Agreement, dated as of September 12, 1991, by and among
Dispatch Management Services Corp., Profall, Inc., Thomas
Westfall, Alyson Westfall, David Prosser, Adrienne Prosser and
DMS Subsidiary Number _____.
2.16 Agreement, dated as of September 11, 1997, by and among
Dispatch Management Services Corp., Express Enterprises, Inc.,
Paul J. Alberts and Donald E. Stoelt.
2.17 Agreement, dated as of October 23, 1997, by and among Dispatch
Management Services Corp., A & W Couriers, inc. and Joan Levy.
2.18 Agreement, dated as of October 10, 1997, by and among Dispatch
Management Services Corp., Express It, Inc., and Dave Clancy.
2.19 Agreement, dated as of September 18, 1997, by and among
Dispatch Management Services Corp., Deadline Acquisition Corp,
Edward V Blanchard, Jr., Melba Anne Hill and Scott T.
Milakovich.
2.20 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., Kiwicorp Limited, Lynette
Williams, Tom Finlay and DMS Subsidiary Number ____.
2.21 Agreement, dated as of September 10, 1997, by and among
Dispatch Management Services Corp., Transpeed Courier
Services, Inc., Richard A. Folkman, Stacey J. Folkman, Trey
Lewis and Evelyn R. Folkman.
2.22 Agreement, dated as of September 15, 1997, by and among
Dispatch Management Services Corp., Clover Supply Inc., and
John J. Walker.
2.23 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., S Car Go Courier, Inc. and
Michael Cowles.
<PAGE>
2.24 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., Christian Delivery & Chair
Service, Inc., Leo J. Gould and DMS Subsidiary Number ______.
2.25 Agreement, dated as of October 9, 1997, by and among Dispatch
Management Services Corp., Striders Courier, Inc., Tammy K.
Patterson and Merlene Y. Mores.
2.26 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp. and Gregory Austin, trading
as Battery Point Messengers.
2.27 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., Christopher Grealish, Inc.
and Christopher Grealish.
2.28 Agreement, dated as of September 17, 1997, by and among
Dispatch Management Services Corp., United Messengers, Inc.
and Maria Kennedy.
2.29 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., Christopher Neal and DMS
Subsidiary Number _______.
2.30 Agreement, dated as of October 4, 1997, by and among Dispatch
Management Services Corp, TimeCycle Couriers, Inc., Eric D.
Nordberg and Jeffrey Appeltans.
2.31 Agreement, dated as of September 10, 1997, by and among
Dispatch Management Services Corp., Rocket Courier Services,
Inc., Sean Leonce, Grace Leonce and Samer Hassan.
2.32 Agreement, dated as of September 14, 1997, by and among
Dispatch Management Services Corp. and Michael Studebaker.
2.33 Agreement, dated as of September 10, 1997, by and among
Dispatch Management Services Corp., Delivery Incorporated and
Gary Brose.
2.34 Agreement, dated as of September 12, 1997, by and among
Dispatch Management Services Corp., AFS Courier Systems, Inc.
and Frank L. Mullins.
2.35 Share Purchase Agreement, dated as of August 20, 1997, by and
among Dispatch Management Services LLC, Alice Rebecca Clark,
Roy Clark, Trustees of the Roy Clark (Life Interest)
Settlement 1997, Trustees of the Alice Rebecca Clark
(Discretionary) Settlement 1997, Matthew Clark, Simon Clark
and Brookside Systems and Programming Limited.
2.36 Agreement, dated as of October 6, 1997, by and among Dispatch
Management Services Corp., Bridge Wharf Investments Limited
and Riverbank Limited.
2.37 Brand Manager Agreement, dated as of September 14, 1997,
between Dispatch Management Services Corp. and Barry Anderson
(Minneapolis).
2.38 Brand Manager Agreement, dated as of September 12, 1997,
between Dispatch Management Services Corp. and Frank L.
Mullins.
2.39 Brand Manager Agreement, dated as of September 25, 1997,
between Dispatch Management Services Corp. and Leo J. Gould
and Jodi Gould.
<PAGE>
2.40 Brand Manager Agreement, dated as of [_________], between
Dispatch Management Services Corp. and John J. Walker.
2.41 Brand Manager Agreement, dated as of [_________], between
Dispatch Management Services Corp. and Dave Clancy.
2.42 Brand Manager Agreement, dated as of [_________] between
Dispatch Management Services Corp. and Allen Orner.
2.43 Brand Manager Agreement, dated as of September 12, 1997,
between Dispatch Management Services Corp. and Kiwicorp
Limited.
2.44 Brand Manager Agreement, dated as of October 9, 1997, between
Dispatch Management Services Corp. and Tammy K. Patterson and
Merlene Y. Flores.
2.45 Brand Manager Agreement, dated as of October 8, 1997, between
Dispatch Management Services Corp. and Tom Cromwell and Peter
Begley.
2.46 Brand Manager Agreement, dated as of [_________], between
Dispatch Management Services Corp. and Jeff Appeltans and Eric
D. Nordberg.
2.47 Brand Manager Agreement, dated as of [_________], between
Dispatch Management Services Corp. and Marla Kennedy.
2.48 Brand Manager Agreement, dated as of September 10, 1997,
between Dispatch Management Services Corp. and James Michael
Shaughnessy.
2.49 Brand Manager Agreement, dated as of September __, 1997,
between Dispatch Management Services Corp. and Barry Anderson
(Phoenix).
2.50 Brand Manager Agreement, dated as of [_________], between
Dispatch Management Services Corp. and Joan Levy.
2.51 Brand Manager Agreement, dated as of September 21, 1997,
between Dispatch Management Services Corp. and Christopher
Neal.
2.52 Brand Manager Agreement, dated as of September 12, 1997,
between Dispatch Management Services Corp., Leon Spirt and
Jack Spirt.
2.53 Brand Manager Agreement, dated as of September 12, 1997,
between Dispatch Management Services Corp. and Dispatch
Management Services Corp. of the National Capital Area, Inc.
2.54 Brand Manager Agreement, dated as of September 15, 1997,
between Dispatch Management Services Corp. and The Delivery
Company Limited.
3.1 Form of Certificate of Incorporation.
3.2 Amended and Restated Bylaws.
*4.1 Specimen Common Stock Certificate.
<PAGE>
*5.1 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. as to the
legality of the securities being registered.
*10.1 Form of Officer and Director Indemnification Agreement.
*10.2 Form of Employment Agreement.
*10.3 Form of Non-Competition Agreement.
*10.4 1997 Stock Incentive Plan.
*23.1 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included
in Exhibit 5.1).
23.2 Consent of Price Waterhouse.
23.3 Consent of Ernst & Young LLP.
23.4 Consents to Become Directors.
24.1 Powers of Attorney (included in signature page).
27 Financial Data Schedule.
- - - - ----------
* To be filed by amendment. All other exhibits are filed herewith.
DISPATCH MANAGEMENT SERVICE CORP.
AGREEMENT
<PAGE>
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September 1997, by and among Dispatch Management Services Corp., a Delaware
Corporation (the "Company"), Early Bird Courier Service LLC, a New York limited
liability company (the "Business Contribution Member"), Total Management LLC, a
New York limited liability company ("Total Management"), Michael Fiorito
("Fiorito") (Total Management and Fiorito collectively, the "Members") and a
Delaware corporation to-be-formed for the purpose of owning the Assets (as
defined below), assuming the Assumed Liabilities (as defined below) and
operating the Business (as defined below) (the "Specific Company Subsidiary").
W I T N E S S E T H
WHEREAS, the Business Contribution Member is in the business of (i)
providing point-to-point urgent messenger services and related services; (ii)
providing delivery services pursuant to its contract account with "Merrill"; and
(iii) providing, directly or through its affiliate, Total Management Support
Services LLC, facility management services (such business, and any other lines
of business related thereto, collectively referred to as the "Business");
WHEREAS, the Members own all of the issued and outstanding membership
interests in the Business Contribution Member;
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below), and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
1
<PAGE>
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into employment
agreements with certain back-office personnel (the "Back-Office Employees"),
substantially in the form attached hereto as Exhibit A, as well as
non-competition agreements with each of the Members of the Business Contribution
Member and certain employees of the Business Contribution Member and the
Specific Company Subsidiary in the form attached hereto as Exhibit B (such
employment agreements and non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements");
WHEREAS, the parties intend that at the Closing the Business Contribution
Member will change its corporate name and/or trade name, as necessary, so that
the Specific Company Subsidiary may trade under the trade name previously used
for the Business (which trade name is specifically acquired by the Specific
Company Subsidiary hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member and each Member, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Members and the
Business Contribution Member shall be obliged to deliver to the Company, within
thirty (30) days after execution of this Agreement (subject, however, to any
earlier termination of this Agreement) (i) the
2
<PAGE>
audited financial statements required pursuant to Section 1.4 below and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company (which approval shall not
be unreasonably withheld or delayed), and prior to filing the registration
statement with the Securities and Exchange Commission relating to the initial
public offering of common stock, par value $.01 per share, of the Company (the
"Initial Public Offering"), the Company will deliver to the Business
Contribution Member and the Members a disclosure document, together with a
notice (the "Notice") specifying the date by which the Business Contribution
Member and the Members must execute and deliver satisfactory representation
letters in order to consummate the sale of the Assets and assumption of the
Assumed Liabilities pursuant to the terms of this Agreement.
Upon timely delivery from the Business Contribution Member and all
of the Members of representation letters reasonably satisfactory to the Company,
the parties will close in escrow (the "Closing in Escrow") pursuant to the terms
and conditions of this Agreement. Such Closing in Escrow shall take place at the
offices of Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th
Floor, Washington, D.C. 20005 (or such other place as is mutually agreed upon by
the parties) within thirty (30) days (or such shorter period as is specified in
the Notice) after timely delivery of satisfactory representation letters from
the Business Contribution Member and the Members.
In the event that the Business Contribution Member and/or one or
more of the Members do not timely deliver satisfactory representation letters
(as determined in the reasonable discretion of the Company), this Agreement will
be of no further force oidentiality), 1.4 (reimbursement of audit expenses) and
8.2 (effect of termination under Section 8.1), which obligations will survive
termination of this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
3
<PAGE>
(ii) Except as set forth on Exhibit K with respect to
the "Total Management" trade and/or brand name, all rights to the trade and/or
brand names "Total Management", and "Early Bird" , logos, and other Intellectual
Property as defined in Section 2.11.(d) herein below, customer lists, goodwill
and other intangible assets; and
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (the "Contracts"), as set forth on Exhibit D attached hereto.
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member, and only those liabilities and obligations, which
are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the Contracts. For
purposes of clarification, the Business Contribution Member will be responsible
for all taxes relating to the Business and/or the Assets and/or the Assumed
Liabilities payable or accrued for all periods up to and including the Closing
Date (whether or not such taxes were assessed before or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member and/or the Members shall, as appropriate, enter into,
execute and deliver to the law firm of Silver, Freedman & Taff, LLP, as
4
<PAGE>
escrow agent: (i) a bill of sale, (ii) an instrument of assignment and
assumption (the form and substance of which shall be reasonably acceptable to
the Company and the Business Contribution Member), and (iii) any other
instruments of conveyance or transfer which may be necessary in the reasonable
discretion of the Company, including, without limitation, any instruments of
assignment in connection with the Intellectual Property and the Contracts, each
in form and substance reasonably acceptable to the Company and the Business
Contribution Member, pursuant to which the Business Contribution Member and/or
the Members shall convey, assign, transfer and deliver to the Company all right,
title and interest in, to and under the Assets, free and clear of any and all
Encumbrances (as defined in Section 2.3(a) below), and the Company shall assume
the Assumed Liabilities from the Business Contribution Member. The terms and
conditions of any such instruments of conveyance, transfer or assumption shall
not expand, extend, limit or abridge the rights or remedies of any party to this
Agreement. At the Closing in Escrow, the Business Contribution Member shall also
cause to be delivered the opinion of its counsel as to such matters as counsel
to the Company may reasonably require, including but not limited to such
counsel's opinion that: the Business Contribution Member is in good standing;
the Business Contribution Member is authorized to conduct its business in each
jurisdiction in which the business (including, without limitation, the Business)
or the operation, ownership or leasing of its properties (including, without
limitation, the Assets), makes such qualification necessary (except where the
failure to be so qualified would not have a material adverse effect on the
financial condition or operation of the Business and/or the Assets); the
Business Contribution Member and the Members have full power to enter into and
perform their respective obligations under this Agreement, as well the Related
Agreements to which they are a party; this Agreement, and the Related Agreements
to which the Business Contribution Member and/or the Members are a party,
constitute legal, valid and binding obligations of the Business Contribution
Member and the Members, respectively, enforceable in accordance with their
respective terms (except as enforcement may be limited by bankruptcy, insolvency
and other similar laws affecting the enforcement of creditor's rights, and
principles of equity); and neither the Business Contribution Member nor any of
the Members is, to their best knowledge, after reasonable inquiry, threatened
with or affected by any actions, proceedings or investigations wherein an
unfavorable decision, ruling or finding could have a materially adverse effect
on the financial condition or operation of the Business
5
<PAGE>
and/or the Assets, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, consistent with the terms and conditions
of this Agreement, as any of them may reasonably request, for the purpose of
effectuating the transactions contemplated by this Agreement. Without limiting
the foregoing, the Business Contribution Member and/or the Members shall take
such steps as are reasonably necessary (such as filings with the United States
Patent and Trademark Office) to transfer the Intellectual Property to the
Specific Company Subsidiary.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets, net of the
downward adjustment for the full amount of the Assumed Liabilities as listed on
Exhibit F attached hereto (the "Purchase Price"), shall be equal to Eighteen
Million, Five Hundred Ninety-Five Thousand, Three Hundred Thirty-One Dollars
($18,595,331) provided that the revenue for the year ended June 30, 1997 for
that portion of the facilities management business being purchased hereunder
amounted to Four Million Five Hundred Thousand Dollars ($4,500,000). The Company
shall purchase all or such portion of the facilities management business of the
Business Contribution Member (as determined by the Business Contribution Member
on or before Sunday, October 5, 1997), and the Purchase Price shall be increased
or decreased, as the case may be, by two thirds (2/3) of the difference between
Four Million Five Hundred Thousand Dollars ($4,500,000) and the revenue for the
year ended June 30, 1997 for that portion of the facilities management business
ultimately being purchased hereunder. The Purchase Price shall be subject to
further adjustment (if any) as a result of a reduction in the Maximum Earn-Out
(as defined in this Section 1.4 below).
The parties hereto agree to allocate the Purchase Price to the
Assets in accordance with the manner set forth on Schedule 1.4 attached hereto
and in accordance with the applicable
6
<PAGE>
provisions of Section 1060 of the Code (the "Price Allocation"). Accordingly,
each party to this Agreement shall adopt and utilize such Price Allocation for
purposes of all tax returns filed by them and shall not voluntarily take any
position inconsistent therewith in connection with any examination of any tax
return, any refund claim, any litigation proceeding or otherwise. Each of the
Company and the Business Contribution Member shall file on a timely basis a Form
8594 in accordance with the requirements of Section 1060 of the Code and the
provisions of this Section 1.4. In the event that the Price Allocation is
disputed by a taxing authority, the party receiving notice of the dispute shall
promptly notify the other parties hereto of such dispute and the parties hereto
shall consult with each other concerning resolution of the dispute.
Unless the Company gives the Members and the Business Contribution
Member written notice to the contrary, the Members and the Business Contribution
Member shall use their respective best efforts to deliver to the Company, within
thirty (30) days after execution of this Agreement: (i) audited financial
statements of the Business, including balance sheets dated as of December 31,
1994, 1995 and 1996, and income statements and cash flow statements for each of
the three twelve month periods ended on such dates; (ii) unaudited financial
statements of the Business, including a balance sheet dated as of June 30, 1996,
and an income statement and cash flow statement for the twelve month period
ended on June 30, 1996: and (iii) unaudited, reviewed financial statements of
the Business, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly ant that the
closing of the Initial Public Offering has not occurred on or before November
12, 1997, but does occur on or before December 12, 1997, then in that event, in
lieu of the unaudited, reviewed financial statements of the Business for the six
month period ended June 30, 1997, the Members and the Business Contribution
Member shall deliver to the Company, within thirty days after written request
from the Company: (i) an updated set of audited financial statements of the
Business, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Business, including a balance
sheet dated as of September 30, 1996, and
7
<PAGE>
an income statement and cash flow statement for the twelve month period ended on
September 30, 1996; and (iii) unaudited, reviewed financial statements of the
Business, including a balance sheet dated as of September 30, 1997 and income
statements and cash flow statements for the three month period ended September
30, 1997. In the event that the closing of the Initial Public Offering has not
occurred on or before December 12, 1997, then upon written request from the
Company given on or before March 1, 1998, the Members and the Business
Contribution Member shall deliver to the Company, within 30 days after written
request from the Company, such additional audited and/or unaudited, reviewed
financial statements of the Business as the Company may reasonably request.
Except as otherwise provided in Section 10.9 hereof, all of the
financial statements referred to in this Section 1.4 shall be prepared (or
reviewed, as the case may be) by Price Waterhouse LLP. Except as otherwise
provided in Section 10.9 hereof, the cost of providing all of the financial
statements required by this Section 1.4, within the prescribed time limits,
shall be the sole responsibility of the Business Contribution Member, provided
that the Company will, upon the request ber, advance such costs on behalf of the
Business Contribution Member. Except as otherwise provided in Section 10.9
hereof, in the event that the Business Contribution Member and/or one or more of
the Members do not deliver satisfactory shareholder representation letters by
the deadline specified in the Notice and complete the Closing in Escrow, the
Business Contribution Member and the Members shall be jointly and severally
responsible for immediately refunding to the Company any such advanced costs; in
the event that all such representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Business Contribution
Member and the Members shall be relieved of their obligation to refund to the
Company any such advanced costs.
The Company shall pay seventy-five percent (75%) of the Purchase
Price in cash, which is subject to reduction in accordance with the terms of the
next paragraph, and twenty-five (25%) of the Purchase Price in (restricted)
common stock, $.01 par value per share, of the Company (the "Company Stock"), at
the Closing. The number of shares of Company Stock to be issued as payment of
the Purchase Price shall equal the aggregate dollar value of the stock component
of the Purchase Price divided by the initial public offering price per share as
set forth on the cover page of the Final Prospectus relating to the Initial
Public Offering. The Business Contribution Member and
8
<PAGE>
the Members acknowledge that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Business Contribution Member and the Members shall execute
such a "lock-up" agreement, as may be required by the Company, by which the sale
of the Company Stock is restricted (perhaps prohibited) for a period of two (2)
years from the date of the closing of the Initial Public Offering.
Three Million, Four Hundred Eighty-Six Thousand, Six Hundred
Twenty-Five Dollars ($3,486,625) of the cash portion of the Purchase Price (the
"Maximum Earn-Out") shall be earned by the Business Contribution Member ratably
over the eight calendar quarter periods beginning January 1, 1998 and ending
December 31, 1999 provided that the Specific Company Subsidiary achieves the
targeted performance standards set forth in Exhibit G attached hereto. In the
event that the Specific Company Subsidiary fails to achieve the margin
requirement set forth in Exhibit C during any such calendar quarter, then for
each calendar quarter in which the Specific Company Subsidiary fails to achieve
such standards margin requirements, the cash portion of the Purchase Price shall
be reduced by one-eighth (1/8) of the Maximum Earn-Out. In the event that the
Specific Company Subsidiary achieves the margin requirement during the relevant
calendar quarter, but fails to achieve the revenue requirement set forth in
Exhibit C, then for each such calendar quarter, the cash portion of the Purchase
Price shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out,
multiplied by: (ii) a fraction, the numerator of which is the difference between
the actual revenue achieved during such calendar quarter and the revenue
requirement for such calendar quarter as set forth in Exhibit C, and the
denominator of which is the revenue required during such calendar quarter as set
forth in Exhibit C. The Maximum Earn-Out, less any reductions as set forth in
this paragraph, is hereinafter referred to as the "Earn-Out." The Earn-Out shall
bear interest at the rate of 7% per annum commencing as of the Closing Date
(i.e., once the Earn-Out is determined, the Members will be due such amount plus
interest at the rate of 7% per annum on such amount, accrued from the Closing
Date until the date of payment of the Earn-Out to the Members). The Earn-Out
shall be paid to the Business Contribution Member promptly following calculation
of the Specific Company Subsidiary's performance for the quarter ending December
31, 1999. The Company covenants and agrees to maintain sufficient cash, or
availability of cash (e.g., by way of a line of credit) in order to fund the
Earn-Out. No recovery may be made by or through the Company against the Business
9
<PAGE>
Contribution Member or any of the Members for money damages for breach of any
warranty, representation, convenant of agreement hereunder based as any fact,
condition or occurence that has directly resulted or will result in a reduction
of the Maximum Earn-Out, but only to the extent of such reduction of the Maximum
Earn Out. This limitation on recoveries shall be of the essence of this
Agreement.
At the request of the Business Contribution Member made to the
Company in writing not later than the Closing in Escrow, the Company shall
(immediately after Closing) make a loan to the Business Contribution Member in
an amount equal to up to $3,486,625 of the Purchase Price. Said loan by the
Company to the Business Contribution Member (the "Business Contribution Member
Loan") shall bear interest at a rate of seven percent (7%) per annum, and shall
be secured by fifty percent (50%) of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Business Contribution Member Loan with the Company
Stock and the Earn-Out shall be on such terms as are reasonably acceptable to
the Company, which terms shall include, but shall not be limited to, the
retention of the Company Stock (i.e., fifty percent of the Company Stock paid as
part of the Purchase Price) by the Company until full repayment of the Business
Contribution Loan. The Business Contribution Member shall have the right to
prepay the Business Contribution Member Loan (plus accrued interest) at any time
without penalty. The Business Contribution Member Loan shall mature as of the
date that the Earn- Out is payable. In the event that the Business Contribution
Member Loan is not repaid in full upon maturity, the Company shall enjoy all
rights of a secured party under the Uniform Commercial Code then in effect in
the State of Maryland, provided that the Company's sole recourse and remedy
shall be against the Company Stock it holds as collateral, and there shall not
be any recourse against the remaining Earn Out, the Business Contribution Member
or the Members individually, or any of their respective Assets other than the
Company Stock that the Company holds as collateral.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement (the "Closing")
shall take place at the offices of Silver, Freedman & Taff, L.L.P., 1100 New
York Avenue, N.W., Suite 700E,
10
<PAGE>
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the closing of the Initial Public Offering does not occur by
March 31, 1998, in which case this Agreement shall be rendered null and void, or
unless another date, time or place is agreed to in writing by the parties hereto
(the day on which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the bill of sale, instruments of assignment and assumption,
transfer documents, and other documents and materials theretofore held in escrow
from the Closing in Escrow; (ii) the Business Contribution Member and the
Members shall deliver to the Company updated certificates, dated the Closing
Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an updated
opinion of counsel as referred to in Section 1.3(a) above; and (iii) the Company
shall deliver the Purchase Price to the Business Contribution Member (less the
Maximum Earn-Out, which shall be payable to the Business Contribution Member
pursuant to the terms of Section 1.4 above, and with fifty percent of the
Company Stock serving as collateral against the Business Contribution Member
Loan being delivered to the Company as appropriate). At Closing, Company,
Business Contribution Member, Members and the Specific Company Subsidiary shall
also take all additional steps as may be necessary or appropriate to deliver the
Assets to the Specific Company Subsidiary, have the Specific Company Subsidiary
assume the Assumed Liabilities, and put the Specific Company Subsidiary in
physical possession and operating control of the Business and all of the Assets.
2. Representations, Warranties and Covenants of the Business
Contribution Member and Total Management.
The Business Contribution Member and Total Management hereby jointly
and severally represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Business Contribution
Member is a limited liability company organized, validly existing and in good
standing under the laws of the State of New York, and has all requisite limited
liability company power and authority to own, lease and operate its properties
(including, without limitation, the Assets) and to carry on its business as now
being conducted (including, without limitation, the Business). The Business
Contribution Member is duly qualified and in good standing (or the local law
equivalent) to conduct business in each jurisdiction in which the business it is
conducting (including, without limitation, the Business), or the operation,
ownership or leasing of its properties (including, without limitation, the
Assets), makes
11
<PAGE>
such qualification necessary except where the failure to be so qualified would
not have a material adverse effect on the financial condition or operation of
the Business and/or the Assets.
2.2. Authority and Enforceability.
(a) Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite limited liability company power
and authority to execute and deliver this Agreement and each of the Related
Agreements to which it is a party and to perform fully its obligations hereunder
and thereunder. The execution and delivery of this Agreement, the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary limited liability company
action on the part of the Business Contribution Member. This Agreement and each
of the Related Agreements to which the Business Contribution Member is a party
have been duly executed and delivered by the Business Contribution Member, and
this Agreement and each of the Related Agreements to which the Business
Contribution Member is a party constitute the legal, valid and binding
obligations of the Business Contribution Member, enforceable against the
Business Contribution Member in accordance with their respective terms, subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
(b) Matters Relating to the Members. The Members have all
requisite legal right, power and authority to enter into this Agreement and each
of the Related Agreements to which they are a party and to agree to the
transactions contemplated hereby and thereby and to perform all of their
respective obligations hereunder and thereunder. This Agreement and each of the
Related Agreements to which any of the Members are a party constitute the legal,
valid and binding obligations of the Members, enforceable against the Members in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or inequity is considered in
a proceeding at law or in equity).
12
<PAGE>
2.3. Title to Assets; Condition.
(a) The Business Contribution Member owns beneficially and of
record, and has good and marketable title to, the Assets which, at the Closing,
shall be free and clear of any Encumbrances. For purposes of this Agreement, the
term "Encumbrances" shall mean restrictions, conditions, covenants, liens,
easements, charges, encroachments or any other matter affecting fee simple or
marketable title (other than the Assumed Liabilities), except (i) minor
imperfections of title, if any, none of which are substantial in amount,
materially detract from the value or impair the use of the property subject
thereto, or materially impair the operations of the Business and which have
arisen only in the ordinary course of business and consistent with past practice
under statutes with respect to workers' compensation insurance, unemployment
insurance and mechanics' liens and similar matters, and which have arisen in
connection with obligations not yet due or not delinquent and (ii) liens for
current taxes not yet due.
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All material tangible assets conveyed hereunder
are in good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Except as set forth on Schedule 2.4,
immediately after giving effect to the transfer of the Assets at Closing by the
Business Contribution Member, and the consummation of the other transactions
contemplated pursuant to this Agreement to be effected at the Closing, the
Company will (i) have all right, title, and interest in and to, or will have a
valid-Office Employees, subcontractors and other persons and items which are
reasonably necessary to carry on the business and operations of the Business
after the Closing Date in substantially the same manner as presently conducted
by the Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member and the Members of this Agreement
and each of the Related Agreements to which they are, respectively, a party, and
the consummation of the transactions
13
<PAGE>
contemplated hereby and thereby by each of the Business Contribution Member and
the Members will not (a) conflict with or violate any provision of the Articles
of Organization or Operating Agreement of the Business Contribution Member, (b)
except as set forth in Exhibit E, require any consent, waiver, approval,
authorization or permit of, or filing with or notification to, any third party,
(c) result in or constitute a default, or require any consent or approval of or
notice to any person or entity, or result in the creation of an Encumbrance,
under or pursuant to (i) any of the Contracts, or (ii) any other material
agreements to which the Business Contribution Member and/or any of the Members
are a party, or (d) violate any law applicable to the Business Contribution
Member or any of the Members or by which any of the Assets is bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets), except where the failure to comply would not have a
material adverse effect on the Business; and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged material violation of any law applicable
to the Business Contribution Member or the Business. The Business Contribution
Member has provided the Company with true and complete copies of (i) all
injunctions, judgments, orders or consent or similar decrees or agreements of
any governmental entity to which the Business Contribution Member or the
Business is currently subject (or which the Business Contribution Member or the
Business was subject to during the previous three years) or which are otherwise
applicable to the Business Contribution Member or the Assets or to the conduct
of the Business, and (ii) all correspondence from the date hereof with respect
to any of the matters referred to in clause (b) or clause (i) of this Section
2.6. Neither the Business Contribution Member nor any of the Members is aware of
any pending legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on either the Business or the Business Contribution Member.
14
<PAGE>
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member and/or any of the
Members, threatened that questions the validity of this Agreement or the Related
Agreements or any action taken or to be taken by the Business Contribution
Member or any of the Members in connection with the consummation of the
transactions contemplated hereby or thereby or which seeks to prohibit, enjoin
or otherwise challenge any of the transactions contemplated hereby or thereby.
Exhibit H sets forth an accurate and complete list, and a brief description
(setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Legal Proceeding pending or, to the
knowledge of the Business Contribution Member and/or any of the Members,
threatened against or affecting the Business Contribution Member, the Business
or any of the Assets. To the knowledge of the senior officers of the Business
Contribution Member and/or any of the Members, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit H. Except as set forth in Exhibit H, there is no
outstanding or, to the knowledge of the Business Contribution Member and/or any
of the Members, threatened judgment, injunction, order or consent or similar
decree or agreement (including, without limitation, any consent or similar
decree or agreement with any governmental entity) against, affecting or naming
the Business Contribution Member, the Business or any of the Assets.
2.8. Financial Advisors.
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial adviser for or to the Business Contribution Member and/or any of the
Members in connection with the negotiations relating to or the transactions
contemplated by this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member and/or any of the Members. Such fees, commissions, like payments
15
<PAGE>
or expense reimbursements as are described on Exhibit I attached hereto shall
remain liabilities and expenses of the Business Contribution Member and/or the
Members exclusively, and are specifically excluded from the Assumed Liabilities
contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which, together with the financial statements
(including the notes and exhibits thereto), to be delivered to the Company
pursuant to Section 1.4 herein (the "Financial Statements") were and will be
prepared in accordance with the books and records of the Business, are and will
be complete and correct in all material respects, have and will have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), applied consistently with the past practices of the Business, except
where otherwise specifically noted therein, and present and will present fairly
in all material respects the financial position, results of operations and
changes in financial position or cash flows, whichever is applicable, of the
Business as at the dates and for the periods indicated (subject, in the case of
the unaudited financial statements, to normal year-end audit adjustments).
Without limiting the foregoing, the Business has no undisclosed material
liabilities or obligations of any nature (whether known or unknown, or absolute,
accrued, contingent or otherwise) that are not reflected in the Business's most
recently dated Financial Statements supplied to the Company. The Business
Contribution Member has paid all federal, state and local income, profits,
franchises, sales, use, occupation, property, excise and payroll taxes, and all
license fees and other charges imposed upon it, and has timely filed all tax
returns and related documents required to be filed with any governmental
authority. There are no outstanding or proposed statements of deficiency in tax
payments to any federal, state, local or foreign government with respect to the
Business Contribution Member for any tax period. As of the dates such Financial
Statements were and will be prepared, all accounts receivable which are being
purchased and are reflected on the Financial Statements (i) have and will have
arisen from bona fide transactions in the ordinary course of the Business
Contribution Member's business, consistent with its past practices, and (ii) are
good and collectible at the aggregate recorded amounts thereof, net of any
applicable reserves for returns or doubtful accounts which are reflected in such
Financial Statements (such reserves, the "Reserves"); such Reserves are adequate
and reasonable and were established in accordance with GAAP.
16
<PAGE>
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character known to the Business Contribution Member or the Members that has
had or is reasonably likely to have a material adverse effect on the Assets or
the Business.
(b) Except as set forth on Schedule 2.10, the Business
Contribution Member has not entered into any transaction or contract, or
conducted its business, other than in the ordinary course consistent with past
practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d) herein
below) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly-used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for the conduct of the Business as now conducted. After Closing,
the Specific Company Subsidiary will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property, and neither the Business Contribution Member nor any
of the Members have received any notice or claim (whether written, oral or
otherwise) challenging the Business Contribution Member's ownership or rights in
such Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto; the Business Contribution
Member has all legal and other rights required to
17
<PAGE>
transfer the ownership of the Intellectual Property to the Company at the
Closing as contemplated hereby;
(ii) Except as set forth in Schedule 2.11(b)(ii), all of
the Intellectual Property is legally valid and enforceable without any
qualification, limitation or restriction on its use, and neither the Business
Contribution Member nor any of the Members has received any notice or claim
(whether written oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Business Contribution
Member will conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title or interest held by any other
person or entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no material liability or material obligations to any
third parties incident to the Intellectual Property used or able to be used by
the Business Contribution Member in the conduct of its business (including,
without limitation, the Business) as heretofore conducted; and
(vi) The Business Contribution Member has timely met in
all material respects all of its obligations to any third parties incident to
the Intellectual Property used or able to be used by the Business Contribution
Member in the conduct of its business (including, without limitation, the
Business) as heretofore conducted, and such obligations have been and will be
correctly and adequately disclosed in the Financial Statements.
18
<PAGE>
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date.
Except as set forth in Schedule 2.11(c)(ii), neither the Business Contribution
Member nor any of the Members has granted to any other Person or entity any
rights or permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and through the Closing Date will
maintain, valid insurance policies, which polices provide adequate coverage,
within terms of scope and amount of coverage, for the Assets and the operations
conducted by the Business. From and after Closing, the Specific Company
Subsidiary will be solely responsible for the insurance set forth in Exhibit L.
In the event that such insurance-related Assumed Liabilities as appear on
Exhibit L hereto are unable to be assumed by the Specific Company Subsidiary
directly from and after Closing, the Business Contribution Member hereby agrees
to keep such insurance policy(ies) as are reflected by such Assumed Liabilities
in full force and
19
<PAGE>
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is valid and enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity); (ii) no Default (as defined below) exists under any Contract either by
the Business Contribution Member or by any other party thereto; (iii) neither
the Business Contribution Member nor any of the Members is aware of the
assertion by any third party of any claim of Default or breach under any of the
Contracts; and (iv) neither the Business Contribution Member nor any of the
Members is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Business Contribution
Member to either (x) terminate or significantly change its existing business
relationship with the Business Contribution Member either now or in the
foreseeable future, or (y) fail to renew or extend its existing business
relationship with the Business Contribution Member at the end of the term of any
existing contractual arrangement such entity may have with the Business
Contribution Member. For purposes of this Agreement, the term "Default" means,
with respect to any Contract, (x) any breach of or default under such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration or any obligation to repay with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business
20
<PAGE>
Contribution Member or any of the Members in connection with this Agreement, the
Related Agreements or the transactions contemplated hereby or thereby 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 statement contained herein or
therein, in light of the circumstances under which they were made, not
misleading.
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, the Members, and Certain Employees of the
Business Contribution Member
Each of the Members, the Business Contribution Member, and
certain employees of the Business Contribution Member noted on Exhibit B
attached hereto, shall have, at the Closing in Escrow, entered into agreements,
the form of which is attached to this Agreement as Exhibit B.
3.2. Confidentiality. The Business Contribution Member and the
Members shall abide by the terms of the Confidentiality Agreement between the
Business Contribution Member and the Company (or the Company's predecessor,
Dispatch Management Services LLC) executed on April 28, 1997. The Business
Contribution Member, the Members, and the Specific Company Subsidiary each
acknowledge and agree that the Company shall have the right to disclose certain
information concerning the Specific Company Subsidiary, the Assets and/or the
Business to third parties in connection with the completion of the Initial
Public Offering (which third parties will in turn be bound by an agreement
similar to the Confidentiality Agreement), for such general corporate purposes
as includes but is not limited to obtaining financing and/or underwriting, and
for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member and the Members as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each
21
<PAGE>
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. Common Stock. Upon the closing of the Initial Public Offering,
the shares of Company Stock issued in the Initial Public Offering will have been
duly and validly authorized for issuance and, when issued and delivered by the
Company against payment of the consideration therefore, will be duly and validly
issued and fully paid and non-assessable, and, other than as contemplated by
this Agreement, the Related Agreements, the Lock-up Agreement and certain
agreements related to the Business Contribution Member Loan, will be free of
Encumbrances and shall be freely tradeable.
4.4. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or Bylaws of the Company, or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
22
<PAGE>
4.5. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.5.
4.6. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit H. Except as set forth in
Exhibit H, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity against affecting or naming the Company.
4.7. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
23
<PAGE>
4.8. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member and the Members,
jointly and severally, covenant and agree that (except as expressly contemplated
or permitted by this Agreement, or to the extent that the Company shall
otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. Except for the
right of the Business Contribution Member to sell all or part of its facilities
management assets to Merrill Corporation pursuant to that certain Asset Purchase
Agreement dated September 15, 1997 (the "Merrill Agreement"), the Business
Contribution Member shall be obligated to:
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (aws and with all contractual and
other obligations applicable to the Business Contribution Member;
(c) comply in all material respects with all laws and with all
contractual and other obligations applicable to the Business Contribution
Member;
(d) not subject any of the Assets to any Encumbrance;
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on the Business or the Assets,
and (ii) any Legal Proceeding
24
<PAGE>
commenced by or against the Business Contribution Member or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement.
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member or the Members in this Agreement or the Related
Agreements untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, and subject to the "Merrill
license," as defined in Exhibit K attached hereto, the Business Contribution
Member shall take all steps necessary to change its corporate name and/or trade
name to a name not confusingly similar to the trade name being conveyed
hereunder and to be utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Business Contribution Member shall cooperate
fully therein. In order that the Company may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation as
it may reasonably request of the affairs of the Business and the Business
Contribution Member, each of the Business Contribution Member and the Members
shall use their respective best efforts to cause the Business Contribution
Member's officers, employees, consultants, agents, accountants, attorneys and
other representatives to cooperate fully with such Company representatives in
connection with such review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date or earlier termination of this
Agreement, neither the Business Contribution Member nor any of the Members shall
pursue, initiate, encourage or engage in any negotiations or
25
<PAGE>
discussions with any third parties concerning the sale of the Business, the
Assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member and the Members shall give prompt notice to the Company of (a) any notice
of, or other communication relating to, a default under any contract material to
the financial condition, properties, business operations, or results of
operations of the Business and/or the Business Contribution Member to which it
is a party or is subject, (b) any notice or other communication fy be required
in connection with the transactions contemplated by this Agreement or any of the
Related Agreements, or (c) any material adverse change in the properties
(including but not limited to the Assets), business operations, results of
operations, financial condition or prospects of the Business, other than changes
resulting from general economic conditions. In addition, the Business
Contribution Member and the Members shall be required to update the schedules
and other information supplied pursuant to this Agreement at such time as the
information contained therein changes in any material respect.
6.6 Working Capital as of the Closing Date. The Members and the
Business Contribution Member shall ensure that the Assets, less the Assumed
Liabilities, includes at least
26
<PAGE>
$2,324,416 working capital (defined as the excess of current (liquid) assets
over current liabilities) subject to adjustment in the event of an adjustment to
the purchase price pursuant to section 1.4 hereof as of the Closing Date.
For purposes of determining whether the required working capital existed
as of the Closing Date, the Company will cause to be prepared, promptly
following the Closing, a balance sheet setting forth the Assets and Assumed
Liabilities as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, shall include full accrual of all tax liabilities of the
Business Contribution Member as of the Closing Date (including but not limited
to, accrued tax liabilities as if the tax year ended on the Closing Date. In the
event that less than the prescribed $2,324,416 working capital existed as of the
Closing Date, as determined by such balance sheet, the Members and/or the
Business Contribution Member shall forthwith pay the Company an amount equal to
the difference between the actual working capital as of the Closing Date and
$2,324,416 working capital (the "Shortfall"). If the Members and/or the Business
Contribution Member do not pay the Shortfall to the Company within five (5) days
after demand, then, in addition to all other remedies which the Company may
have, the Company may deduct the amount of the Shortfall solely by means of an
offset against the Company Stock the Company holds as collateral.
In the event that the Business Contribution Member shall
notify the Company in writing within five days after demand is made by the
Company for payment of the Shortfall of its decision to dispute the amount of
the Shortfall, the Company shall forthwith instruct Price Waterhouse LLP to
audit the balance sheet of the Business as of the Closing Date, and to calculate
the working capital therein in accordance with GAAP. Price Waterhouse LLP shall
then determine the amount of the Shortfall as set out in this paragraph 6.6,
whose decision shall be final and binding on the parties hereto. The Business
Contribution Member shall forthwith pay to the Companyty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
27
<PAGE>
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member and the Members set forth in this
Agreement (giving effect to any supplements or updates thereto) shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of th shall have received a certificate from the Members and the
Business Contribution Member (signed by a senior executive officer of the
Business Contribution Member) certifying to such effect.
(b) Performance of Obligations. The Business Contribution
Member and the Members shall each have performed all obligations required to be
performed by each such party under this Agreement at or prior to the Closing in
Escrow Date and the Closing Date, respectively, and the Company shall have
received a certificate from the Members and the Business Contribution Member
(signed by a senior executive officer of the Business Contribution Member)
certifying to such effect.
28
<PAGE>
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Assets or the Business.
(d) Contractual Consents. The Business Contribution Member
and/or the Members shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts, or which may be required to permit the change of ownership of any
of the Assets) in keeping with the provisions of Section 1.2, above.
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member and/or the Members are a party shall have
been duly executed and delivered by such party. In addition, the Related
Agreements shall have been entered into by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member
and the Members. The obligations of the Business Contribution Member and the
Members to effect the transactions contemplated by this Agreement are subject to
the satisfaction of the following conditions (whicrs.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
29
<PAGE>
(c) Contractual Consents. The Company shall have given all
notices to, and obtained all consents, approvals or authorizations of or from,
any individual, corporation or other party which may be necessary to permit the
consummation of the transactions contemplated hereby (including, without
limitation, any consents required under the Contracts, or which may be required
to permit the change of ownership of any of the Assets).
(d) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Business Contribution
Member and/or any of the Members do not timely deliver representation letters
satisfactory to the Company; or
(d) by the Company in the event that the Anti-Dilution Rights
are not preserved. "Anti-Dilution Rights" means the right of certain
shareholders of the Company to receive in the aggregate no less than 20% of the
Company Stock calculated on a fully diluted basis after giving effect to full
exercise of certain warrant rights and the issuance of shares of the Company
Stock in the Initial Public Offering.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or Members except (i) for
the obligation of the Business Contribution Member and the Members to refund to
the Company the audit expenses as set forth in Section 1.4 of this Agreement;
(ii) for any and all obligations under the confidentiality provisions contained
in Section 3.2 of this Agreement; and (iii) to the extent that such
30
<PAGE>
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement. In the event that termination results from the willful
breach by a party hereto of any of its representations or warranties, or of any
of its covenants or agreements, as set forth in this Agreement, the breaching
party shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member and
the Members. The Business Contribution Member and the Members each hereby agrees
to jointly and severally indemnify, defend and hold harmless the Company, the
Specific Company Subsidiary, and their respective officers, directors, employees
and agents (collectively, the "Indemnitee") from and against and in respect of
any and all Losses (as defined below) to the extent resulting from, arising out
of, relating to, imposed upon or incurred by the Indemnitee by reason of (i) the
conduct of the Business prior to the Closing Date (but only to the extent that
the amount of such Loss was not a stated liability on the Business Contribution
Member's most recently dated balance sheet delivered to the Company, (ii) any
inaccuracy in or breach of any of the Business Contribution Member's and/or any
of the Members' representations, warranties, covenants or agreements contained
in this Agreement, the Related Agreements or in any other agreement or document
entered into or delivered on or after the date hereof in connection with this
Agreement or any of the transactions contemplated hereby and thereby, (iii) any
liability or obligation of the Business Contribution Member and/or any of the
Members other than an Assumed Liability, and (iv) any non-compliance with any
notice requirement, if any, which may be contained in the Uniform Commercial
Code as adopted by the State of New York relating to bulk sales. Provided,
however, the indemnification by the Business Contribution Member and/or the
Members under this Section 9.1.(a) shall include direct damages only (and not
indirect or consequential damages) and shall be limited in the aggregate to the
Purchase Price. For purposes of this Agreement, the term "Losses" means any and
all deficiencies, judgments, settlements, demands, claims, actions or causes of
action, assessments, liabilities, losses, damages (whether direct, indirect or
consequential), interest, fines, penalties, costs and expenses (including,
31
<PAGE>
without limitation, reasonable legal, accounting and other costs and expenses
incurred in connection with investigating, defending, settling or satisfying any
and all demands, claims actions, causes of action, suits, proceedings,
assessments, judgments or appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member and/or
the Members and their respective officers, managers, members, representatives,
owners or agents from and against and in respect of any and all Losses resulting
from, arising out of, relating to, imposed upon or incurred by the Business
Contribution Member and/or the Members by reason of (i) any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby; (ii) any failure to discharge the Assumed Liabilities as
required by their terms or (iii) any untrue or alleged untrue statement of a
material fact contained in any registration statement or with the Initial Public
Offering or in any amendment thereto or supplement thereof 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, excepting only
insofar as the statement or omission in question was furnished in writing to the
Company by the Business Contribution Member or the Members expressly for use in
such registration statement, prospectus, amendment or supplement. Provided,
however, the indemnification by the Company under this Section 9.1.(b) shall
include direct damages only (and not indirect or consequential damages) and
shall be limited in the aggregate to the Purchase Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof prior to the Claims Assertion Date (as
defined in Section 10.1 hereof), the party seeking such indemnification shall
notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not, subject to Section 10.1
hereof, release, waive or otherwise affect any party's
32
<PAGE>
obligations with respect thereto except to the extent such party can demonstrate
it was actually and materially prejudiced as a result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing for a period of three (3) years. Any claim by any party hereunder with
respect to such representations, warranties and agreements, including (without
limitation) any claim for indemnification, must be asserted on or before the
date that is three (3) years after the date of the Closing (the "Claims
Assertion Date"). Claims asserted subsequent to the Claims Assertion Date shall
have no legal or equitable force or effect.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied (with telephonic confirmation of receipt of the
telecopy), or, if mailed, five business days after the date of mailing to the
following address or telecopy number, or to such other address or addresses as
such Person may subsequently designate by written notice given hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Business Contribution Member or the
Members, to:
Total Management LLC
Michael Fiorito
65 West 36th Street, Suite 300
New York, New York 10018
33
<PAGE>
Walnut Venture Fund, I, L.P.
312 Walnut Street, Suite 1151
Cincinnati, Ohio 45202
Attention: Frederic H. Mayerson
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
34
<PAGE>
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. The contribution by Total Management Support
Services LLC, an affiliate of the Business Contribution Member, of certain
Assets shall not be deemed an assignment by the Business Contribution Member.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Business Contribution Member and the Members acknowledge that the
failure to comply with any of the provisions of Sections 3.1, 3.2. and 6.3
hereof will result in irreparable harm for which there is no adequate remedy at
law and that the Company and/or the Specific Company Subsidiary shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Specific Company Subsidiary.
10.9. Fees and Expenses. The Company shall be obligated to reimburse
its Business Contribution Member, promptly after demand therefor, in an amount
that shall not exceed Twenty Thousand Dollars ($20,000) for costs and expenses
incurred by or on behalf of the Business Contribution Member in connection with
the negotiation, execution and delivery of this Agreement and the Related
Agreements in the event the transactions consummated hereby and thereby are not
consummated other than by reason of a default or breach hereof by the Business
Contribution Member or the Members. The Company further acknowledges that it has
paid the audit fee of the Business Contribution Member's accountants for
preparation of the 1996 audited financial statements and agrees that it shall
pay or reimburse the Business Contribution Member for any and all additional or
further fees such accountants may charge for work performed in connection with
the transactions hereby contemplated, including (without limitation) preparation
and delivery of the financial statements required under Section 1.4 hereof.
Except as set forth in the preceding two sentences,
35
<PAGE>
all costs and expenses, including but not limited to all fees and expenses of
attorneys, lenders, financial advisers and accountants, in connection with the
negotiation, execution and delivery of this Agreement, the Related Agreements
and the consummation of the transactions contemplated hereby and thereby, shall
be paid by the party incurring such costs and expenses.
10.10 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in connection with the completion of the Initial
Public Offering, the fact that this Agreement has been executed, the names of
the parties to this Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES LLC
- - - - ------------------------- By: /s/ Linda Jenkinson
------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest: EARLY BIRD COURIER LLC
- - - - ------------------------- By: /s/ Michael Fiorito
------------------------------------
Name: Michael Fiorito
Title: Manager
"SPECIFIC COMPANY SUBSIDIARY"
Attest: ----------------------------------------
- - - - ------------------------- By: /s/ Linda Jenkinson
------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
36
<PAGE>
Witness: "MEMBERS"
TOTAL MANAGEMENT LLC
__________________________ By: ____________________________________
Michael Fiorito
Manager
Witness:
__________________________ ________________________________________
Michael Fiorito
37
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 15th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor to Dispatch Management Services LLC by merger (the
"Company"), Aero Special Delivery Service, Inc., a corporation incorporated
under the laws of the State of California (the "Corporation"), and Jeanne Sparks
(the "Shareholder"). Unless defined herein, all capitalized terms used in this
Agreement shall have the meaning given them in the Operating Agreement of
Dispatch Management Services LLC dated December 1, 1996 by and between the
Members of Dispatch Management Services LLC, as amended (the "Operating
Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desires to sell all of her right,
title and interest in the Stock to the Company, and the Company desires to
purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into a non-competition agreement with the
Shareholder and certain employees of the Corporation in the form attached hereto
as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
1
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; (ii) the schedules required
pursuant to Section 2 below; and (iii) the agreements required pursuant to
Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholder does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholder does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable
2
<PAGE>
estimate of the costs and expenses to be incurred in connection with such
terminations of employment, and the Company will reduce the cash portion of the
purchase price by the amount of such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Silver, Freedman &
Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C. 20005 (or
such other place as is mutually agreed upon by the parties) within thirty (30)
days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholder's
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by the Shareholder
and/or third parties and heretofore licensed to or used by the Corporation; (v)
3
<PAGE>
Certificates of Good Standing for the Corporation as issued by the Secretaries
of States of California and Nevada; (vi) the certificates, dated the Closing in
Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and
(vii) the opinion of counsel to the Shareholder and the Corporation as to such
matters as counsel to the Company may reasonably require, including but not
limited to such counsel's opinion that: (A) the Corporation is in good standing;
(B) the Corporation is authorized to conduct its business in each jurisdiction
in which it is doing business; (C) the Shareholder and the Corporation have the
full power to enter into and perform their respective obligations under this
Agreement; (D) this Agreement constitutes the legal, valid and binding
obligations of the Corporation and the Shareholder, and the Related Agreements
to which the Shareholder is a party, constitute the legal, valid and binding
obligations of the Shareholder, each enforceable in accordance with their
respective terms (except as enforcement may be limited by bankruptcy, insolvency
and other similar laws affecting the enforcement of creditor's rights, and
principles of equity); and (E) neither the Corporation nor the Shareholder are
threatened with or affected by any actions, proceedings or investigations
wherein an unfavorable decision, ruling or finding could have a material adverse
effect on the financial condition or operation of the Corporation, or could
prevent, enjoin or otherwise affect the transactions contemplated by this
Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to Seven Million, Four Hundred Sixty Thousand, Eight
Hundred Eighty-Four Dollars ($7,460,884), subject to adjustment (if any): (i) as
provided in Section 1.1 above;
4
<PAGE>
(ii) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.3 below); and (iii) as a result of settlement of the IRS claim against
the Corporation, as discussed below in this Section 1.3.
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the The closing of the Initial Public Offering has not occurred on or
before December 12, 1997, then upon written request from the Company given on or
before March 1, 1998, the Shareholder shall deliver to the Company, within
thirty days after written request from the Company, such additional audited
and/or unaudited, reviewed financial statements of the Corporation
5
<PAGE>
as the Company may reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder. In the event that
the Shareholder does not timely deliver a satisfactory shareholder
representation letter and complete the Closing in Escrow, the Shareholder shall
immediately refund to the Company any such advanced costs; in the event that
such shareholder representation letter is satisfactory and is timely received,
and the Closing in Escrow is completed, the Shareholder shall be relieved of her
obligation to refund to the Company any such advanced costs.
The Company shall pay fifty percent (50%) of the Purchase Price in
cash, which is subject to reduction in accordance with the terms of the next
paragraph, and fifty percent (50%) of the Purchase Price in (restricted) stock
of the Company (the "Company Stock"), at the Closing. The number of shares of
Company Stock to be issued as partial payment of the Purchase Price shall be
equal to the aggregate dollar value of the stock component of the Purchase Price
divided by the Initial Public Offering price per share as set forth on the cover
page of the prospectus relating to the Initial Public Offering, provided that no
fractional shares shall be issued and the value of any fractional share shall be
paid in cash at such price per share. The Shareholder acknowledges that the sale
of the Company Stock will be restricted for a period of time by virtue of a
"lock-up" agreement which may be imposed by the Company, and the Shareholder
shall execute such a "lock-up" agreement, as may be required by the Company, by
which the sale of the Company Stock is restricted (perhaps prohibited) for a
period of two (2) years from the date of the closing of the Initial Public
Offering. The "lock-up" agreement shall provide that unless the Shareholder is
in default, she shall be entitled to vote the shares subject to the "lock-up"
agreement and to dividends, if any, on such shares.
6
<PAGE>
Two Million, Two Hundred Thirty-Eight Thousand, Two Hundred
Sixty-Five Dollars ($2,238,265) of the Purchase Price (the "Maximum Earn-Out")
shall be earned by the Shareholder ratably over the 8 calendar quarter periods
beginning January 1, 1998 and ending December 31, 1999 provided that the
Corporation achieves gross revenue of at least $2,797,831 (the "Revenue Goal")
each such calendar quarter. In the event that the Corporation fails to achieve
such Revenue Goal during any such calendar quarter, then for each calendar
quarter in which the Corporation fails to achieve such Revenue Goal, the cash
portion of the Purchase Price shall be reduced by one-eighth (1/8) of the
Maximum Earn-Out, multiplied by a fraction with a numerator equal to the excess
of the Revenue Goal over the Corporation's actual gross revenue for such quarter
and a denominator equal to the Revenue Goal. The Maximum Earn-Out, less any such
reductions is referred to hereinafter as the "Earn-Out." The Earn-Out shall bear
interest at the rate of seven percent (7%) per annum on such amount from the
Closing Date until the date of payment of the Earn-Out to the Shareholder. The
Earn-Out shall be paid to the Shareholder promptly following calculation of the
Corporation's performance for the quarter ending December 31, 1999. The Company
covenants and agrees to maintain sufficient cash, or availability of cash (e.g.,
by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholder made to the Company in writing not later
than the Closing in Escrow, the Company shall (immediately after Closing) make a
loan to the Shareholder, collectively, in an amount equal to up to $2,238,265.
Said loan by the Company to the Shareholder (the "Shareholder Loan") shall bear
interest at a rate of seven percent (7%) per annum, and shall be secured by
sixty percent (60%) of the Company Stock paid as part of the Purchase Price at
Closing. The collateral security agreement evidencing the collateralization of
the Shareholder Loan with the Company Stock and the Earn-Out shall be on such
terms as are reasonably acceptable to the Company, which terms shall include,
but shall not be limited to, the retention of all of the Company Stock (i.e.,
sixty percent of the Company Stock paid as part of the Purchase Price) by the
Company until full repayment of the Shareholder Loan (including accrued
interest). The Shareholder shall have the right to prepay the Shareholder Loan
(plus accrued interest) at any time without penalty and shall have the right to
direct the Company to offset the balance due under the Shareholder Loan (plus
accrued interest) against the Earn-Out as earned each quarter. The Shareholder
Loan shall mature
7
<PAGE>
as of the date that the Earn-Out is payable. In the event that the Shareholder
Loan (including accrued interest) is not repaid in full upon maturity, the
Company shall enjoy all rights of a secured party under the Uniform Commercial
Code then in effect in the State of Maryland, provided that the Company's only
recourse shall be first against the remaining Earn-Out and then against the
Company Stock it holds as collateral, and there shall not be any recourse
against the Shareholder individually.
The parties hereby acknowledge that there is a pending claim by the
Internal Revenue Service (the "IRS Claim") against the Corporation in the
approximate amount of One Million Two Hundred Eighty-one Thousand Sixty-nine
Dollars ($1,281,069) including interest through June 30, 1997. In the event that
the IRS Claim is settled with the Internal Revenue Service on terms calling for
a Cost of Settlement (as defined below) less than One Million Five Hundred
Thousand Dollars ($1,500,000) (the "Agreed Value"), then in addition to the
Purchase Price payable in accordance with the terms of this Section 1.3 above,
the Shareholder shall receive an additional amount equal to one-half (1/2) of
the difference between the Agreed Value and the Cost of Settlement. It is
understood and agreed that, by virtue of the stock acquisition contemplated by
this Agreement, the Company will pay the amount of the ultimate tax liability to
the Internal Revenue Service as a result of the IRS Claim and the Third Party
Costs (as defined below), provided that in the event that the sum of the
ultimate tax liability with respect to the IRS Claim and the Third Party Costs
exceeds the Agreed Value, the Shareholder shall be solely responsible for such
excess.
The term "Cost of Settlement" shall mean the sum of the amount paid to the
Internal Revenue Service to settle such pending claim and the aggregate cost to
the Corporation for fees and expenses of third parties (e.g., attorneys and
accountants) incurred in connection with such pending claim and the settlement
thereof except to the extent that such fees and expenses were reflected as
liabilities on the audited balance sheet of the Corporation most recently
provided to the Company prior to execution of this Agreement (the "Third Party
Costs"). The Company shall cause the Corporation after the Closing Date to
exercise its best efforts to defend against such claim and any amount to be paid
to the Internal Revenue Service to settle such claim shall be subject to the
Shareholder's prior approval, which shall not be unreasonably delayed or
withheld.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and
8
<PAGE>
subject to the satisfaction or waiver of the conditions set forth in Section 7,
the purchase and sale of the Stock pursuant to this Agreement (the "Closing")
shall take place at the offices of Silver, Freedman & Taff, L.L.P., 1100 New
York Avenue, N.W., Suite 700E, Washington, D.C. 20005, contemporaneously with
the closing of the Initial Public Offering unless the closing of the Initial
Public Offering does not occur by March 31, 1998, in which case this Agreement
shall be rendered null and void, or unless another date, time or place is agreed
to in writing by the parties hereto (the day on which the Closing takes place
being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholder
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholder (less the
Maximum Earn-Out, which shall be payable to the Shareholder pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of California, and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted. The Corporation is duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
9
<PAGE>
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 20,000 shares of $10.00 par
value capital stock of which 20,000 shares are and will be as of the Closing in
Escrow Date and the Closing Date issued and outstanding. All issued and
outstanding shares of the capital stock of the Corporation have been duly
authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law, except as disclosed in Exhibit C. There are no other shares of capital
stock or other equity or debt securities of the Corporation, of any kind or
class whatsoever, authorized, issued or outstanding, or any warrants, options,
subscription rights, or any other rights, agreements, or commitments of any
nature relating to the issuance of, or granting of, rights to acquire any shares
of capital stock or such securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due
10
<PAGE>
and payable. The Corporation's assets are in good operating condition and
repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Shareholder is a party, or (d) violate
any law applicable to the Shareholder or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law, except as disclosed in
Exhibit C. The Company has been provided with true and complete copies of (i)
all injunctions, judgments, orders or consent or similar decrees or agreements
11
<PAGE>
of any governmental entity to which the Corporation is currently subject (or
which the Corporation was subject to during the previous three years), and (ii)
all correspondence through the date hereof with respect to any of the matters
referred to in clause (b) or clause (i) of this Section 2.8. Neither of the
Shareholder nor the Corporation is aware of any proposed legislation or law
which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Corporation.
2.9. Litigation. Except as disclosed in Exhibit C, there is no
action, suit, claim, investigation or proceeding, whether at law or in equity
(each, a "Legal Proceeding"), pending or, to the knowledge of the Shareholder
and/or the Corporation, threatened, that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Shareholder or the Corporation in connection with the consummation of the
transactions contemplated hereby or thereby or which seeks to prohibit, enjoin
or otherwise challenge any of the transactions contemplated hereby or thereby.
Exhibit E sets forth an accurate and complete list, and a brief description
(setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Legal Proceeding pending or, to the
knowledge of the Corporation and/or the Shareholder, threatened against or
affecting the Corporation. To the knowledge of the Corporation and/or the
Shareholder, no event has occurred and no circumstance, matter or set of facts
exist which would constitute a valid basis for the assertion by any third party
of any claim or Legal Proceeding, other than those listed on Exhibit E. Except
as set forth in Exhibit E, there is no outstanding or, to the knowledge of the
Corporation and/or the Shareholder, threatened, judgment, injunction, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
12
<PAGE>
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholder and shall be paid in full by her at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. Except as disclosed in Exhibit C, the
Corporation has paid all federal, state and local income, profits, franchises,
sales, use, occupation, property, excise and payroll taxes, and all license fees
and other charges imposed upon it, and has timely filed all tax returns and
related documents required to be filed with any governmental authority. There
are no outstanding or proposed statements of deficiency in tax payments to any
federal, state, local or foreign government with respect to the Corporation for
any tax period. As of the dates such Financial Statements were and will be
prepared, all accounts receivable reflected on the Financial Statements (i) have
and will have arisen from bona fide transactions in the ordinary course of the
Corporation's business, consistent with its past practices,
13
<PAGE>
and (ii) are good and collectible at the aggregate recorded amounts thereof, net
of any applicable reserves for returns or doubtful accounts which are reflected
in such Financial Statements (such reserves, the "Reserves"); such Reserves are
adequate and reasonable and were established in accordance with GAAP.
2.12. Default. Except as disclosed in Exhibit E, the Corporation is
not in material default of any of its obligations, contracts, or commitments in
any respect, or in breach of any negative or affirmative covenants placed on it
by its creditors, and the Shareholder has not been notified of any such defaults
or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
14
<PAGE>
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Shareholder nor the Corporation are in default
under any license agreements pertaining to the Intellectual Property used in the
Corporation's business and licensed to the Shareholder and/or the Corporation;
all such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) To the best knowledge of the Corporation and the
Shareholder, no other person or entity is infringing in any respect on any part
of the Intellectual Property. The Corporation has not conducted its business,
and has not used or enforced (or failed to use or enforce) any Intellectual
Property, in a manner that would result in the abandonment, cancellation or
unenforceability of any item of Intellectual Property, and the Corporation has
not taken or failed to take any action that would result in the forfeiture or
relinquishment of any Intellectual Property used in the conduct of its business
as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
15
<PAGE>
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation nor the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not
16
<PAGE>
been properly filed by the Corporation. During the past two years, the
Corporation has not been refused any insurance coverage by any insurer from
which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not
17
<PAGE>
waived, with respect to any employee benefit plan and no such accumulated
funding deficiency currently exists. Except as set forth on Exhibit L hereto,
the Corporation is not required, and has not been required in the past, to make
any payments or contributions under the terms of any "multi-employer plan" (as
defined in Section 3(37) of ERISA and Section 414(f) of the Code) or by any
collective bargaining agreement with respect to any employee benefit plan.
Neither the Corporation nor any of the Plans has ever incurred any withdrawal
liability (including any contingent or secondary withdrawal liability) within
the meaning of Section 4201 and Section 4204 of ERISA with respect to any
multi-employer plan. The Corporation and the trustees or the administrators of
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986
18
<PAGE>
(together with the regulations promulgated thereunder, hereinafter collectively
referred to as "IRCA"); the Worker Adjustment and Retraining Notification Act;
the Employee Polygraph Protection Act; the Drug-Free Workplace Act of 1988; the
Health Insurance Portability and Accountability Act of 1996; the Code; the
regulations promulgated under each such act; and any and all other federal,
state and local laws, regulations and requirements of any nature applicable to
the Corporation. The Corporation further represents that it is not in arrears in
the payment of wages to any employee (except to the extent of its normal payroll
practices), and there are no claims, liabilities, demands or causes of action,
realized or unrealized, actual, potential or contingent, pursuant to statutory
rights or in tort, contract or otherwise, against the Corporation arising out of
or in connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Corporation nor the Shareholder is aware
of any present intention on the part of any significant customer or supplier or
19
<PAGE>
other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. The Shareholder and the certain employees
of the Corporation noted on Exhibit A attached hereto shall have at the Closing
in Escrow entered into agreements, the form of which is attached to this
Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company's
predecessor, Dispatch Management Services LLC, executed on May 12, 1997. The
Shareholder and the Corporation both acknowledge and agree that the Company
shall have the right to disclose certain information concerning the Corporation
to
20
<PAGE>
third parties (which third parties will in turn be bound by an agreement similar
to the Confidentiality Agreement), for such general corporate purposes as
includes but is not limited to obtaining financing and/or underwriting, and for
general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder, and until
the Closing Date to the Corporation, as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or Operating Agreement of
21
<PAGE>
Dispatch Management Services LLC, (b) except as set forth on Exhibit D, require
any consent, waiver, approval, authorization or permission of, or filing with or
notification to, any third party, (c) result in or constitute a default, or
require any consent or approval of or notice to any person or entity under or
pursuant to any of the contracts to which the Company is a party; or (d) violate
any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming
22
<PAGE>
the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
4.8. Brokers and Finders.
(a) No person or entity has acted directly or indirectly as a
broker or finder for or to the Company in connection with the negotiations
relating to or the transactions contemplated by this Agreement or the Related
Agreements; and
(b) No person or entity is entitled to any fee or commission
or like payment, or expense reimbursement, in respect thereof based in any way
on agreements, arrangements or understandings made by or on behalf of the
Corporation and/or the Shareholder hereunder or thereunder. The Company hereby
agrees to hold the Shareholder, and prior to the Closing the Corporation,
harmless from any such fees or commission claimed on the basis of broker or
finder services provided to the Company.
4.9. Confidentiality. The Company shall abide by the terms of the
Confidentiality Agreement between the Corporation and the Company's predecessor,
Dispatch Management Services LLC, executed on May 12, 1997.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
23
<PAGE>
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
24
<PAGE>
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholder
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholder shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each
25
<PAGE>
party hereto shall use their respective best efforts to take or cause to be
taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has a positive working capital (defined as the
excess of current (liquid) assets over current liabilities) as of the Closing
Date. For purposes of determining whether the Corporation had a positive working
capital as of the Closing Date, the Company will cause to be prepared, promptly
following the Closing, a balance sheet of the Corporation as of the Closing
Date. Such balance sheet shall be prepared in accordance with GAAP, and shall
include full accrual of all assets and liabilities of the Corporation as of the
Closing Date (including, but not limited to, accrued tax liabilities as if the
tax year ended on the Closing Date). In the event that the Corporation has a
negative working capital as of the Closing Date, as determined by such balance
sheet, the Shareholder shall forthwith pay the Company an amount equal to such
negative working capital (the "Shortfall"). If the Shareholder does not pay the
Shortfall to the Company within five (5) days after demand, then, in addition to
all other remedies which the Company may have, the Company may deduct the amount
of the Shortfall from any of the obligations of the Company to the Shareholder
(including, but not limited to, the Earn-Out to which the Shareholder may be
entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of her decision to dispute the amount
26
<PAGE>
of the Shortfall, the Company shall forthwith instruct Price Waterhouse LLP to
audit the balance sheet of the Corporation as of the Closing Date, and to
calculate the working capital therein in accordance with GAAP. Price Waterhouse
LLP shall then determine the amount of the Shortfall as set out in this
paragraph 6.5, whose decision shall be final and binding on the parties hereto.
The Shareholder shall forthwith pay to the Company the amount of such Shortfall,
together with fifty percent (50%) of the cost of the audit conducted by Price
Waterhouse LLP. In the event Price Waterhouse LLP determines the Shortfall to
have been zero, the entire cost of such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in writing
in whole or in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this
27
<PAGE>
Agreement and (except to the extent such representations and warranties speak as
of a specified, earlier date) as of the Closing in Escrow Date and the Closing
Date as though made on and as of the Closing in Escrow Date and the Closing
Date, respectively, except as otherwise contemplated by this Agreement, and the
Company shall have received a certificate from the Shareholder and the
Corporation (signed by the Shareholder and a senior executive officer of the
Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
such party. In addition, the Related Agreements shall have been entered into by
the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in writing in
whole or in part by the Corporation or the Shareholder).
28
<PAGE>
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company, in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholder to refund to the Company the audit expenses as
set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
29
<PAGE>
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholder.
The Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business of the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholder under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor). With respect to the Shareholder, the term "Losses"
also includes the Shareholder's liability, if any, to the Company under Section
1.3 for the IRS Claim and related Third Party
30
<PAGE>
Costs.
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder, and prior to the Closing
Date the Corporation, from and against and in respect of any and all Losses
resulting from, arising out of, relating to, imposed upon or incurred by the
Shareholder by reason of any inaccuracy in or breach of any of the Company's
representations, warranties, covenants or agreements contained in this Agreement
or in any other agreement or document entered into or delivered by the Company
on or after the date hereof in connection with this Agreement or any of the
transactions contemplated hereby and/or thereby.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
31
<PAGE>
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
Kirk Sparks
7697 Isabel Drive
Cotati, California 94931
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long
32
<PAGE>
as the economic or legal substance of the transactions contemplated hereby is
not affected in any manner materially averse to any party. In the event that the
enforceability of any non-competition or similar covenants contained herein or
in any Related Agreement is called into question as the result of time,
geographical or other applicable limitations specified in such covenants, such
time, geographical or other applicable limitations shall be deemed modified to
the minimum extent necessary to render the applicable provisions of such
covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved
33
<PAGE>
exclusively by arbitration by a single arbitrator in either the District of
Columbia or New York City, at the option of the Company, in accordance with the
commercial arbitration rules of the American Arbitration Association ("AAA") and
judgment on the award rendered by the arbitrator may be entered by any court
having jurisdiction thereof. It is acknowledged by the Corporation and the
Shareholder that money damages are inadequate to compensate the Company and/or
the Corporation for a breach of the terms of this Agreement, and that the
Company and/or the Corporation shall be entitled to specific performance of the
terms of this Agreement. The arbitrator may enter a default decision against any
party who fails to participate in the proceeding. The decision of the arbitrator
shall be final, conclusive, binding and non-appealable. The losing party shall
pay all costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in connection with the closing of the Initial
Public Offering, the fact that this Agreement has been executed, the names of
the parties to this Agreement and the terms hereof.
34
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
AERO SPECIAL DELIVERY SERVICE, INC.
By: /s/ Kirk Sparks
- - - - ------------------------- ----------------------------------
Kirk Sparks, President
Witness: "SHAREHOLDER"
/s/ Jeanne Sparks
- - - - -------------------------- --------------------------------------
Jeanne Sparks
35
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 30th day of
September 1997 , by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Bullit Courier Services, Inc., a corporation
incorporated under the laws of the State of New York (the "Corporation"), and
Theo Nicholoudis, aka Ted Nicholoudis (the "Shareholder"). Unless defined
herein, all capitalized terms used in this Agreement shall have the meaning
given them in the Operating Agreement of Dispatch Management Services LLC, a
Nevada limited-liability company ("DMS LLC"), dated December 1, 1996 by and
between the Members of DMS LLC, as amended (the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desires to sell all of his right,
title and interest in the Stock to the Company, and the Company desires to
purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into a non-competition agreement with the
Shareholder and certain employees of the Corporation in the forms attached
hereto as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
<PAGE>
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; (ii) the schedules required
pursuant to Section 2 below; and (iii) the agreements required pursuant to
Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of common stock, par value $.01 per share, of the
Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. Without limiting the
foregoing, the Shareholder shall be required to purchase all officer notes
receivable of the Corporation prior to the Closing Date. If, prior to the
Closing Date (as defined in Section 1.4 below): (i) the Shareholder does not
purchase the officer notes receivable and all other (unwanted) assets specified
by the Company in the Notice, then such assets will be acquired by the Company
without any adjustment to the Purchase Price (as defined in Section 1.3 below);
(ii) the
2
<PAGE>
Shareholder does not assume the (unwanted) liabilities specified by the Company
in the Notice, then the Company will reduce the cash portion of the purchase
price by the dollar amount of any such liabilities (including early repayment
costs, if any) of the Corporation existing as at the Closing Date; and (iii) the
Corporation has not terminated the employment of the (unwanted) employees
specified by the Company in the Notice, then the Company will make a reasonable
estimate of the costs and expenses to be incurred in connection with such
terminations of employment, and the Company will reduce the cash portion of the
purchase price by the amount of such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Silver, Freedman &
Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C. 20005 (or
such other place as is mutually agreed upon by the parties) within thirty (30)
days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a satisfactory
shareholder representation letters (as determined in the sole discretion of the
Company), this Agreement will be of no further force or effect, except for any
and all obligations under Sections 3.2 (confidentiality), 1.3 (reimbursement of
audit expenses) and 8.2 (effect of termination under Section 8.1), which
obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations
3
<PAGE>
necessary or appropriate for the consummation of the transactions contemplated
by this Agreement; (iv) agreements assigning to the Corporation all of the
Shareholder's and/or third parties' right, title and interest in and to all
Intellectual Property (as defined in Section 2.14(d) hereinbelow) owned by the
Shareholder and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretaries of State of New York, New Jersey and Connecticut; (vi) the
certificates, dated the Closing in Escrow Date, required pursuant to Sections
7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of counsel to the
Shareholder and the Corporation as to such matters as counsel to the Company may
reasonably require, including but not limited to such counsel's opinion that:
(A) the Corporation is in good standing; (B) the Corporation is authorized to
conduct its business in each jurisdiction in which it is doing business; (C) the
Shareholder and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholder, and the Related Agreements to which the Shareholder is a party,
constitute the legal, valid and binding obligations of the Shareholder, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholder are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
4
<PAGE>
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to Five Million, Five Hundred Thousand Dollars
($5,500,000.00), subject to adjustment (if any) as provided in Section 1.1
above. In addition to the Purchase Price paid for the Stock, the Company will
pay Nick Rozakis the sum of Five Hundred Thousand Dollars ($500,000.00) in
consideration for the execution by Mr. Rozakis of a Non-Competition Agreement,
the form of which is attached as Exhibit A hereto.
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of February 28, 1995, 1996 and
1997, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of May 31, 1996, and an
income statement and cash flow statement for the twelve month period ended on
May 31, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of May 31, 1997 and an income
statement and a cash flow statement for the three month period ended May 31,
1997. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the three month period ended May 31, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of May 31, 1997, and income
statements and cash flow statements for the three month period ended May 31,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of August 31, 1997, and an income statement and cash flow
statement for the six month period ended on August 31, 1996; and (iii)
unaudited, reviewed financial statements of the Corporation, including a balance
sheet dated as of August 31, 1997 and income statements and cash flow statements
for the three month period ended August 31, 1997. In the event that the closing
of the Initial Public Offering has not occurred on or before December 12, 1997,
then upon written request from the Company given on or before March 1, 1998, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company, such additional audited and/or
5
<PAGE>
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder. In the event that
the Shareholder does not: (i) timely deliver a satisfactory shareholder
representation letter and (ii) complete its requirements under this Agreement in
connection with the Closing in Escrow, the Shareholder shall immediately refund
to the Company any such advanced costs (taking into account that the
Shareholders have already supplied the Company with audited financial statements
for the last three (3) fiscal years); in the event that such shareholder
representation letter is satisfactory and is timely received, and the
Shareholder completes its requirements under this Agreement in connection with
the Closing in Escrow, the Shareholder shall be relieved of his obligation to
refund to the Company any such advanced costs.
The Company shall pay Two Million, Eight Hundred Thousand Dollars
($2,800,000.00) of the Purchase Price in cash, and Two Million Seven Hundred
Thousand Dollars ($2,700,000.00) of the Purchase Price in (restricted) stock of
the Company (the "Company Stock") at the Closing. The Shareholder acknowledges
that the sale of the Company Stock will be restricted for a period of time by
virtue of a "lock-up" agreement which may be imposed by the Company, and the
Shareholder shall execute such a "lock-up" agreement, as may be required by the
Company, by which the sale of the Company Stock is restricted (perhaps
prohibited) for a period of six (6) months from the date of the closing of the
Initial Public Offering.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the closing of the Initial Public Offering does not occur by
March 31, 1998, in which case this Agreement shall be rendered
6
<PAGE>
null and void, or unless another date, time or place is agreed to in writing by
the parties hereto (the day on which the Closing takes place being the "Closing
Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholder
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; (iii)
the Company shall deliver the Purchase Price to the Shareholder; and (iv) the
Company and the Shareholder will enter into a mutually agreeable lease for the
facilities currently being used by the Corporation, which facilities are
currently owned by the Shareholder and leased to the Corporation (the Company
acknowledging that the current annual net rent of $72,000 is a reasonable lease
rate for such facilities located at 206 Front Street, Brooklyn, New York).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of New York, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding
7
<PAGE>
obligations of the Shareholder, each enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 200 shares of no par value
capital stock of which 120 shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third
8
<PAGE>
party(ies), such assets and properties; and (ii) have all assets, rights,
employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Corporation after the
Closing Date in substantially the same manner as presently conducted by the
Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Shareholder is a party, or (d) violate
any law applicable to the Shareholder or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. Neither the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder
9
<PAGE>
and/or the Corporation, threatened, that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Shareholder or the Corporation in connection with the consummation of the
transactions contemplated hereby or thereby or which seeks to prohibit, enjoin
or otherwise challenge any of the transactions contemplated hereby or thereby.
Exhibit E sets forth an accurate and complete list, and a brief description
(setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Legal Proceeding pending or, to the
knowledge of the Corporation and/or the Shareholder, threatened against or
affecting the Corporation. To the knowledge of the Corporation and/or the
Shareholder, no event has occurred and no circumstance, matter or set of facts
exist which would constitute a valid basis for the assertion by any third party
of any claim or Legal Proceeding, other than those listed on Exhibit E. Except
as set forth in Exhibit E, there is no outstanding or, to the knowledge of the
Corporation and/or the Shareholder, threatened, judgment, injunction, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting
10
<PAGE>
principles ("GAAP"), applied consistently with the past practices of the
Corporation, except where otherwise specifically noted therein, and present and
will present fairly in all material respects the financial position, results of
operations and changes in financial position or cash flows, whichever is
applicable, of the Corporation as at the dates and for the periods indicated
(subject, in the case of the unaudited financial statements, to normal year-end
audit adjustments). Without limiting the foregoing, no undisclosed liabilities
or obligations of any nature (whether known or unknown, or absolute, accrued,
contingent or otherwise) shall exist as at Closing in Escrow or the Closing not
reflected in the most recently dated balance sheet supplied to the Company. The
Corporation has paid all federal, state and local income, profits, franchises,
sales, use, occupation, property, excise and payroll taxes, and all license fees
and other charges imposed upon it, and has timely filed all tax returns and
related documents required to be filed with any governmental authority. There
are no outstanding or proposed statements of deficiency in tax payments to any
federal, state, local or foreign government with respect to the Corporation for
any tax period. As of the dates such Financial Statements were and will be
prepared, all accounts receivable reflected on the Financial Statements (i) have
and will have arisen from bona fide transactions in the ordinary course of the
Corporation's business, consistent with its past practices, and (ii) are good
and collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for returns or doubtful accounts which are reflected in such Financial
Statements (such reserves, the "Reserves"); such Reserves are adequate and
reasonable and were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
11
<PAGE>
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Shareholder nor the Corporation are in default
under any license agreements pertaining to the Intellectual Property used in the
Corporation's business and licensed to the Shareholder and/or the Corporation;
all such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere
12
<PAGE>
with, or constitute an appropriation of, any right, title or interest held by
any other person or entity, and there have been no claims made with respect
thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation nor the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any
13
<PAGE>
other intellectual property right (including, without limitation, any know-how,
trade secret, trade right, formula, conditional or proprietary report or
information, customer or membership list, any marketing data, and any computer
program, software, database or data right), and license or other contract
(including without limitation license(s) to use specific telephone numbers
and/or radio channels/frequencies) relating to any of the foregoing, and any
goodwill associated with any business owning, holding or using any of the
foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and
14
<PAGE>
permitted actuarial assumptions) the obligations of such Plan on a continuing
basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
15
<PAGE>
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
16
<PAGE>
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Corporation nor the Shareholder is aware
of any present intention on the part of any significant customer or supplier or
other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
17
<PAGE>
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. The Shareholder and the certain employees
of the Corporation noted on Exhibit A attached hereto shall have at the Closing
in Escrow entered into agreements, the form of which is attached to this
Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on
____________. The Shareholder and the Corporation both acknowledge and agree
that the Company shall have the right to disclose certain information concerning
the Corporation to third parties (which third parties will in turn be bound by
an agreement similar to the Confidentiality Agreement), for such general
corporate purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to
18
<PAGE>
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no
19
<PAGE>
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Company, threatened, judgment,
injunction, order or consent or similar decree or agreement (including, without
limitation, any consent or similar decree or agreement with any governmental
entity) against, affecting or naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Financial Advisors, Brokers. No person or entity other than HPC
Puckett & Company ("HPC") has acted directly or indirectly as a broker or finder
for or to the Company in connection with the negotiations relating to or the
transactions contemplated by this Agreement or the Related Agreements. The
Company shall be solely responsible for the compensation due HPC as a result of
their services in connection with this transaction.
4.8. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its
20
<PAGE>
business and (ii) preserve the present relationship of the Corporation with
Persons having business dealings with the Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect; and
(l) make such necessary investments in operating costs, plant
or equipment as are necessary to maintain and grow the business of the
Corporation. All such costs which are not in the ordinary course of busines
(e.g. new mailroom start-up costs, identifying vehicles with new logos, etc.)
shall be reimbursed by the Company as an adjustment to the cash portion of the
Purchase Price. All such extraordinary expenses shall be approved in writing by
the Company in advance of the expenditure.
6. Additional Agreements and Representations.
21
<PAGE>
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholder
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholder shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each
22
<PAGE>
party hereto shall use their respective best efforts to take or cause to be
taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $66,356.00 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, consistent with past practices of the Corporation, and shall include full
accrual of all tax liabilities of the Corporation as of the Closing Date
(including, but not limited to, accrued tax liabilities as if the tax year ended
on the Closing Date). In the event that the Corporation has more than the
prescribed $66,356 working capital as of the Closing Date, as determined by such
balance sheet, the Company shall forthwith pay the Shareholder such excess. In
the event that the Corporation has less than the prescribed $66,356 working
capital as of the Closing Date, as determined by such balance sheet, the
Shareholder shall forthwith pay the Company an amount equal to the difference
between the actual working capital as of the Closing Date and $66,356 working
capital (the "Shortfall"). If the Shareholder does not pay the Shortfall to the
Company within five (5) days after demand, then, in addition to all other
remedies which the Company may have, the Company may deduct the amount of the
Shortfall from any of the obligations of the Company to the Shareholder.
23
<PAGE>
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of his decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this
24
<PAGE>
Agreement and (except to the extent such representations and warranties speak as
of a specified, earlier date) as of the Closing in Escrow Date and the Closing
Date as though made on and as of the Closing in Escrow Date and the Closing
Date, respectively, except as otherwise contemplated by this Agreement, and the
Company shall have received a certificate from the Shareholder and the
Corporation (signed by the Shareholder and a senior executive officer of the
Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
such party. In addition, the Related Agreements shall have been entered into by
the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of
25
<PAGE>
this Agreement and (except to the extent such representations and warranties
speak as of a specified, earlier date) as of the Closing in Escrow Date and the
Closing Date as though made on and as of the Closing in Escrow Date and the
Closing Date, respectively, except as otherwise contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved in connection with the
Initial Public Offering; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholder to refund to the Company a) the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
26
<PAGE>
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholder.
The Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business of the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company; or (ii) any inaccuracy in or material breach of any of
the Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholder under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the
27
<PAGE>
transactions contemplated hereby and/or thereby. Provided, however, the
indemnification by the Company under this Section 9.1.(b) shall include direct
damages only (and not indirect or consequential damages) and shall be limited in
the aggregate to the Purchase Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
Ms. Michelle Scotto, Esquire
Scotto, Georgeoulis & Scotto
28
<PAGE>
17 Battery Place, 12th Floor
New York, New York 10004
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
29
<PAGE>
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholder that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
30
<PAGE>
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
BULLIT COURIER SERVICES, INC.
By: /s/ Theo Nicholoudis
- - - - ----------------------------- -------------------------------
Name: Theo Nicholoudis
Title:
31
<PAGE>
Witness: "SHAREHOLDER"
/s/ Theo Nicholoudis
- - - - ----------------------------- -------------------------------
Theo Nicholoudis
32
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 16th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Security Business Services Ltd., a limited liability
company incorporated under the laws of England (the "Corporation"), and James
Brett Greenbury, Kelly Donovan, Scawton Limited, Lyon-Burwell Limited, Arazan
Limited, and Foreign & Colonial Enterprise Trust plc (collectively, the
"Shareholders").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock and the (pounds) 2,111,022 variable rate unsecured loan notes (the
"Loan Stock") of the Corporation, and all options to purchase either such
capital stock or Loan Stock (collectively, the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with
certain of the Shareholders in the form attached hereto as Exhibit A (such
non-competition agreements, together with the employment agreement to be entered
into by the Corporation and James Brett Greenbury, the "Related Agreements");
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement; and
<PAGE>
WHEREAS, the Company has agreed that it shall have no rights or remedies
whatsoever against the Shareholders in respect of the Initial Cash Payment (as
defined below) and its sole remedies and rights pursuant to this Agreement and
the transaction contemplated hereby shall be by way of set-off against any of
the Deferred Consideration (as defined below) which has become payable but is
unpaid.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the
Shareholders and the Corporation shall be obliged to deliver to the Company,
within thirty (30) days after execution of this Agreement: (i) the audited
and unaudited financial statements required pursuant to Section 1.3 below;
and (ii) the agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date (being no later than March 1, 1998) by which Closing in
Escrow (as defined in this Section 1.1 below) must take place.
Prior to the Closing Date (as defined in Section 1.4 below), the
Shareholders shall procure that a newly incorporated company shall:
(i) purchase the assets and liabilities of the Corporation and its
trading subsidiary, Security Despatch Limited ("SDL") used principally in
connection with the mailroom business as currently carried on by the Corporation
and SDL (the "Mailroom Business") at their then current book value;
(ii) take on those employees of the Corporation and SDL whose
principal activity is with the Mailroom Business (and transfer any related
pension arrangements);
(iii) repay any bank indebtedness;
2
<PAGE>
(iv) be granted assignments at no cost of all contracts relating
to the Mailroom Business; and
(v) purchase each of the fixed assets of the Corporation and SDL at
their then current book value and lease each of such assets back to SDL on terms
whereby the cost payable under such lease back to SDL will be equal to the
depreciation which would be borne on the basis of SDL's current depreciation
policy for each of such assets and lease back payments will be made by SDL to
such newly incorporated company within one month of the relevant invoice being
rendered.
If, prior to or simultaneously with the Closing: (i) the Shareholders do
not procure the purchase of the assets described above, then such assets will be
acquired by the Company without any adjustment to the Cash Payment (as defined
in Section 1.3 below); (ii) the Shareholders do not procure the assumption of
the liabilities described above, then the Company will reduce the Cash Payment
by the amount of any such liabilities (including early repayment costs, if any)
of the Corporation existing as at the Closing Date; and (iii) the Corporation
has not terminated the employment of the employees described above, then the
Company will make a reasonable estimate of the costs and expenses to be incurred
in connection with such terminations of employment, and the Company will reduce
the Cash Payment by the amount of such reasonable estimate, provided that under
no circumstances will the Initial Cash Payment (as defined in Section 1.3 below)
be reduced pursuant to paragraphs (ii) or (iii) above below the sum of (pounds)
4 million.
On or before the date specified in the Notice, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, each Shareholder shall deliver the following
to the law firm of Travers Smith Braithwaite, as escrow agent: (i) certificates
(or other appropriate documentation) representing all of its Stock with duly
executed stock transfer forms conveying the Stock represented thereby to the
Company, free and clear of all liens, security interests and claims,
encumbrances or other rights of third parties of any nature whatsoever, and
granting unrestricted title to and possession of the Stock to the Company,
provided that in respect of Stock comprising options which have not prior to the
3
<PAGE>
Closing been exercised this obligation shall be satisfied by the delivery of a
deed duly executed by the optionholder agreeing to the cancellation of such
option; (ii) the Corporation's corporate minute book, including the Stock
Certificate Book and all of the original share certificates (or other
appropriate documentation) representing the Corporation's capital stock, Loan
Stock, or options to purchase either such capital stock or Loan Stock, at one
time issued (but no longer issued and outstanding); and (iii) all consents,
waivers, and authorizations reasonably necessary or appropriate for the
consummation of the transactions contemplated by this Agreement.
Photocopies of all documents delivered in escrow to Travers Smith
Braithwaite shall be delivered to the law firm of Silver, Freedman & Taff,
L.L.P., promptly after receipt thereof by Travers Smith Braithwaite
(b) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the Cash Payment specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Total Cash Payment to be Made by the Company. The aggregate of
the purchase price for the Stock and the loan for the repayment of bank debt and
payment of interest on Stock (the "Cash Payment") shall be equal to Six Million
Pounds (U.K.)(pounds) 6,000,000), of which four million pounds (UK) ((pounds) 4
million) (the "Initial Cash Payment") shall be payable at Closing and shall not
be subject to reduction or reclaim under any circumstances whatsoever; and two
million pounds (UK) ((pounds) 2 million) (the "Deferred Consideration") which
Deferred Consideration shall be subject to adjustment (if any) as provided in
Section 1.1 above, and subject to further adjustment (if any) as a result of a
reduction or increase in the Earn-Out (as defined in this Section 1.3 below).
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of SDL,
including balance sheets dated as of March 31, 1995, 1996 and 1997, and income
statements and cash flow statements for each of the three twelve month periods
ended on such dates; (ii) unaudited financial statements of SDL, including a
balance sheet dated as of June 30, 1996, and an income statement and cash flow
statement for the three month period ended on June 30, 1996: and (iii) unaudited
financial statements of SDL, including a balance sheet dated as
4
<PAGE>
of June 30, 1997 and an income statement and a cash flow statement for the three
month period ended June 30, 1997. The intent of providing the audited and
unaudited financial statements referred to in the foregoing sentence is to
resolve any auditing issues prior to calculation of the Cash Payment, so that
the Cash Payment may be quickly and efficiently calculated. In the event that
the closing of the Initial Public Offering has not occurred on or before
November 12, 1997, but does occur on or before December 12, 1997, then in that
event, in lieu of the unaudited financial statements of SDL for the three month
period ended June 30, 1997, the Shareholders shall deliver to the Company,
within thirty days after written request from the Company: (i) an updated set of
audited financial statements of SDL, including a balance sheet dated as of June
30, 1997, and income statements and cash flow statements for the three month
period ended June 30, 1997; (ii) unaudited financial statements for SDL,
including a balance sheet dated as of September 30, 1996, and an income
statement and cash flow statement for the six month period ended on September
30, 1996; and (iii) unaudited financial statements of SDL, including a balance
sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders shall permit representatives of the Company to
prepare such additional audited and/or unaudited monthly financial statements of
SDL as the Company may desire, at the sole expense of the Company (provided that
the preparation of such statements does not materially interfere with the
business operations of SDL).
The Company shall be entitled to instruct Price Waterhouse LLP to
undertake such review as they shall think appropriate (at the cost of the
Company) of the information provided pursuant to this Section 1.3 provided that
neither the Company nor any of its representatives or advisers shall contact any
person at the Corporation or SDL other than James Greenbury (or any other
persons nominated by James Greenbury) without having first notified Mr.
Greenbury, further provided that there shall not at any time be more than three
representatives of the Company or its advisers visiting SDL, and further
provided that neither the Corporation nor SDL shall be obliged to incur any
costs to assist the Company or Price Waterhouse LLP unless these are reimbursed
in advance by the Company.
5
<PAGE>
The Company shall pay Four Million Pounds (U.K.) ((pounds)
4,000,000) of the Cash Payment in cash at the Closing, which shall be paid by
telegraphic transfer so as to be received in cleared funds within U.K. banking
hours on the date of completion of Closing in the client account specified by
Travers Smith Braithwaite, the solicitors for the Shareholders. Of this sum an
amount equal to the amount of any bank debt (together with interest and
repayment costs if any) owing by the Corporation at the Closing and the interest
on the Loan Stock shall be treated as a loan by the Company to the Corporation
and shall be applied on behalf of the Corporation in repaying all such bank debt
and the balance shall be consideration for the Stock and shall be distributed
amongst the Shareholders as they agree amongst themselves. The Company
acknowledges that once such sum of Four Millions Pounds (U.K.) ((pounds) 4
million) has been paid, it shall have no rights to reclaim such sum under any
circumstances whatsoever and the sole rights of the Company under this
Agreement, or otherwise howsoever in connection with the transaction the subject
of this Agreement (including claims in tort), shall be to set-off any claims
which it may have against any part of the Deferred Consideration which has
become payable but is unpaid.
An additional Two Million Pounds (U.K.) ((pounds) 2,000,000) (the
"Earn-Out") shall be paid to the Shareholders (which shall be paid to Travers
Smith Braithwaite, the solicitors for the Shareholders, in the manner described
above), in two equal installments of One Million Pounds (U.K.) ((pounds)
1,000,000) for each of the two calendar years ending December 31, 1998, and
December 31, 1999, provided that the Corporation maintains Annual Revenue (as
defined below) of at least Six Million Pounds (U.K.) ((pounds) 6,000,000) and
Annual Pre-tax Profits (as defined below) of Eight Hundred Thousand Pounds
(U.K.) ((pounds) 800,000) for such calendar years. In the event that the
Corporation achieves Annual Pre-tax Profits of at least Eight Hundred Thousand
Pounds (U.K.) ((pounds) 800,000) during either such calendar year, but fails to
achieve Annual Revenue of at least Six Million Pounds (U.K.) ((pounds)
6,000,000) during such year, the Shareholders will receive, in lieu of One
Million Pounds (U.K.) ((pounds) 1,000,000), an amount equal to: (i) the figure
derived by multiplying One Million Pounds (U.K.) ((pounds) 1,000,000) by a
fraction equal to the actual Annual Revenue of the Corporation during such
calendar year divided by Six Million Pounds (U.K.) ((pounds) 6,000,000); plus
(ii) the Annual Pre-tax Profits during such calendar year in excess of Eight
Hundred Thousand Pounds (U.K.) ((pounds) 800,000), provided that the Earn-Out
shall not exceed One Million Pounds (U.K.) ((pounds) 1,000,000) during either
such
6
<PAGE>
calendar year. In the event that the Corporation: (i) fails to achieve both such
standards during either such calendar year, then for such calendar year in which
the Corporation fails to achieve both such standards; or (ii) achieves Annual
Revenue of at least Six Million Pounds (U.K.) ((pounds) 6,000,000), but fails to
achieve Annual Pre-tax Profits of at least Eight Hundred Thousand Pounds (U.K.)
((pounds) 800,000), then for such calendar year, the Shareholders will receive,
in lieu of One Million Pounds (U.K.) ((pounds) 1,000,000), an amount equal to
the figure derived by multiplying One Million Pounds (U.K.) ((pounds) 1,000,000)
by the lesser of: (i) a fraction equal to the actual Annual Revenue of the
Corporation during such calendar year divided by Six Million Pounds (U.K.)
((pounds) 6,000,000); or (ii) a fraction equal to the actual Annual Pre-tax
Profits of the Corporation during such calendar year divided by Eight Hundred
Thousand Pounds (U.K.) ((pounds) 800,000). For both the 1998 and 1999 calendar
years, if the Corporation earns Actual Pre-tax Profits greater than Eight
Hundred Thousand Pounds (U.K.) ((pounds) 800,000), the Shareholders will
receive, in addition to the amount otherwise payable under this paragraph 1.3,
twenty five percent (25%) of the excess of such Annual Pre-tax Profits over
Eight Hundred Thousand Pounds (U.K.) ((pounds) 800,000)(the "Override").
Annual Revenue and Annual Pre-tax Profit shall be calculated on the same
accounting policies, principles and practices as have been used in the
preparation of the accounts of SDL for the financial period ended March 31, 1997
and on the basis of the reasonable judgments and opinions of James Greenbury,
provided that there shall be excluded from such calculations any costs related
to the transaction contemplated by this Agreement, any exceptional non-recurring
costs, any costs associated with the move of the Corporation from its current
premises to new premises, any costs involved in the implementation of any new IT
systems, any other costs arising from any changes made to the Corporation or its
business as a result of its ownership by the Company, and before bank or loan
stock or inter-company interest (or other interest for the purposes of U.K.
GAAP) and before any bonuses are paid at the direction of the Shareholders
pursuant to the last paragraph of this Section 1.3, and otherwise on the basis
of U.K. GAAP. It is further agreed that if the Company prevents James Greenbury
from having management control of the Corporation and SDL prior to payment of
the first installment of the Deferred Consideration, then the full amount of the
Deferred Consideration (being Pounds 2,000,000) will become immediately payable
without any reduction, and if the Company prevents James Greenbury from having
management control of the Corporation and SDL prior to payment of the second
installment of the Deferred Consideration, but after payment of the first
installment of the Deferred Consideration, then the second installment of the
Deferred
7
<PAGE>
Consideration (being Pound 1,000,000) will become immediately payable without
any reduction. The Company and James Greenbury shall use all reasonable
endeavours to ensure that there is produced, in conjunction with the audited
consolidated accounts of the Corporation for each of the calendar years ending
31 December 1997 and 1998, and in any event within 90 days of the end of the
relevant financial period, a certificate showing the Annual Revenue and the
Annual Pre-tax Profit for such year calculated on the basis set out above; that
each shall provide to the other all information it has relating to the
Corporation and SDL which is relevant to the production of such accounts and
certificate; and that copies of the accounts and certificate are sent to the
Shareholders immediately following their production. In the event that any of
the Shareholders shall notify the Company in writing within fifteen days after
delivery to them of such accounts and certificate of their decision to dispute
the calculation of such amounts the Company shall forthwith instruct such firm
of accountants as may be agreed between the Company and the Shareholders within
five days of the first such notification of their decision to dispute such
amounts (or in default of agreement any Shareholder may instruct such firm as is
nominated, upon the request of any party by the President of the Institute of
Chartered Accountants in England and Wales) (being the "Independent
Accountant"), to audit the consolidated accounts of the Corporation and to
certify the Annual Revenue and the Annual Pre-tax Profits for the relevant
period, as calculated as set out above, whose decision shall be final and
binding. The Independent Accountant shall act as an expert and not as an
arbitrator and the costs of the Independent Accountant shall be borne as it
shall direct or in default of direction shall be borne as to 50% by the Company
and 50% by the Shareholders (and shall be shared between them pro rata to the
receipt by them of the Initial Cash Payment).
The Earn-Out, as reduced pursuant to the immediately preceding
paragraph, and the Override, shall be paid to the solicitors acting for the
Shareholders in the same manner as for the Initial Cash Payment in cash
immediately following calculation of the Corporation's performance for the
relevant one of the calendar years 1998 and 1999 or, if later, upon
certification by the Independent Accountant, provided that if the
Shareholders so request bonuses shall be payable by the Corporation or SDL to
such employees and in such amounts as the Shareholders shall in writing
direct (the Earn-Out being reduced correspondingly) and further provided that
such part of the Earn-Out as the Shareholders shall in writing direct shall
instead be paid to such persons as is specified by them. The
8
<PAGE>
Company covenants and agrees to maintain sufficient cash, or availability of
cash (e.g., by way of a line of credit) in order to fund the Earn-Out and that
the Corporation and SDL will be granted sufficient credit facilities to enable
them to carry out their business effectively.
1.4. Time and Place of Closing. Unless this Agreement shall
have been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place contemporaneously
with the closing of the Initial Public Offering unless the Initial Public
Offering does not occur by March 31, 1998, in which case this Agreement shall be
rendered null and void, or unless another date, time or place is agreed to in
writing by the parties hereto (the day on which the Closing takes place being
the "Closing Date").
At the Closing: (i) Travers Smith Braithwaite shall deliver to the
Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company any updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above which may reasonably be required; and
(iii) the Company shall deliver the Initial Cash Payment to the Shareholders in
the manner specified above.
2. Representations, Warranties and Covenants of the Corporation and
the Shareholders.
Subject to the limitations set forth in Section 9 below, and subject
as contemplated in items (i) through (v) of Section 1.1 above, the Corporation
and the Shareholders hereby severally represent, warrant and covenant to the
Company as follows (the "Warranties"):
2.1. Organization, Standing and Power. The Corporation is a limited
liability company duly organized, validly existing and in good standing under
the laws of England, and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related
9
<PAGE>
Agreements to which they are a party and to agree to the transactions
contemplated hereby and thereby and to perform all of their respective
obligations hereunder and thereunder. This Agreement constitutes the legal,
valid and binding obligations of the Shareholders and the Corporation, and each
of the Related Agreements to which the Shareholders are a party constitute the
legal, valid and binding obligations of the Shareholders, each enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, and subject, in the case of the
Related Agreements, to the limitation imposed by the doctrine preventing
restraint of trade.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of the following: (i) A Ordinaries
25p, of which 1,187,424 are authorized and 840,892 issued; (ii) B Ordinaries
25p, of which 59,108 are authorized and 59,108 issued; (iii) Loan Stock 1Pound
(U.K.) (Pounds 1), of which 2,111,022 are authorized and 2,111,022 issued; and
(v) Options (over A Ordinaries at 50p), of which 346,531 are outstanding, and
will consist solely of the foregoing as of the Closing in Escrow Date and the
Closing Date (provided that such options may by then have been exercised). All
issued and outstanding Stock has been duly authorized and validly issued, are
fully paid and non-assessable, and were issued in compliance with all applicable
securities laws.
2.4 Title to Stock. The Shareholders own all of the Stock, free and
clear of any and all claims, liens, restrictions, pledges, charges, options,
security interests, encumbrances or other rights of third parties, including any
imposed by law. There are no other shares of capital stock, Loan Stock, options
or other equity or debt securities of the Corporation, of any kind or class
whatsoever, authorized, issued or outstanding, or any warrants, subscription
rights, or any other rights, agreements, or commitments of any nature relating
to the issuance of, or granting of, rights to acquire any shares of capital
stock or such securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed in the Disclosure Files, none of the Corporation's assets is
subject to any restriction, mortgage, pledge, lien, security interest, lease,
charge,
10
<PAGE>
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
an adequate condition for their current purpose.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the material
tangible assets and properties used or employed in the business presently
conducted by the Corporation (other than as hired on an operating basis, or
rented, or which have a nil value or whose cost have been fully written off).
Immediately after the consummation of the transactions contemplated by this
Agreement to be effected at the Closing, the Corporation will (i) have all
right, title, and interest in and to, or will have a valid right to use, without
liability to third party(ies), such assets and properties; and (ii) have all
assets, rights, employees, subcontractors and other persons and items which are
reasonably necessary to carry on the business and operations of the Corporation
after the Closing Date in substantially the same manner as presently conducted
by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the
organizational documents of the Corporation, (b) require any consent, waiver,
approval, authorization, permission, or filing with or notification to, any
third party, (c) result in or constitute a default, or require any consent or
approval of or notice to any person or entity, or result in the creation of an
encumbrance, under or pursuant to (i) any of the contracts to which the
Corporation is a party (including but not limited to contracts of insurance and
leases as applicable), or (ii) any other material agreements to which any of the
Shareholders is a party, or (d) violate any law applicable to the Shareholders
or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past
three years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of
11
<PAGE>
any applicable law. The Company has been provided with true and complete copies
of (i) all injunctions, judgments, orders or consent or similar decrees or
agreements of any governmental entity to which the Corporation is currently
subject (or which the Corporation was subject to during the previous three
years), and (ii) all correspondence through the date hereof with respect to any
of the matters referred to in clause (b) of this Section 2.8. None of the
Shareholders nor the Corporation is aware of any proposed legislation or law
which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. The Disclosure Files (as defined below) set
forth an accurate and complete list, and a brief description (setting forth the
names of the parties involved, the court or other governmental or mediating
entity involved, the relief sought and the substantive allegations and the
status thereof), of each material Legal Proceeding pending or, to the knowledge
of the Corporation and/or the Shareholders, threatened against or affecting the
Corporation. Except as set forth in the Disclosure Files, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) No person or entity has acted directly or indirectly as a
broker, finder or financial advisor for or to the Shareholders and/or the
Corporation in connection with the negotiations relating to or the transactions
contemplated by this Agreement or the Related Agreements; and
12
<PAGE>
(b) No person or entity is entitled to any fee or commission
or like payment, or expense reimbursement, from the Corporation in respect
thereof based in any way on agreements, arrangements or understandings made by
or on behalf of the Corporation and/or the Shareholders hereunder or thereunder.
The Shareholders hereby agree that all such fees, commissions or like payments,
or expense reimbursement shall be for the sole joint and several account of the
Shareholders and shall be paid in full by them at the Closing in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, have and will have been prepared
in accordance with U.K. generally accepted accounting principles ("GAAP"), save
that they do not contain notes, applied consistently with the past practices of
the Corporation, except where otherwise specifically noted therein, and show and
will show in all material respects a true and fair view of the financial
position, results of operations and changes in financial position or cash flows,
whichever is applicable, of the Corporation as at the dates and for the periods
indicated (subject, in the case of the unaudited financial statements, to normal
year-end audit adjustments). Without limiting the foregoing, the unaudited
financial information produced most recently prior to the Closing in Escrow or
the Closing shall show a true and fair view of the position of the Corporation
as at the date to which they were prepared (including liabilities or obligations
of any nature, whether known or unknown). The Corporation has paid (to the
extent due) all federal and local income, profits, franchises, sales, use,
occupation, property, excise and payroll taxes, and all license fees and other
charges imposed upon it, and has timely filed all tax returns and related
documents required to be filed with any governmental authority. There are no
outstanding or proposed statements of deficiency in tax payments to any federal,
local or foreign government with respect to the Corporation for any tax period.
As of the dates such Financial Statements were and will be prepared, all
accounts receivable reflected on the Financial Statements (i) have and will have
arisen from bona fide transactions in the ordinary course of the Corporation's
business, consistent with its past practices, and (ii) are
13
<PAGE>
reasonably expected to be good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for returns, credit notes, settlement
discounts or doubtful accounts which are reflected in such Financial Statements
(such reserves, the "Reserves"); such Reserves are believed to be adequate and
reasonable and were established in accordance with U.K. GAAP.
2.12. Default. The Corporation is not in material default of any
of its obligations, contracts, or commitments in any respect, or in breach of
any negative or affirmative covenants placed on it by its creditors, and none
of the Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
Since June 30, 1997:
(a) there has been no event that the Shareholders know is
reasonably likely to have a material adverse effect on the Corporation.
(b) the Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property. The Corporation does not own any
registered Intellectual Property and to the extent that it owns any property
which is unregistered Intellectual Property it has not licensed this, it is not
valued in the Corporation's balance sheet and it has not received any notice
from any other party claiming to be entitled to it. Other than routine computer
software which is properly licensed to the Corporation it does not use any
Intellectual Property belonging to any other person. The Corporation has not
licensed or sold to any other person its customer list.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which policies provide reasonable coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
14
<PAGE>
2.16. Leases. Except as disclosed in the Disclosure Files, the
Corporation is not a lessee or tenant of any real property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. The Corporation is not bound by any
severance pay requirements which would require payment of more than 3 months'
pay.
2.18. Employee Benefit Plans. Except as disclosed in the Disclosure
Files, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With Applicable Law. The Corporation's Plans are
currently in compliance in all respects with applicable law.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal and local laws, statutes, regulations,
orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation, with respect to its employees (hereinafter collectively referred to
as the "Applicable Employment Standards"), including, but not limited to,
employment, employment practices, fringe benefits, terms and conditions of
employment, termination of employment, severance or separation pay, workers'
compensation, disability, entitlements, unemployment insurance, employment
screening, wage-hour, employment discrimination on any basis, equal employment
opportunity, individual employee rights,
15
<PAGE>
affirmative action, occupational health and safety, and immigration and right to
work requirements. The Corporation further represents that it is not in arrears
in the payment of wages to any employee (except to the extent of its normal
payroll practices), and there are no claims, liabilities, demands or causes of
action, realized or unrealized, actual, potential or contingent, pursuant to
statutory rights or in tort, contract or otherwise, against the Corporation
arising out of or in connection with any event, fact, circumstance or occasion
relating to any applicant for employment, the employment of any employee or the
separation from employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all material licenses, permits, orders, approvals and authorizations necessary
for the conduct of its business as presently conducted. The Corporation and its
employees and agents have all material licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has
not been engaged in any criminal practices, including, but not limited to,
payoffs, kickbacks or illegal gifts.
2.23. Contracts. Neither the Corporation nor any of the Shareholders
has received notice of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders. Each
of the Shareholders which is a company undertakes that for a period of two years
from the date of this Agreement it will not itself directly compete with the
business currently carried on by the Corporation (other than the Mailroom
Business) and it will not itself knowingly solicit or entice away any of the
16
<PAGE>
employees at the date of this Agreement of the Corporation (other than those
involved in the Mailroom Business); provided that nothing in this section shall
prevent such Shareholder from continuing to have or acquiring investments in any
company or business which may do any of such things. James Greenbury and Kelly
Donovan shall have at the Closing in Escrow entered into agreements, the form of
which is attached to this Agreement as Exhibit A.
3.2. Confidentiality. James Greenbury shall abide by the terms of
the Confidentiality Agreement between Mr. Greenbury and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on April 2,
1997. Each of the other Shareholders shall keep confidential any confidential
information of the Company except to the extent that this becomes public other
than through the default of the Shareholders. The Shareholders and the
Corporation both acknowledge and agree that the Company shall have the right to
disclose certain information (other than information naming customers of SDL)
concerning the Corporation to third parties (which third parties will in turn be
bound by an agreement similar to the Confidentiality Agreement), for such
general corporate purposes as includes but is not limited to obtaining financing
and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as
follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a
17
<PAGE>
party have been duly executed and delivered by the Company, and constitute the
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception
has been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge
any of the transactions contemplated hereby or thereby. Exhibit E sets forth
an accurate and complete list, and
18
<PAGE>
a brief description (setting forth the names of the parties involved, the court
or other governmental or mediating entity involved, the relief sought and the
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Company, threatened against or affecting the
Company. To the knowledge of the Company, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Company, threatened, judgment,
injunction, order or consent or similar decree or agreement (including, without
limitation, any consent or similar decree or agreement with any governmental
entity) against, affecting or naming the Company.
4.6. Default. The Company is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of
any negative or affirmative covenants placed on it by its creditors, and the
Company has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
5.1. Conduct of the Business Pending the Closing Date. During the
period from the date of this Agreement and continuing until the Closing Date,
the Shareholders and the Corporation each covenants and agrees that (except as
expressly contemplated or permitted by this Agreement, or to the extent that the
Company shall otherwise consent in writing) it shall use such rights and powers
as are reasonably available to it to procure that the Corporation shall in all
material respects:
(a) conduct its business only in the ordinary course,
consistent with past practice;
19
<PAGE>
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and
other obligations applicable to it;
(d) not change its organizational documents;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock (other than
interest due on the Loan Stock);
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present insurance or equivalent coverage
on all of its assets and on all real and personal property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement, which in either case is material to the business;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
5.2. Disposal of Mailroom Business. It is acknowledged that
nothing in this Agreement shall prevent the disposal by SDL of the Mailroom
Business at its book value, the repayment of the bank indebtedness, the move
(if required) of the Corporation to new premises, the implementation (if
required) of new IT systems and the termination of the employment contract of
20
<PAGE>
James Greenbury and its replacement by a contract in the form attached as part
of Exhibit 1 to this Agreement.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, shall not (unless Mr.
Greenbury is given prior notice) involve contacting any employee or
representative of the Corporation other than James Greenbury or persons
specified by James Greenbury, shall not at any time involve more than three
representatives of the Company or its advisers visiting the Corporation, and
shall not involve any outside advisers of the Corporation unless the costs of
such outside advisers shall be paid in advance by the Company, and the
Shareholders and the Corporation shall cooperate to permit such investigation
and examination on such basis.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof, or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective reasonable efforts (but only on the basis that all costs are
borne by the Company except for those costs incident to the Corporation's or the
Shareholders' compliance with the requirements of English law as necessary to
fulfill their obligations under this Agreement) to (i) take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Related Agreements, (ii) obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental entities,
third parties
21
<PAGE>
and parties to contracts with the Corporation as are necessary for consummation
of the transactions contemplated by this Agreement and the Related Agreements,
and (iii) fulfill all conditions precedent applicable to such party pursuant to
this Agreement and the Related Agreements. In case at any time after the Closing
Date any further action is necessary or desirable to carry out the purposes of
this Agreement or the Related Agreements, each party hereto shall use their
respective reasonable efforts to take or cause to be taken all such necessary
action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall, as soon as practicable, give notice to the Company of (a)
any notice of, or other communication relating to, a default under any contract
material to the financial condition, properties, business operations, or results
of operations of the Corporation to which it is a party or is subject, (b) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement or any of the Related Agreements, or (c) any
material adverse change in the properties, business operations, results of
operations, financial condition or prospects of the Corporation, other than
changes resulting from general economic conditions. In addition, the Corporation
and James Greenbury shall be required to update as far as reasonably practicable
the Disclosure Files and other information supplied pursuant to this Agreement
at such time as the information contained therein changes in any material
respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
use all reasonable endeavours to ensure that in the period to the Closing Date
the Corporation is managed so that on a consolidated basis the Corporation has
at least Five Hundred Thousand Pounds (U.K.) ((pounds) 500,000) Working Capital
(defined as the current net assets, calculated on the same basis as in the
audited accounts of SDL for the year ended 31st March 1997 but excluding all
bank indebtedness and cash) as of the Closing Date. For purposes of determining
whether the Corporation had the required Working Capital as of the Closing Date,
the Company will cause to be prepared and copied to each of the Shareholders,
promptly following the Closing, a consolidated balance sheet of the Corporation
as of the Closing Date. Such balance sheet shall be prepared on the same
accounting policies, principles and practices as have been used in the
preparation of the accounts of SDL for the financial periods prior to this
Agreement (including appropriate provision for any tax liabilities) and on the
basis of the reasonable judgments and opinions of James Greenbury provided that
there shall be
22
<PAGE>
excluded from such balance sheet the costs relating to the transaction
contemplated by this Agreement, any exceptional non-recurring costs and any
other costs arising from any changes made to the Corporation or SDL or their
business as a result of its ownership by the Company and otherwise in accordance
with U.K. GAAP. The Company shall ensure that the Shareholders are consulted
about the preparation of such balance sheet and that upon it being finalized a
copy of the balance sheet is delivered to each of the Shareholders. In the event
that the Corporation has less than the prescribed Five Hundred Thousand Pounds
(U.K.) (Pounds 500,000) Working Capital as of the Closing Date, as determined by
such balance sheet, the Company shall be entitled to deduct an amount equal to
the difference between the actual Working Capital as of the Closing Date and
Five Hundred Thousand Pounds (U.K.) (Pounds 500,000) working capital (the
"Shortfall") from any of the obligations of the Company to the Shareholders to
pay the Deferred Consideration and the Override. In the event that the
Corporation has more than Five Hundred Thousand Pounds (U.K.) ((pounds) 500,000)
Working Capital as of the Closing Date, an amount equal to the excess shall be
paid to the Shareholders as additional consideration and shall be payable in the
same manner as for the Initial Cash Payment.
In the event that any of the Shareholders shall notify the Company
in writing within fifteen days after delivery to them of the balance sheet
referred to above of their decision to dispute the amount of the Shortfall, the
Company shall forthwith instruct the Independent Accountants to audit the
balance sheet of the Corporation as of the Closing Date, and to calculate the
Working Capital therein on the basis set out above. The Independent Accountant
shall, acting as an expert and not as an arbitrator, then determine the amount
of the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The costs of the Independent Accountant shall
be borne as it shall direct or in default of direction shall be borne as to 50%
by the Company and 50% by the Shareholders (and shall be shared between them pro
rata to the receipt by them of the Initial Cash Payment).
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement in respect of the matters to
be performed at the Closing in Escrow Date
23
<PAGE>
and the Closing Date shall be subject to the satisfaction prior to the Closing
in Escrow Date and the Closing Date (as appropriate) of the following
conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their reasonable efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions to be performed at the Closing in Escrow
and the Closing contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the Company,
any or all of which may be waived in whole or in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) would be
true if they had been repeated as of the Closing in Escrow Date and the Closing
Date as though made on and as of the Closing in Escrow Date and the Closing
Date, respectively, except as otherwise contemplated by this Agreement.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
24
<PAGE>
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions to be performed at the Closing in Escrow and the Closing
contemplated by this Agreement are subject to the satisfaction of the following
conditions (which are for the exclusive benefit of the Corporation and the
Shareholders, any or all of which may be waived in whole or in part by the
Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements
shall have been duly executed and delivered by the parties thereto.
7.4 Costs of Satisfying Conditions. To the extent that any costs are
incurred in satisfying any of the conditions contemplated by this Agreement
these shall be borne by the Company, which will reimburse any other party which
has suffered any of such costs promptly upon demand, provided however that those
costs incident to the Corporation's or the Shareholders' compliance with
25
<PAGE>
the requirements of English law, as necessary to fulfill their respective
obligations under this Agreement, shall be borne by the Corporation or the
Shareholders, as appropriate.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the
closing of the Initial Public Offering does not occur by March 31, 1998; or
(c) the Company in the event that the Anti-Dilution Rights are
not preserved. "Anti-Dilution Rights" means the right of certain shareholders of
the Company to receive in the aggregate no less than 20% of the Company Stock
calculated on a fully diluted basis after giving effect to full exercise of
certain warrant rights and the issuance of shares of the Company Stock in the
Initial Public Offering.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
any and all obligations under the confidentiality provisions contained in
Section 3.2 of this Agreement; and (ii) to the extent that such termination
results from the willful breach by a party hereto of any of its representations
or warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach
up to a maximum of (pounds) 10,000.
9. Limitation on Warranties.
The Shareholders shall have no liability under this Agreement
unless and until the aggregate amount of all proper claims under this Agreement
shall exceed (pounds) 20,000 and further provided that the aggregate liability
of the Shareholders under this Agreement shall not exceed the amount due and
owing but at the relevant time unpaid pursuant to the Earn-Out (up to a maximum
26
<PAGE>
of (pounds) 2,000,000) and shall only be payable by the Company deducting such
liability from the Earn-Out due and owing but unpaid.
No claims shall be capable of being made against the Shareholders
under this Agreement unless written notice thereof (specifying all material
details of the breach or other event to which such a claim shall relate and the
Company's bona fide estimate of the amount thereof) shall have been given to the
Shareholders not later than 24 months from the date of this Agreement. Any such
claim which may be made shall (if it has not been previously satisfied, settled
or withdrawn) be deemed to be withdrawn at the expiration of 6 months from the
date of giving notice of such claim unless legal proceedings in respect thereof
have been commenced by the issuing and service of such proceedings against all
of the Shareholders and the subject matter of any such claim which shall be
deemed withdrawn shall not be capable of being the subject of a further claim.
The Company acknowledges that it has not relied on any
representation, warranty, covenant or undertaking of the Shareholders or any
other persons save for any representation, warranty, covenant or undertaking
expressly set out in this Agreement; and that without limiting the foregoing it
has no rights pursuant to any of the information provided to it prior to the
date of this Agreement (or after the date of this Agreement, but prior to
Closing); and that the Company is not aware of any matter or thing which in its
reasonable opinion may be inconsistent with any of the Warranties or which would
or may give rise to any liability on the part of the Shareholders pursuant to
the Warranties. The Company acknowledges that no representation, warranty,
covenant or undertaking (whether express or implied, statutory or otherwise)
made or alleged to have been made by or on behalf of the Shareholders in
connection with or arising out of the sale of the Stock (whether by the
provision of information or otherwise howsoever) and which is not expressly set
out in this Agreement shall give rise to any liability on the part of the makers
thereof or any other person or persons who might otherwise be liable in respect
of the making thereof.
The Warranties are given subject to all matters disclosed by the
minute books of the Corporation and SDL and to all other matters disclosed by
any written information made available to the Company or its advisers prior to
the execution of this Agreement (the "Disclosure Files"), all of which matters
shall be treated as disclosed against each and all of the Warranties.
27
<PAGE>
No claim shall be made under the Warranties in respect of a matter
to the extent that it has already been taken into account in the preparation of
the financial statements prepared pursuant to Section 6.5 or from which Annual
Revenue and Annual Pre-tax Profit is derived for the purposes of the Earn-Out.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive
the Closing for the period of two (2) years referred to in Section 9 above.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or sent by
overnight courier, or by certified or registered mail, postage prepaid, and
shall be deemed to be given, dated and received when so delivered personally or
by courier, or, if mailed, five business days after the date of mailing to the
following address, or to such other address or addresses as such Person may
subsequently designate by written notice given hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
Mr. James Brett Greenbury and Mr. William Eccles
15 Lawn Crescent Kew Foreign & Colonial
Ventures
Richmond, Surrey TW9 3NR Exchange House
ENGLAND London EC2
with a copy to: Travers Smith Braithwaite
Attn: Nicholas Moore
10 Snowhill
London, EC1
ENGLAND
28
<PAGE>
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereto and is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder. Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto with respect to any
of the terms contained herein, and each party hereto agrees to be bound by any
such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of England. The parties irrevocably submit to the
sole jurisdiction of the courts of England and Wales in respect of any claim,
dispute or difference arising out of or in connection with this Agreement. The
Company hereby irrevocably appoints Stephen Hatfield of Akin Gump (London),
located at One Angel Court London, England EC2R 7HJ, to be its agent for service
of proceedings within England and Wales.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
adverse to any party. In the event that the enforceability of any
non-competition or similar covenants contained herein or in any Related
Agreement is called into question as the result of time, geographical or other
applicable limitations specified in such covenants, such time, geographical or
other applicable limitations shall be deemed modified to the minimum extent
necessary to render the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
29
<PAGE>
10.8. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.9. Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
10.10 No Joint Liability. Notwithstanding anything in this
Agreement to the contrary, no Shareholder shall be liable for the default of
any other Shareholder pursuant to the terms of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
----------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
30
<PAGE>
Attest: "CORPORATION"
Security Business Services Ltd.
By: /s/ James Greenbury
- - - - -------------------------- ----------------------
Name: James Greenbury
Title: Managing Director
Witness: "SHAREHOLDERS"
/s/ James Brett Greenbury
- - - - -------------------------- ------------------------------
James Brett Greenbury
/s/ Kelly Donovan
- - - - -------------------------- ------------------------------
Kelly Donovan
Attest:
Scawton Limited
By:/s/ [Director]
- - - - -------------------------- ---------------------------
Director
Attest:
Lyon-Burwell Limited
By:/s/ [Director]
- - - - -------------------------- ---------------------------
Director
Attest:
Arazan Limited
By:/s/ [Director]
- - - - -------------------------- ---------------------------
Director
Attest:
Foreign & Colonial Enterprise Trust plc
By:/s/ [Director]
- - - - -------------------------- ---------------------------
Director
31
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 11th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), American Eagle Endeavors, Inc., a Minnesota (the
"Corporation"), and Barry Anderson, Cheryl O'Toole, and Lawrence O'Toole,
(collectively, the "Shareholders"). Unless defined herein, all capitalized terms
used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996, by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders do not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs
2
<PAGE>
and expenses to be incurred in connection with such terminations of employment,
and the Company will reduce the cash portion of the purchase price by the amount
of such reasonable estimate.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C.
20036 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2. Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., as escrow agent:
(i) certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
3
<PAGE>
Shareholders and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretaries of State of Minnesota and Arizona; (vi) the certificates, dated
the Closing in Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b)
hereinbelow; and (vii) the opinion of counsel to the Shareholders and the
Corporation as to such matters as counsel to the Company may reasonably require,
including but not limited to such counsel's opinion that: (A) the Corporation is
in good standing; (B) the Corporation is authorized to conduct its business in
each jurisdiction in which it is doing business; (C) the Shareholders and the
Corporation have the full power to enter into and perform their respective
obligations under this Agreement; (D) this Agreement constitutes the legal,
valid and binding obligations of the Corporation and the Shareholders, and the
Related Agreements to which the Shareholders are a party, constitute the legal,
valid and binding obligations of the Shareholders, each enforceable in
accordance with their respective terms (except as enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditor's rights, and principles of equity); and (E) neither the Corporation
nor the Shareholders are threatened with or affected by any actions, proceedings
or investigations wherein an unfavorable decision, ruling or finding could have
a material adverse effect on the financial condition or operation of the
Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to two-thirds (2/3) of the Corporation's net revenue
during the twelve calendar months ending June 30, 1997, subject to adjustment
(if any) as provided in Section 1.1 above,
4
<PAGE>
and subject to further adjustment (if any) as a result of a reduction in the
Maximum Earn-Out (as defined in this Section 1.3 below).
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholders shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders shall deliver to the Company, within thirty days
after written request
5
<PAGE>
from the Company, such additional audited and/or unaudited, reviewed financial
statements of the Corporation as the Company may reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholders, provided that the Company will, upon the request of the
Shareholders, advance such costs on behalf of the Shareholders. In the event
that all of the Shareholders do not timely deliver satisfactory shareholder
representation letters and complete the Closing in Escrow, the Shareholders
shall immediately refund to the Company any such advanced costs; in the event
that all such shareholder representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Shareholders shall be
relieved of their obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering.
The Shareholders acknowledge that the sale of the Company Stock will
be restricted for a period of time by virtue of a "lock-up" agreement which may
be imposed by the Company, and the Shareholders shall execute such a "lock-up"
agreement, as may be required by the Company, by which the sale of the Company
Stock is restricted (perhaps prohibited) for a period of two (2) years from the
date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation
6
<PAGE>
fails to achieve such margin requirement, the cash portion of the Purchase Price
shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In the event that
the Corporation achieves the margin requirement during the relevant calendar
quarter, but fails to achieve the revenue requirement set forth in Exhibit B,
then for each such calendar quarter, the cash portion of the Purchase Price
shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out, multiplied
by: (ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar quarter and the revenue requirement for
such calendar quarter as set forth in Exhibit B, and the denominator of which is
the revenue required during such calendar quarter as set forth in Exhibit B. The
Maximum Earn-Out, less any reductions as set forth in this paragraph, is
hereinafter referred to as the "Earn-Out". The Earn-Out shall bear interest at
the rate of 7% per annum commencing as of the Closing Date (i.e., once the
Earn-Out is determined, the Shareholders will be due such amount plus interest
at the rate of 7% per annum on such amount, accrued from the Closing Date until
the date of payment of the Earn-Out to the Shareholders). The Earn-Out shall be
paid to the Shareholders promptly following calculation of the Corporation's
performance for the quarter ending December 31, 1999. The Company covenants and
agrees to maintain sufficient cash, or availability of cash (e.g., by way of a
line of credit) in order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders, collectively, in an amount equal to up to 30%
of the Purchase Price. Said loan by the Company to the Shareholders (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Shareholders shall have the right to prepay
the Shareholder Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Shareholder Loan (plus accrued interest)
7
<PAGE>
against the Earn-Out as earned each quarter. The Shareholder Loan shall mature
as of the date that the Earn-Out is payable. In the event that the Shareholder
Loan (including accrued interest) is not repaid in full upon maturity, the
Company shall enjoy all rights of a secured party under the Uniform Commercial
Code then in effect in the State of New York, provided that the Company's only
recourse shall be first against the remaining Earn-Out and then against the
Company Stock it holds as collateral, and there shall not be any recourse
against the Shareholders individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W.,
Washington, D.C. 20036, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P. shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholders shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated opinion of counsel as referred to in Section
1.2(a)(vii) above; and (iii) the Company shall deliver the Purchase Price to the
Shareholders (less the Maximum Earn-Out, which shall be payable to the
Shareholders pursuant to the terms of Section 1.3 above, and with the Company
Stock collateralized against the Shareholder Loan being delivered to the Company
as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
8
<PAGE>
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota, and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted. The Corporation is duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of ___ shares of ___ par value
capital stock of which ____ shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4. Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or
9
<PAGE>
outstanding, or any warrants, options, subscription rights, or any other rights,
agreements, or commitments of any nature relating to the issuance of, or
granting of, rights to acquire any shares of capital stock or such securities of
the Corporation.
2.5. Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the Articles
or Certificate of Incorporation or By-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other
10
<PAGE>
material agreements to which any of the Shareholders is a party, or (d) violate
any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholders nor the Corporation is aware
of any proposed legislation or law which is reasonably expected to be enacted
and which, if so enacted, could reasonably be expected to have a material
adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
11
<PAGE>
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders and/or the Corporation in
connection with the negotiations relating to or the transactions contemplated by
this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or
12
<PAGE>
otherwise) shall exist as at Closing in Escrow or the Closing not reflected in
the most recently dated balance sheet supplied to the Company. The Corporation
has paid all federal, state and local income, profits, franchises, sales, use,
occupation, property, excise and payroll taxes, and all license fees and other
charges imposed upon it, and has timely filed all tax returns and related
documents required to be filed with any governmental authority. There are no
outstanding or proposed statements of deficiency in tax payments to any federal,
state, local or foreign government with respect to the Corporation for any tax
period. As of the dates such Financial Statements were and will be prepared, all
accounts receivable reflected on the Financial Statements (i) have and will have
arisen from bona fide transactions in the ordinary course of the Corporation's
business, consistent with its past practices, and (ii) are good and collectible
at the aggregate recorded amounts thereof, net of any applicable reserves for
returns or doubtful accounts which are reflected in such Financial Statements
(such reserves, the "Reserves"); such Reserves are adequate and reasonable and
were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the
13
<PAGE>
Corporation either for free or through established retail facilities) and
indicates, with respect to each item of Intellectual Property listed thereon,
the owner thereof and, if applicable, the name of the licensor and licensee
thereof and the terms of such license or other contract relating thereto. The
Corporation owns or has the lawful right to use all of the Intellectual Property
as currently used or as necessary for the conduct of its business as now
conducted. After Closing, the Corporation will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license agreements are valid and in full force and effect,
and shall continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid and
enforceable without any qualification, limitation or restriction on its use, and
neither the Corporation nor any of the Shareholders has received any notice or
claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual Property
nor any other Intellectual Property used by the Corporation will conflict with,
infringe upon, violate or interfere with, or constitute an appropriation of, any
right, title or interest held by any other person or entity, and there have been
no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would
14
<PAGE>
result in the abandonment, cancellation or unenforceability of any item of
Intellectual Property, and the Corporation has not taken or failed to take any
action that would result in the forfeiture or relinquishment of any Intellectual
Property used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation has
no liability or obligations to any third parties incident to the Intellectual
Property used or able to be used by the Corporation in the conduct of its
business as heretofore conducted; and
(vi) The Corporation has timely met all of its obligations
to any third parties incident to the Intellectual Property used or able to be
used by the Corporation in the conduct of its business as heretofore conducted,
and such obligations have been and will be correctly and adequately disclosed in
the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to (x)
protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific
15
<PAGE>
telephone numbers and/or radio channels/frequencies) relating to any of the
foregoing, and any goodwill associated with any business owning, holding or
using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively, the
"Plans"). The Corporation is not in default under the terms of any of the Plans.
The Corporation has made all contributions to each of the Plans required by the
terms of the respective Plans, as well as all contributions required to be made
in order to satisfy all requirements of law. Each of the Plans has sufficient
assets to satisfy (under reasonable and permitted actuarial assumptions) its
obligations on a termination basis, and the level of contributions required
pursuant to the terms of each Plan is sufficient to satisfy (under reasonable
and permitted actuarial assumptions) the obligations of such Plan on a
continuing basis for benefits accrued to date.
16
<PAGE>
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements,
17
<PAGE>
unemployment insurance, employment screening, wage-hour, employment
discrimination on any basis, equal employment opportunity, individual employee
rights, affirmative action, occupational health and safety, and immigration and
right to work requirements. Such compliance by the Corporation includes, but is
not limited to, Title VII of the Civil Rights Act of 1964, as amended, including
the Civil Rights Act of 1991; the National Labor Relations Act of 1935, as
amended; the Fair Labor Standards Act of 1938, as amended; the Occupational
Safety and Health Act of 1970, as amended; the Equal Pay Act of 1963, as
amended; the Age Discrimination in Employment Act of 1967, as amended; the
Americans with Disabilities Act of 1990; the Family Medical Leave Act of 1993;
the Immigration Reform and Control Act of 1986 (together with the regulations
promulgated thereunder, hereinafter collectively referred to as "IRCA"); the
Worker Adjustment and Retraining Notification Act; the Employee Polygraph
Protection Act; the Drug-Free Workplace Act of 1988; the Health Insurance
Portability and Accountability Act of 1996; the Code; the regulations
promulgated under each such act; and any and all other federal, state and local
laws, regulations and requirements of any nature applicable to the Corporation.
The Corporation further represents that it is not in arrears in the payment of
wages to any employee (except to the extent of its normal payroll practices),
and there are no claims, liabilities, demands or causes of action, realized or
unrealized, actual, potential or contingent, pursuant to statutory rights or in
tort, contract or otherwise, against the Corporation arising out of or in
connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals
18
<PAGE>
or authorizations is pending or, to the best of the Corporation's and/or the
Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation. For purposes of this Agreement, the term "Default" means, with
respect to any Contract, (x) any material breach of, or material default under,
such Contract, (y) any event, other than the normal passage of time, which would
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration of, or any obligation to repay,
with respect to such Contract, or (z) any event, other than the normal passage
of time, which would result in either a significant increase in the obligations
or liabilities of, or a loss of any significant benefit of, the party in
question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements
19
<PAGE>
or the transactions contemplated hereby or thereby 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 statement contained herein or therein, in light of
the circumstances under which they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on June 23,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the
20
<PAGE>
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company. This Agreement
and each of the Related Agreements to which it is a party have been duly
executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not: (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company; (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements
21
<PAGE>
or any action taken or to be taken by the Company in connection with the
consummation of the transactions contemplated hereby or thereby or which seeks
to prohibit, enjoin or otherwise challenge any of the transactions contemplated
hereby or thereby. Exhibit E sets forth an accurate and complete list, and a
brief description (setting forth the names of the parties involved, the court or
other governmental or mediating entity involved, the relief sought and the
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Company, threatened against or affecting the
Company. To the knowledge of the Company, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Company, threatened, judgment,
injunction, order or consent or similar decree or agreement (including, without
limitation, any consent or similar decree or agreement with any governmental
entity) against, affecting or naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
22
<PAGE>
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement; and
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
23
<PAGE>
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements; (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements; and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the
24
<PAGE>
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of: (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject; (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements; or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5. Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $708,333 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets and liabilities of the
Corporation as of the Closing Date (including, but not limited to, accrued tax
liabilities as if the tax year ended on the Closing Date). In the event that the
Corporation has less than the prescribed $708,333 working capital as of the
Closing Date, as determined by such balance sheet, the Shareholders shall
forthwith pay the Company an amount equal to the difference between the actual
working capital as of the Closing Date and $708,333 working capital (the
"Shortfall"). If the Shareholders do not pay the Shortfall to the Company within
five (5) days after demand, then, in addition to all other remedies which the
Company may have, the Company may deduct the amount of the Shortfall from any of
the
25
<PAGE>
obligations of the Company to the Shareholders (including, but not limited to,
the Earn-Out to which the Shareholders may be entitled thereafter).
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the
26
<PAGE>
satisfaction of the following conditions (which are for the exclusive benefit of
the Company, any or all of which may be waived in whole or in part by the
Company).
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
27
<PAGE>
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1. Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
28
<PAGE>
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholders under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this
29
<PAGE>
Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
(c) No tax indemnification. The parties hereto agree that each
shall be responsible for any tax liabilities or payments that they may become
subject to as a result of the transactions contemplated by this Agreement and
that no party shall have any obligation to indemnify any other party for such
liabilities.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
30
<PAGE>
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
American Eagle Endeavors, Inc.
1822 West 3rd Street
Tempe, AZ 85281
Attention: Barry Anderson
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not
31
<PAGE>
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of all parties hereto with
respect to any of the terms contained herein, and each party hereto agrees to be
bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled,
32
<PAGE>
without the necessity of proving actual damages, to injunctive relief in
addition to damages and all other remedies which may otherwise be available to
the Company and/or the Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholders that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
33
<PAGE>
10.11. Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
34
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
AMERICAN EAGLE ENDEAVORS, INC.
By: /s/ Barry Anderson
- - - - -------------------------- -------------------------------------
Name: Barry Anderson
Title: President
Witness: "SHAREHOLDERS"
/s/ Barry Anderson
- - - - -------------------------- -----------------------------------------
Barry Anderson
Witness:
/s/ Lawrence O'Toole
- - - - -------------------------- -----------------------------------------
Lawrence O'Toole
Witness:
/s/ Cheryl O'Toole
- - - - -------------------------- -----------------------------------------
Cheryl O'Toole
35
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 10th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Express It Couriers, Inc., a Massachusetts corporation
(the"Corporation"), and James M. Shaughnessy, (the "Shareholder"). Unless
defined herein, all capitalized terms used in this Agreement shall have the
meaning given them in the Operating Agreement of Dispatch Management Services
LLC dated December 1, 1996 by and between the Members of Dispatch Management
Services LLC, as amended (the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; (ii) the schedules
required pursuant to Section 2 below; and (iii) the agreements required pursuant
to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders do not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such terminations of employment, and
the Company will reduce the cash portion of the purchase price by the amount of
such reasonable estimate.
2
<PAGE>
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholders and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretaries of State of [name all states in which Corporation does
business]; (vi) the certificates, dated the Closing in Escrow Date, required
pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of
counsel to the Shareholders and the Corporation as to such matters as counsel to
the Company may reasonably require, including but not limited to such counsel's
opinion that: (A) the
3
<PAGE>
Corporation is in good standing; (B) the Corporation is authorized to conduct
its business in each jurisdiction in which it is doing business; (C) the
Shareholders and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholders, and the Related Agreements to which the Shareholders are a party,
constitute the legal, valid and binding obligations of the Shareholders, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholders are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to two-thirds (2/3) of the Corporation's net revenue
during the twelve calendar months ending June 30, 1997, subject to adjustment
(if any) as provided in Section 1.1 above, and subject to further adjustment (if
any) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.3 below).
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement
4
<PAGE>
for the twelve month period ended on June 30, 1996: and (iii) unaudited,
reviewed financial statements of the Corporation, including a balance sheet
dated as of June 30, 1997 and an income statement and a cash flow statement for
the six month period ended June 30, 1997. The intent of providing the audited
financial statements referred to in the foregoing sentence is to resolve any
auditing issues prior to calculation of the Purchase Price, so that the Purchase
Price may be quickly and efficiently calculated. In the event that the closing
of the Initial Public Offering has not occurred on or before November 12, 1997,
but does occur on or before December 12, 1997, then in that event, in lieu of
the unaudited, reviewed financial statements of the Corporation for the six
month period ended June 30, 1997, the Shareholders shall deliver to the Company,
within thirty days after written request from the Company: (i) an updated set of
audited financial statements of the Corporation, including a balance sheet dated
as of June 30, 1997, and income statements and cash flow statements for the six
month period ended June 30, 1997; (ii) unaudited financial statements for the
Corporation, including a balance sheet dated as of September 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
September 30, 1996; and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of September 30, 1997 and income
statements and cash flow statements for the three month period ended September
30, 1997. In the event that the closing of the Initial Public Offering has not
occurred on or before December 12, 1997, then upon written request from the
Company given on or before March 1, 1998, the Shareholders shall deliver to the
Company, within thirty days after written request from the Company, such
additional audited and/or unaudited, reviewed financial statements of the
Corporation as the Company may reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholders, provided that the Company will, upon the request of the
Shareholders, advance such costs on behalf of the Shareholders. In the event
that all of the Shareholders do not timely deliver satisfactory shareholder
representation letters and complete the Closing in Escrow, the Shareholders
shall immediately refund to the Company any such advanced costs; in the event
that all such shareholder representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Shareholders shall be
relieved of their obligation to refund to the Company any such advanced costs.
5
<PAGE>
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
Shareholders acknowledge that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholders shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation fails to achieve such margin requirement, the cash portion of the
Purchase Price shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In
the event that the Corporation achieves the margin requirement during the
relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue requirement for such calendar quarter as set forth in Exhibit B, and
the denominator of which is the revenue required during such calendar quarter as
set forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth
in this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out
shall bear interest at the rate of 7% per annum commencing as of the Closing
Date (i.e., once the Earn-Out is determined, the Shareholders will be due such
amount plus interest at the rate of 7% per annum on such amount, accrued from
the Closing Date until the date of payment of the Earn-Out to the Shareholders).
The Earn-Out shall be paid to the Shareholders promptly following calculation of
the Corporation's performance for the quarter ending December 31, 1999. The
Company covenants and agrees to maintain sufficient cash, or availability of
cash (e.g., by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders,
6
<PAGE>
collectively, in an amount equal to up to 30% of the Purchase Price. Said loan
by the Company to the Shareholders (the "Shareholder Loan") shall bear interest
at a rate of seven percent (7%) per annum, and shall be secured by all of the
Company Stock paid as part of the Purchase Price at Closing. The collateral
security agreement evidencing the collateralization of the Shareholder Loan with
the Company Stock and the Earn-Out shall be on such terms as are reasonably
acceptable to the Company, which terms shall include, but shall not be limited
to, the retention of all of the Company Stock by the Company until full
repayment of the Shareholder Loan (including accrued interest). The Shareholders
shall have the right to prepay the Shareholder Loan (plus accrued interest) at
any time without penalty and shall have the right to direct the Company to
offset the balance due under the Shareholder Loan (plus accrued interest)
against the Earn-Out as earned each quarter. The Shareholder Loan shall mature
as of the date that the Earn-Out is payable. In the event that the Shareholder
Loan (including accrued interest) is not repaid in full upon maturity, the
Company shall enjoy all rights of a secured party under the Uniform Commercial
Code then in effect in the State of Maryland, provided that the Company's only
recourse shall be first against the remaining Earn-Out and then against the
Company Stock it holds as collateral, and there shall not be any recourse
against the Shareholders individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section
7
<PAGE>
1.2(a)(vii) above; and (iii) the Company shall deliver the Purchase Price to the
Shareholders (less the Maximum Earn-Out, which shall be payable to the
Shareholders pursuant to the terms of Section 1.3 above, and with the Company
Stock collateralized against the Shareholder Loan being delivered to the Company
as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is an "S"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Massachusetts, and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Corporation is duly qualified and in good standing
to conduct business in each jurisdiction in which the business it is conducting,
or the operation, ownership or leasing of its properties, makes such
qualification necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 15,000 shares of no par value
capital stock of which 100 shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
8
<PAGE>
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice
9
<PAGE>
to any person or entity, or result in the creation of an encumbrance, under or
pursuant to (i) any of the contracts to which the Corporation is a party
(including but not limited to contracts of insurance and leases as applicable),
or (ii) any other material agreements to which any of the Shareholders is a
party, or (d) violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholders nor the Corporation is aware
of any proposed legislation or law which is reasonably expected to be enacted
and which, if so enacted, could reasonably be expected to have a material
adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the
Corporation and/or the
10
<PAGE>
Shareholders, threatened, judgment, injunction, order or consent or similar
decree or agreement (including, without limitation, any consent or similar
decree or agreement with any governmental entity) against, affecting or naming
the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders and/or the Corporation in
connection with the negotiations relating to or the transactions contemplated by
this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax
11
<PAGE>
returns and related documents required to be filed with any governmental
authority. There are no outstanding or proposed statements of deficiency in tax
payments to any federal, state, local or foreign government with respect to the
Corporation for any tax period. As of the dates such Financial Statements were
and will be prepared, all accounts receivable reflected on the Financial
Statements (i) have and will have arisen from bona fide transactions in the
ordinary course of the Corporation's business, consistent with its past
practices, and (ii) are good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for returns or doubtful accounts which
are reflected in such Financial Statements (such reserves, the "Reserves"); such
Reserves are adequate and reasonable and were established in accordance with
GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the
12
<PAGE>
Intellectual Property as currently used or as necessary for the conduct of the
Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license agreements are valid and in full force and effect,
and shall continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
13
<PAGE>
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
14
<PAGE>
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by
15
<PAGE>
any collective bargaining agreement with respect to any employee benefit plan.
Neither the Corporation nor any of the Plans has ever incurred any withdrawal
liability (including any contingent or secondary withdrawal liability) within
the meaning of Section 4201 and Section 4204 of ERISA with respect to any
multi-employer plan. The Corporation and the trustees or the administrators of
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages
16
<PAGE>
to any employee (except to the extent of its normal payroll practices), and
there are no claims, liabilities, demands or causes of action, realized or
unrealized, actual, potential or contingent, pursuant to statutory rights or in
tort, contract or otherwise, against the Corporation arising out of or in
connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation. For purposes of this Agreement, the term "Default" means, with
respect to any Contract, (x) any material breach of, or material default under,
such Contract, (y) any event, other than the normal passage of time, which would
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration of, or any obligation to repay,
with respect to such Contract, or (z) any
17
<PAGE>
event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on July 23,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and
18
<PAGE>
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Company is duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity
19
<PAGE>
to which the Company is currently subject (or to which the Company was subject
since its inception), and (ii) all correspondence through the date hereof with
respect to any of the matters referred to in clause (b) or clause (i) of this
Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except
20
<PAGE>
as expressly contemplated or permitted by this Agreement, or to the extent that
the Company shall otherwise consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
21
<PAGE>
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
22
<PAGE>
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least working capital (defined as the excess
of current (liquid) assets over current liabilities) as of the Closing Date in
an amount at least equal to the average monthly working capital of the
Corporation during the twelve month period ended June 30, 1997 (the "Required
Working Capital"). For purposes of determining whether the Corporation had the
Required Working Capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets and liabilities of the
Corporation as of the Closing Date (including, but not limited to, accrued tax
liabilities as if the tax year ended on the Closing Date). In the event that the
Corporation has less than the Required Working Capital as of the Closing Date,
as determined by such balance sheet, the Shareholders shall forthwith pay the
Company an amount equal to the difference between the actual working capital as
of the Closing Date and the Required Working Capital (the "Shortfall"). If the
Shareholders do not pay the Shortfall to the Company within five (5) days after
demand, then, in addition to all other remedies which the Company may have, the
Company may deduct the amount of the Shortfall from any of the obligations of
the Company to the Shareholders (including, but not limited to, the Earn-Out to
which the Shareholders may be entitled thereafter).
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance
23
<PAGE>
sheet of the Corporation as of the Closing Date, and to calculate the working
capital therein in accordance with GAAP. Price Waterhouse LLP shall then
determine the amount of the Shortfall as set out in this paragraph 6.5, whose
decision shall be final and binding on the parties hereto. The Shareholders
shall forthwith pay to the Company the amount of such Shortfall, together with
fifty percent (50%) of the cost of the audit conducted by Price Waterhouse LLP.
In the event Price Waterhouse LLP determines the Shortfall to have been zero,
the entire cost of such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this
24
<PAGE>
Agreement, and the Company shall have received a certificate from the
Shareholders and the Corporation (signed by each of the Shareholders and a
senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
25
<PAGE>
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
26
<PAGE>
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholders under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
27
<PAGE>
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
James M. Shaughnessy
45 A Street
Boston, MA 02127
28
<PAGE>
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such
29
<PAGE>
remedy shall, however, not be exclusive and shall be in addition to any other
remedies which any party may have under this Agreement or otherwise. Without
limiting the foregoing, the Corporation and the Shareholders acknowledge that
the failure to comply with any of the provisions of Sections 3.1, 3.2. and 6.2
hereof will result in irreparable harm for which there is no adequate remedy at
law and that the Company and/or the Corporation shall be entitled, without the
necessity of proving actual damages, to injunctive relief in addition to damages
and all other remedies which may otherwise be available to the Company and/or
the Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholders that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the
30
<PAGE>
arbitrator from three lists, AAA shall have the power to make an appointment. If
an arbitrator should die, withdraw, or otherwise become incapable of serving, a
replacement shall be selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
EXPRESS IT COURIERS, INC.
By: /s/ James M. Shaughnessy
- - - - ----------------------------- ------------------------------
Name: James M. Shaughnessy
Title: President
Witness: "SHAREHOLDER"
/s/ James M. Shaughnessy
- - - - ----------------------------- ------------------------------
James M. Shaughnessy
31
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Washington Express Services, Inc., a Maryland
Corporation (the"Corporation"), and Gilbert D. Carpel, Michael D. Holder,
Michael K. Miller and Peter Butler, (collectively, the "Shareholders"). Unless
defined herein, all capitalized terms used in this Agreement shall have the
meaning given them in the Operating Agreement of Dispatch Management Services
LLC dated December 1, 1996 by and between the Members of Dispatch Management
Services LLC, as amended (the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2
2
<PAGE>
(confidentiality), 1.3 (reimbursement of audit expenses) and 8.2 (effect of
termination under Section 8.1), which obligations will survive termination of
this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholders and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretaries of State of Maryland and Virginia, and the District of Columbia
Division of Corporations; (vi) the certificates, dated the Closing in Escrow
Date, required pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and (vii) the
opinion of counsel to the Shareholders and the Corporation as to such matters as
counsel to the Company may reasonably require, including but not limited to such
counsel's opinion that: (A) the Corporation is in good standing; (B) the
Corporation is authorized to conduct its business in each jurisdiction in which
it is doing business; (C) the Shareholders and the Corporation have the full
power to enter into and perform their respective obligations under this
Agreement; (D) this Agreement constitutes the legal, valid and binding
obligations of the Corporation and the Shareholders, and the Related Agreements
to which the Shareholders are a party, constitute the legal, valid and binding
obligations of the Shareholders, each enforceable in accordance with their
respective terms (except as enforcement may be limited by bankruptcy, insolvency
and other similar laws affecting the enforcement of creditor's rights, and
principles of equity); and (E) neither the
3
<PAGE>
Corporation nor the Shareholders are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the
"Purchase Price") shall be equal to Three Million Nine Hundred Eighty-Eight
Thousand Six Hundred Fourteen and 67/100 ($3,988,614.67) subject to adjustment
(if any) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.3 below). The Company agrees to assume all of the liabilities of the
Corporation set forth on its balance sheet as of Closing (and will pay such
liabilities in accordance with their respective terms), except that the Company
shall pay at Closing: (i) such of those liabilities as are accelerated as a
result of the sale of the Stock as contemplated by this Agreement; and (ii)
(unless the Company secures the release of all personal guarantors thereon
effective as of Closing) those liabilities set forth on Schedule 1.3 attached
hereto.. In addition the Company shall indemnify the Shareholders, and the
personal guarantors, if any, from and against any liability pursuant to all
liabilities set forth on the Corporation's balance sheet as of Closing.
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of September 30, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the nine month period ended on June
30, 1996: and (iii) unaudited, reviewed financial statements of the Corporation,
including a balance sheet dated as of June 30, 1997 and an income statement and
4
<PAGE>
a cash flow statement for the nine month period ended June 30, 1997. In the
event that the closing of the Initial Public Offering has not occurred on or
before November 12, 1997, but does occur on or before December 12, 1997, then in
that event, in lieu of the unaudited, reviewed financial statements of the
Corporation for the nine month period ended June 30, 1997, the Shareholders
shall deliver to the Company, within thirty days after written request from the
Company: (i) an updated set of audited financial statements of the Corporation,
including a balance sheet dated as of June 30, 1997, and income statements and
cash flow statements for the nine month period ended June 30, 1997; (ii)
unaudited financial statements for the Corporation, including a balance sheet
dated as of September 30, 1996, and an income statement and cash flow statement
for the twelve month period ended on September 30, 1996; and (iii) unaudited,
reviewed financial statements of the Corporation, including a balance sheet
dated as of September 30, 1997 and income statements and cash flow statements
for the twelve month period ended September 30, 1997. In the event that the
closing of the Initial Public Offering has not occurred on or before December
12, 1997, then upon written request from the Company given on or before March 1,
1998, the Shareholders shall deliver to the Company, within thirty days after
written request from the Company, such additional audited and/or unaudited,
reviewed financial statements of the Corporation as the Company may reasonably
request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholders, provided that the Company will, upon the request of the
Shareholders, advance such costs on behalf of the Shareholders. In the event
that all of the Shareholders do not timely deliver satisfactory shareholder
representation letters and complete the Closing in Escrow, the Shareholders
shall immediately refund to the Company any such advanced costs; in the event
that all such shareholder representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Shareholders shall be
relieved of their obligation to refund to the Company any such advanced costs.
5
<PAGE>
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as partial payment of the
Purchase Price shall be equal to the aggregate dollar value of the stock
component of the Purchase Price divided by the Initial Public Offering price per
share as set forth on the cover page of the prospectus relating to the Initial
Public Offering. The Shareholders acknowledge that the sale of the Company Stock
will be restricted for a period of time by virtue of a "lock-up" agreement which
may be imposed by the Company, and the Shareholders shall execute such a
"lockup" agreement, as may be required by the Company, by which the sale of the
Company Stock is restricted (perhaps prohibited) for a period of two (2) years
from the date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation fails to achieve such margin requirement, the cash portion of the
Purchase Price shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In
the event that the Corporation achieves the margin requirement during the
relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue requirement for such calendar quarter as set forth in Exhibit B, and
the denominator of which is the revenue required during such calendar quarter as
set forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth
in this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out
shall bear interest at the rate of 7% per annum commencing as of the Closing
Date (i.e., once the Earn-Out is determined, the Shareholders will be due such
amount plus interest at the rate of 7% per annum on such amount, accrued from
the Closing Date until the date of payment of the
6
<PAGE>
Earn-Out to the Shareholders). The Earn-Out shall be paid to the Shareholders
promptly following calculation of the Corporation's performance for the quarter
ending December 31, 1999. The Company covenants and agrees to maintain
sufficient cash, or availability of cash (e.g., by way of a line of credit) in
order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders, collectively, in an amount equal to up to 30%
of the Purchase Price. Said loan by the Company to the Shareholders (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Shareholders shall have the right to prepay
the Shareholder Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Shareholder Loan (plus accrued interest) against the Earn-Out as earned each
quarter. The Shareholder Loan shall mature as of the date that the Earn-Out is
payable. In the event that the Shareholder Loan (including accrued interest) is
not repaid in full upon maturity, the Company shall enjoy all rights of a
secured party under the Uniform Commercial Code then in effect in the State of
Maryland, provided that the Company's only recourse shall be first against the
remaining Earn-Out and then against the Company Stock it holds as collateral,
and there shall not be any recourse against the Shareholders individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or
7
<PAGE>
unless another date, time or place is agreed to in writing by the parties
hereto (the day on which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholders (less the
Maximum Earn-Out, which shall be payable to the Shareholders pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and (as of Closing in Escrow shall
be) in good standing under the laws of the State of Maryland, and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. The Corporation is duly
qualified and (as of Closing in Escrow shall be) in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and
8
<PAGE>
binding obligations of the Shareholders, each enforceable in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 100,000 shares of .01 par value
capital stock of which 5,925.5 shares are and will be as of the Closing in
Escrow Date and the Closing Date issued and outstanding. All issued and
outstanding shares of the capital stock of the Corporation have been duly
authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i)
9
<PAGE>
have all right, title, and interest in and to, or will have a valid right to
use, without liability to third party(ies), such assets and properties; and (ii)
have all assets, rights, employees, subcontractors and other persons and items
which are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholders nor the Corporation is aware
of any proposed legislation or law which is reasonably expected to be enacted
and which, if so enacted, could reasonably be expected to have a material
adverse effect on the Corporation.
10
<PAGE>
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders and/or the Corporation in
connection with the negotiations relating to or the transactions contemplated by
this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
11
<PAGE>
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements (such
reserves, the "Reserves"); such Reserves are adequate and reasonable and were
established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
12
<PAGE>
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license
13
<PAGE>
agreements are valid and in full force and effect, and shall continue in
full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
14
<PAGE>
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
15
<PAGE>
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of
16
<PAGE>
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
17
<PAGE>
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation. For purposes of this Agreement, the term "Default" means, with
respect to any Contract, (x) any material breach of, or material default under,
such Contract, (y) any event, other than the normal passage of time, which would
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration of, or any obligation to repay,
with respect to such Contract, or (z) any
18
<PAGE>
event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on
____________. The Shareholders and the Corporation both acknowledge and agree
that the Company shall have the right to disclose certain information concerning
the Corporation to third parties (which third parties will in turn be bound by
an agreement similar to the Confidentiality Agreement), for such general
corporate purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and
19
<PAGE>
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Company is duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any
20
<PAGE>
applicable law. The Shareholders have been provided with true and complete
copies of (i) all injunctions, judgments, orders or consent or similar decrees
or agreements of any governmental entity to which the Company is currently
subject (or to which the Company was subject since its inception), and (ii) all
correspondence through the date hereof with respect to any of the matters
referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
contains or will contain any untrue statement of a material fact or
21
<PAGE>
omits or will omit to state a material fact necessary to make the statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding
22
<PAGE>
commenced by or against it or any Legal Proceeding commenced or threatened
relating to the transactions contemplated by this Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and
23
<PAGE>
orders of governmental entities, third parties and parties to contracts with the
Corporation as are necessary for consummation of the transactions contemplated
by this Agreement and the Related Agreements, and (iii) fulfill all conditions
precedent applicable to such party pursuant to this Agreement and the Related
Agreements. In case at any time after the Closing Date any further action is
necessary or desirable to carry out the purposes of this Agreement or the
Related Agreements, each party hereto shall use their respective best efforts to
take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $480,740 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets and liabilities of the
Corporation as of the Closing Date (including, but not limited to, accrued tax
liabilities as if the tax year ended on the Closing Date). In the event that the
Corporation has more than the prescribed $480,740 working capital as of the
Closing Date, as determined by such balance sheet, the Company shall forthwith
pay the Shareholders an amount equal to such excess. In the event that the
Corporation has less than the prescribed $480,740 working capital as of the
Closing
24
<PAGE>
Date, as determined by such balance sheet, the Shareholders shall forthwith pay
the Company an amount equal to the difference between the actual working capital
as of the Closing Date and $480,740 working capital (the "Shortfall"). If the
Shareholders do not pay the Shortfall to the Company within five (5) days after
demand, then, in addition to all other remedies which the Company may have, the
Company may deduct the amount of the Shortfall from any of the obligations of
the Company to the Shareholders (including, but not limited to, the Earn-Out to
which the Shareholders may be entitled thereafter).
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by
25
<PAGE>
this Agreement shall be in effect; provided that prior to invoking this
condition, each party shall use their best efforts to have any such order,
injunction, legal restraint or prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
26
<PAGE>
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
27
<PAGE>
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's balance sheet dated as of the Closing
Date); and (ii) any inaccuracy in or breach of any of the Corporation's or the
Shareholders' representations, warranties, covenants or agreements contained in
this Agreement, the Related Agreements or in any other agreement or document
entered into or delivered on or after the date hereof in connection with this
Agreement or any of the transactions contemplated hereby and/or thereby.
Provided, however, the indemnification by the Corporation and the Shareholders
under this Section 9.1.(a) shall include direct damages only (and not indirect
or consequential damages). For purposes of this Agreement, the term "Losses"
means any and all deficiencies, judgments, settlements, demands, claims, actions
or causes of action, assessments, liabilities, losses, damages (whether direct,
28
<PAGE>
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
29
<PAGE>
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
Gilbert D. Carpel
6101 Goldtree Way
Bethesda, Maryland 20817
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the parties dated _________, which Agreement
will be of no further force or effect upon execution of this Agreement), both
written and oral, among the parties with respect to the subject matter hereto
and is not intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of all parties
hereto with respect to any of the terms contained herein, and each party hereto
agrees to be bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
30
<PAGE>
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1,
31
<PAGE>
3.2 and 6.2 hereinabove, any issue, controversy, dispute or claim arising out of
or relating to this Agreement or its alleged breach that cannot be resolved by
mutual agreement shall be resolved exclusively by arbitration by a single
arbitrator in either the District of Columbia or New York City, at the option of
the Company, in accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA") and judgment on the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. It is
acknowledged by the Corporation and the Shareholders that money damages are
inadequate to compensate the Company and/or the Corporation for a breach of the
terms of this Agreement, and that the Company and/or the Corporation shall be
entitled to specific performance of the terms of this Agreement. The arbitrator
may enter a default decision against any party who fails to participate in the
proceeding. The decision of the arbitrator shall be final, conclusive, binding
and non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
32
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
--------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
WASHINGTON EXPRESS SERVICES, INC.
_________________________ By: /s/ Gilbert D. Carpel
--------------------------------------
Name: Gilbert D. Carpel
Title: President
"SHAREHOLDERS"
/s/ Gilbert D. Carpel
--------------------------------------
Gilbert D. Carpel
/s/ Michael D. Holder
--------------------------------------
Michael D. Holder
/s/ Michael K. Miller
--------------------------------------
Michael K. Miller
/s/ Peter Butler
--------------------------------------
Peter Butler
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 26th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), MLQ Express, Inc., a corporation incorporated under the
laws of the State of Georgia (the "Corporation") and John W. Wilcox, Jr. (the
"Shareholder"). Unless defined herein, all capitalized terms used in this
Agreement shall have the meaning given them in the Operating Agreement of
Dispatch Management Services LLC dated December 1, 1996 by and between the
Members of Dispatch Management Services LLC, as amended (the "Operating
Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the terms and conditions set forth herein, the
Shareholder desires to sell all of his right, title and interest in the Stock to
the Company, and the Company desires to purchase the Stock;
WHEREAS, upon the delivery of the disclosure documents and other
information required by this Agreement, and by the Company, the parties hereto
will close in escrow pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, together with the execution of this
Agreement, the Company will enter into a non-competition agreement with the
Shareholder and certain employees of the Corporation specified in Exhibit A in
the forms attached hereto as Exhibit A (such non-competition agreements,
together with all other agreements which are entered into by the parties hereto
pursuant to this Agreement or in connection with any of the transactions
contemplated hereby, the "Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. The Shareholder and the Corporation have delivered to
the Company, either with or prior to the execution of this Agreement: (i) the
audited and unaudited financial statements required to date pursuant to Section
1.3 below and (ii) the agreements required pursuant to Section 3.1 below.
After approval of the audited and unaudited financial statements
requested by the Company after the date of execution of this Agreement pursuant
to Section 1.3, if any, by the Company, and prior to filing the registration
statement with the Securities and Exchange Commission relating to the initial
public offering of the common stock, par value $.01 per share, of the Company
(the "Initial Public Offering"), the Company will deliver to the Shareholder a
disclosure document, together with a notice (the "Notice") specifying the date
on which the Closing in Escrow (as defined below) will occur. The Shareholder
shall purchase from the Corporation, at then current book value, his personal
office furniture and pictures and the cash value on all life insurance policies
on his life (collectively, the "Personal Assets"); provided that (i) the amount
paid by the Shareholder for the cash value on all life insurance policies on his
life will not be less than One Hundred Thousand Dollars ($100,000), and (ii) in
the event that the Shareholder's personal office furniture and pictures are not
reflected on the books of the Corporation as assets of the Corporation, he shall
be entitled to receive them on or prior to the Closing Date without payment. The
Company acknowledges that the Corporation has no interest in the real property
located at 91 Piper Courts, Highlands, North Carolina (the "North Carolina Real
Estate") and any personal property located thereon. Also without limiting the
foregoing, the Shareholder shall be responsible for all Loans Due (or payable)
to Officers and loans due to any other person or entity by the Corporation,
either long or short term, in excess of Three Hundred Thousand Dollars
($300,000) as of the Closing Date (collectively the "Excess
2
<PAGE>
Loans"). If, prior to the Closing Date (as defined in Section 1.4 below): (i)
the Shareholder does not purchase the Personal Assets, then such assets will be
acquired by the Company without any adjustment to the Purchase Price (as defined
in Section 1.3 below); and (ii) the Shareholder does not pay the Excess Loans,
then the Company will reduce the cash portion of the purchase price by the
dollar amount of any such Excess Loans (including early repayment costs, if any)
of the Corporation existing as at the Closing Date. To the extent that the
Corporation has Loans Due (or payable to) Officers that are not Excess Loans on
its books immediately prior to the Closing Date and such loans are due and
payable to the Shareholder at such time, the Company will pay the amount of such
loans to the Shareholder at the Closing in addition to the Purchase Price (as
defined below).
The parties will close in escrow (the "Closing in Escrow") pursuant to the
terms and conditions of this Agreement. Such Closing in Escrow shall take place
at the offices of Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W.,
7th Floor, Washington, D.C. 20005 (or such other place as is mutually agreed
upon by the parties) on the date specified in the Notice.
In the event that the Shareholder does not timely fulfill his
obligations with respect to the Closing in Escrow, this Agreement will be of no
further force or effect, except for any and all obligations under Sections 3.2
(confidentiality), 1.3(d) (reimbursement of audit expenses) and 8.2 (effect of
termination under Section 8.1), which obligations will survive termination of
this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholder's
right, title and interest in and to all Intellectual Property (as defined in
Section 2.14(d) hereinbelow) owned by the Shareholder and/or
3
<PAGE>
third parties and heretofore licensed to or used by the Corporation; (v) a
Certificate of Good Standing for the Corporation as issued by the Secretary of
State of Georgia; (vi) the certificates, dated the Closing in Escrow Date,
required pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and (vii) the
opinion of counsel to the Shareholder and the Corporation (which counsel may be
the Shareholder himself) as to such matters as counsel to the Company may
reasonably require, including but not limited to such counsel's opinion that:
(A) the Corporation is in good standing; (B) the Corporation is authorized to
conduct its business in each jurisdiction in which it is doing business; (C) the
Shareholder and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholder, and the Related Agreements to which the Shareholder is a party,
constitute the legal, valid and binding obligations of the Shareholder, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholder are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price.
4
<PAGE>
(a) The purchase price for the Stock (the "Purchase Price")
shall be equal to Six Million, Three Hundred Thousand Dollars ($6,300,000) cash,
payable (i) Four Million, Six Hundred Thousand Dollars ($4,600,000) at Closing,
subject to reduction pursuant to the provisions of Section 1.1 regarding Excess
Loans not paid by the Shareholder; (ii) Eight Hundred Fifty Thousand ($850,000)
on the one-year anniversary of Closing (the "First Installment"); and (iii)
Eight Hundred Fifty Thousand Dollars ($850,000) on the second anniversary of
Closing (the "Second Installment"). The amounts of the First Installment and the
Second Installment shall be subject to adjustment as provided below in this
Agreement. The First Installment and the Second Installment shall bear interest
at the "Prime Rate" as from time to time published and set by NationsBank, N.A.,
Charlotte, North Carolina, plus 1-1/2% and interest thereon shall be payable by
the Company to the Shareholder monthly, as provided in the Notes. The Company
will provide the Shareholder with an irrevocable letter of credit, issued by a
bank with assets greater than Five Billion Dollars ($5,000,000,000), upon terms
reasonably satisfactory to the Shareholder, in an amount and of a term
sufficient to cover the timely payment of the deferred portion of the Purchase
Price plus accrued interest thereon. The Corporation's obligations to pay the
First Installment and the Second Installment shall be set forth in two
promissory notes the forms of which are attached as Exhibit B to this Agreement.
(b) Within a reasonable time after February 28, 1998, the
Company shall determine the Corporation's Daily Average Rate, which shall be an
amount equal to (i) the total actual amounts billed or to be billed to customers
of the Corporation for services rendered during the month of February, 1998
reduced by such amounts for services rendered on February 16, 1998 and on
Excluded Days (as defined below), divided by (ii) a number of days equal to 19
reduced by the number of Excluded Days.
If the Corporation's Daily Average Rate is less than the Target Daily
Rate, then (i) the First Installment shall be reduced by one-half (1/2) of the
excess of the Target Annual Rate over the product of 252 times the Corporation's
Daily Average Rate and (ii) the First Installment shall be further reduced by
the amount of interest previously paid by the Company with respect to the amount
of the reduction pursuant to clause (i) of this sentence.
5
<PAGE>
If the Corporation's Daily Average Rate is greater than the Target Daily
Rate, then, at the Company's sole election, either (i) the Company shall pay to
the Shareholder in cash the sum of one-half (1/2) of the excess of the product
of 252 times the Corporation's Daily Average Rate over the Target Annual Rate
and the amount of interest that would have been payable previously with respect
to one-half (1/2) of such excess if the First Installment had been so increased
at the Closing Date; or (ii) the amount of the First Installment shall be
increased by the sum of one-half (1/2) of such excess and the amount of interest
described in clause (i) of this sentence.
Excluded Day shall mean each day, if any, during the month of February,
1998 as to which the actual amount billed or to be billed to customers of the
Corporation for services rendered on such day is less than Twenty-Thousand
Dollars ($20,000) due to (a) weather, (b) loss of utilities at the Corporation's
principal office, (c) malfunctions of the Corporation's computer software or
hardware, or (d) an act of God or force majeure, beyond the Shareholder's
control.
Target Daily Rate shall mean Twenty-Five Thousand Five Hundred Dollars
($25,500) or, if the Turner Reduction (as defined below) occurs, Twenty-Four
Thousand Dollars ($24,000).
Target Annual Rate shall mean Six Million Four Hundred Twenty-Six Thousand
Dollars ($6,426,000), or, if the Turner Reduction occurs, Six Million
Forty-Eight Thousand Dollars ($6,048,000).
Turner Reduction shall mean the event that, during the period from the
date of this Agreement through February 28, 1998, the number of Corporation
employees and independent contractors assigned to service Turner Broadcasting
System Purchasing and Logistics MLQ Account No. 3492 from Turner Broadcasting
System's site is reduced by four or more from the number of such employees and
independent contractors on the date of this Agreement.
Notwithstanding the foregoing provisions of this Section 1.3(b), if after
the Closing Date and prior to March 1, 1998, the Company causes the Corporation
to discontinue providing services to customers by means of the MIS software
system known as "Dispatch Express" for any reason other than operational
difficulties with "Dispatch Express" that have a material negative effect on the
Corporation's ability to offer services, then no decrease in the amount of the
First Installment shall be made pursuant to this Section 1.3(b).
6
<PAGE>
The Company shall provide to the Shareholder copies of the balance sheets
and income statements for the Corporation as of the month end prior to the
Closing Date and as of each subsequent month end through and including the month
ended February 28, 1998. The Company shall provide such balance sheets and
income statements promptly after each becomes available.
(c) To the extent, if any, that the Corporation makes a
contribution to its employee profit-sharing plan and a portion of such
contribution is allocated to John Wilcox under the plan in his capacity as an
employee of the Corporation, the amount of the First Installment, or the Second
Installment if the First Installment has already been paid, shall be reduced as
of the end of the calendar month in which such contribution is made by the
amount of such portion.
(d) Unless the Company gives the Shareholder written notice to
the contrary, the Shareholder shall deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of February 28, 1995, 1996 and
1997, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of May 31, 1996, and an
income statement and cash flow statement for the twelve month period ended on
May 31, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of May 31, 1997 and an income
statement and a cash flow statement for the three month period ended May 31,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the three month period ended May 31, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company when prepared by Price Waterhouse LLP: (i) an updated
set of audited financial statements of the Corporation, including a balance
sheet dated as of May 31, 1997, and income statements and cash flow statements
for the three month period ended May 31, 1997; (ii) unaudited financial
statements for the Corporation, including a balance sheet dated as of August 31,
1996, and an income statement and cash flow statement for the twelve month
period
7
<PAGE>
ended on August 31, 1996; and (iii) unaudited, reviewed financial statements of
the Corporation, including a balance sheet dated as of August 31, 1997 and
income statements and cash flow statements for the six month period ended August
31, 1997. In the event that the closing of the Initial Public Offering has not
occurred on or before December 12, 1997, then upon written request from the
Company given on or before March 1, 1998, the Shareholder shall deliver to the
Company, promptly after written request from the Company when prepared by Price
Waterhouse LLP, such additional audited and/or unaudited, reviewed financial
statements of the Corporation as the Company may reasonably request.
All of the financial statements referred to in this Section 1.3(d) shall
be prepared (or reviewed pursuant to the preceding paragraph) by Price
Waterhouse LLP. The cost of providing all of the financial statements required
by this Section 1.3(d), within the prescribed time limits, shall be the sole
responsibility of the Shareholder, provided that the Company will, upon the
request of the Shareholder, advance such costs on behalf of the Shareholder. In
the event that the Shareholder does not timely fulfill his obligations with
respect to the Closing in Escrow, the Shareholder shall immediately refund to
the Company any such advanced costs; in the event that the Shareholder does
timely fulfill his obligations with respect to the Closing in Escrow, the
Shareholder shall be relieved of his obligation to refund to the Company any
such advanced costs, provided that the Shareholder shall have no obligation to
refund any advanced costs to the Company in the event that he delivers at the
Closing in Escrow any certificate required under Section 7.2(a) or Section
7.2(b) in which he discloses an exception based upon the occurrence of an event
beyond his control.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
8
<PAGE>
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholder shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated opinion of counsel as referred to in Section
1.2(a)(vii) above; and (iii) the Company shall deliver $4,600,000 (except to the
extent reduced as provided in Section 1.3 above), the amount, if any, of Loans
Due (or payable to) Officers that are not Excess Loans which the Company is
obligated to pay to the Shareholder pursuant to Section 1.1 above, and the
promissory notes and letter of credit described in Section 1.3 above.
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or
9
<PAGE>
hereafter in effect relating to creditors' rights and remedies generally and
subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 100,000 shares of $1.00 par
value capital stock of which 150 shares are and will be as of the Closing in
Escrow Date and the Closing Date issued and outstanding. All issued and
outstanding shares of the capital stock of the Corporation have been duly
authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and
10
<PAGE>
other persons and items which are reasonably necessary to carry on the business
and operations of the Corporation after the Closing Date in substantially the
same manner as presently conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Shareholder is a party, or (d) violate
any law applicable to the Shareholder or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. Neither the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. Except as noted in Section 2.20 below, there is no
action, suit, claim, investigation or proceeding, whether at law or in equity
(each, a "Legal Proceeding"), pending
11
<PAGE>
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation in connection with
the consummation of the transactions contemplated hereby or thereby or which
seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholder, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholder, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholder,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole account of the
Shareholder and shall be paid in full by him at the Closing in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements
12
<PAGE>
(including the notes and exhibits thereto, if any). The financial statements
copies of which are included in Exhibit G and all financial statements
(including the notes and exhibits thereto) which are delivered by the
Corporation or the Shareholder to Price Waterhouse LLP (collectively, the
"Financial Statements") shall have been prepared in accordance with the books
and records of the Corporation consistently with the past practices of the
Corporation (but are not prepared in certain respects in accordance with U.S.
generally accepted accounting principles ("GAAP")), and present and will present
fairly in all material respects the financial position, results of operations
and changes in financial position or cash flows, whichever is applicable, of the
Corporation as at the dates and for the periods indicated (subject, in the case
of unaudited financial statements, to normal year-end audit adjustments). The
warranty and covenant in the preceding sentence shall not apply to financial
statements prepared by Price Waterhouse LLP pursuant to Section 1.3 hereof.
Without limiting the foregoing, no undisclosed liabilities or obligations of any
nature (whether known or unknown, or absolute, accrued, contingent or otherwise)
shall exist as at Closing in Escrow or the Closing not reflected in the most
recently dated balance sheet supplied to the Company unless such liabilities or
obligations are not required by GAAP to be disclosed therein or arise subsequent
to the date of such balance sheet. The Corporation has paid all federal, state
and local income, profits, franchises, sales, use, occupation, property, excise
and payroll taxes, and all license fees and other charges imposed upon it, and
has timely filed all tax returns and related documents required to be filed with
any governmental authority. There are no outstanding or proposed statements of
deficiency in tax payments to any federal, state, local or foreign government
with respect to the Corporation for any tax period. As of the dates such
Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in the financial statements described
in Section 1.3 above prepared by Price Waterhouse LLP (such reserves, the
"Reserves"); such Reserves are adequate and reasonable and were established in
accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants
13
<PAGE>
placed on it by its creditors, and the Shareholder has not been notified of any
such defaults or breaches.
2.13. Absence of Certain Developments.
(a) During the past three years, there has been no event,
condition or state of facts of any character relating specifically to the
Corporation that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Shareholder nor the
14
<PAGE>
Corporation are in default under any license agreements pertaining to the
Intellectual Property used in the Corporation's business and licensed to the
Shareholder and/or the Corporation; all such license agreements are valid and in
full force and effect, and shall continue in full force and effect as to the
Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholder has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
15
<PAGE>
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation nor the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
16
<PAGE>
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of
17
<PAGE>
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
18
<PAGE>
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee, except for claims,
liabilities, demands or causes of action that may arise from the circumstances
relating to the resignation by Destiny Brooks from employment by the Corporation
on or about June 16, 1997 and the related letter from Ms. Brooks to the
Corporation charging sexual harassment (the "Brooks Claim"), which matter has
been reported by the Corporation to its insurance carrier and has been assigned
to a claim representative by the insurance carrier.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the material contracts to which the
Corporation is a party (the "Contracts") (i) is valid and enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity; (ii) no Default (as defined below) exists under any Contract either by
the Corporation or by any other party thereto; (iii) neither the Corporation nor
the Shareholder is aware of the assertion by any third party of any claim of
Default or breach under any of the Contracts; and (iv) neither the Corporation
nor the Shareholder is aware of any present intention on the part of any
significant customer or supplier or other business partner of the Corporation to
either (x) terminate or significantly change its existing business relationship
with the Corporation either now or in the foreseeable future, or (y) fail to
renew or extend its existing business relationship with the Corporation at the
end of the term of any existing
19
<PAGE>
contractual arrangement such entity may have with the Corporation. For purposes
of this Agreement, the term "Default" means, with respect to any Contract, (x)
any material breach of, or material default under, such Contract, (y) any event,
other than the normal passage of time, which would (either with or without
notice or lapse of time or both) give rise to any right of termination,
cancellation or acceleration of, or any obligation to repay, with respect to
such Contract, or (z) any event, other than the normal passage of time, which
would result in either a significant increase in the obligations or liabilities
of, or a loss of any significant benefit of, the party in question under such
Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
2.25 North Carolina Real Estate. The Shareholder hereby represents
and warrants that he has sole title to the North Carolina Real Estate and that
the Corporation has no interest therein.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. Each of the Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder and the Company shall abide by
the terms of the Confidentiality Agreement between the Corporation and the
Company (or the Company's predecessor, Dispatch Management Services, LLC)
executed in August, 1997. The Shareholder and the Corporation both acknowledge
and agree that the Company shall have the right to disclose certain
20
<PAGE>
information concerning the Corporation to third parties (which third parties
will in turn be bound by an agreement similar to the Confidentiality Agreement),
for such general corporate purposes as includes but is not limited to obtaining
financing and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Articles of Organization or Operating Agreement of the
21
<PAGE>
Company, (b) except as set forth on Exhibit D, require any consent, waiver,
approval, authorization or permission of, or filing with or notification to, any
third party, (c) result in or constitute a default, or require any consent or
approval of or notice to any person or entity under or pursuant to any of the
contracts to which the Company is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
22
<PAGE>
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
23
<PAGE>
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records; provided, however, that the Corporation shall not be required prior
to the Closing to disclose its customers generally to the Company, but this
proviso shall not bar discussions by the Company and the Corporation concerning
major customers of the Corporation. Any such investigation and examination shall
be conducted during regular business hours and under reasonable circumstances,
and the Shareholder and the Corporation shall cooperate fully therein. In order
that the Company may have full opportunity to make such physical, business,
accounting and legal review, examination or investigation as it may reasonably
request of the affairs of the Corporation, the Corporation and the Shareholder
shall use their respective best efforts to cause the Corporation's officers,
employees, consultants, agents, accountants, attorneys and other representatives
to cooperate fully with such Company representatives in connection with such
review and examination.
24
<PAGE>
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
25
<PAGE>
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $500,000 working capital (defined as
the excess of current assets (liquid assets in accordance with GAAP) plus
prepaid expenses over current liabilities) as of the Closing Date. For the
purposes of this Section 6.5, Loans Due (or payable) to Officers and Employee
Profit Sharing Contribution Payable shall not be included in current
liabilities. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets and liabilities of the
Corporation as of the Closing Date (including, but not limited to, accrued tax
liabilities as if the tax year ended on the Closing Date), except that the
amount of income tax accrual on such balance sheet will be calculated consistent
with the past practices of Wallace Seay, C.P.A. with respect to income tax
accruals of the Corporation. In the event that the Corporation has less than the
prescribed $500,000 working capital as of the Closing Date, as determined by
such balance sheet, the Shareholder shall forthwith pay the Company an amount
equal to the difference between the actual working capital as of the Closing
Date and $500,000 working capital (the "Shortfall"). If the Shareholder does not
pay the Shortfall to the Company within five (5) days after demand, then, in
addition to all other remedies which the Company may have, the Company may
deduct the amount of the Shortfall from any of the obligations of the Company to
the Shareholder.
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of his decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
26
<PAGE>
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of the Closing in Escrow Date and the Closing Date as though made on
and as of the Closing in Escrow Date and the Closing Date, respectively, except
as otherwise contemplated by this Agreement, and the Company shall have received
a certificate from the Shareholder and the Corporation (signed by the
Shareholder and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the
27
<PAGE>
Company shall have received a certificate from the Shareholder and the
Corporation (signed by the Shareholder and a senior executive officer of the
Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
such party. In addition, the Related Agreements shall have been entered into by
the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of the Closing in Escrow Date and the Closing Date as though made on
and as of the Closing in Escrow Date and the Closing Date, respectively, except
as otherwise contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
28
<PAGE>
(c) Related Agreements. Each of the Related Agreements to
which the Company is a party shall have been duly executed and delivered by the
Company.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholder to refund to the Company the audit expenses as
set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
(iii) to the extent that such termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement; and (iv) that if the
Company terminates this agreement pursuant to Section 8.1(b) or Section 8.1(c),
the Company shall pay to the Shareholder the amount of reasonable attorney's
fees and expenses incurred by him in connection with this Agreement, provided
that such amount shall not exceed Fifteen Thousand Dollars ($15,000). In the
event that termination results from the willful breach by a party hereto of any
of its representations or warranties, or of any of its covenants or agreements,
as set forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
29
<PAGE>
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Shareholder. The Shareholder hereby
agrees to indemnify, defend and hold harmless the Company and its respective
officers, directors, employees and agents (collectively, the "Indemnitee") from
and against and in respect of any and all Losses (as defined below) to the
extent resulting from, arising out of, relating to, imposed upon or incurred by
the Indemnitee by reason of: (i) the conduct of business by the Corporation
prior to the Closing Date (but only to the extent that any such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); or (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby, provided, however, that the indemnification by the Corporation
and the Shareholder under this Section 9.1 shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor); and the term "Losses" shall not include liabilities
incurred in the ordinary course of business consistent with the Corporation's
past practices to the extent not reflected on the Corporation's most recently
dated balance sheet, which shall be dated not earlier than the last month end
prior to the Closing Date. The Shareholder's obligation under this Section
9.1(a) to the Indemnitee shall not become effective until the Losses to the
Indemnitee exceed Ten Thousand Dollars, and the total cost to the Shareholder of
his obligation to the Indemnitee under this Section 9.1(a) shall not exceed One
Million Three Hundred Thirty Thousand Dollars ($1,330,000).
(b) Third Party Claims. If a Loss or an event that may give
rise to a Loss occurs for which the Shareholder may be liable to the Indemnitee
under Section 9.1(a) above based
30
<PAGE>
on a claim or proceeding by a third party (a "Third Party Claim"), the
Indemnitee shall promptly give the Shareholder written notice describing such
Third Party Claim and the amount or a reasonable estimate of the amount of
liability to the Shareholder that may arise therefrom; provided that failure to
provide such notice promptly shall not excuse the Shareholder's obligation under
Section 9.1(a) above except to the extent of prejudice to the Indemnitee
resulting from such failure. The Shareholder will be entitled to participate in
any proceeding involving a Third Party Claim (a "Proceeding") and, to the extent
that he wishes (unless (i) the Shareholder is also a party to such Proceeding
and the Indemnitee determines in good faith that joint representation would be
inappropriate, or (ii) the Shareholder fails to provide reasonable assurance to
the Indemnitee of his financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume the defense of such
Proceeding with counsel chosen by the Shareholder subject to the Indemnitee's
reasonable approval of such counsel, and, after notice from the Shareholder to
the Indemnitee of its election to assume the defense of such Proceeding, the
Shareholder will not, as long as he diligently conducts such defense, be liable
to the Indemnitee under this Section 9.1 (i) for any fees of other counsel or
any other expenses with respect to the defense of such Proceeding, in each case
subsequently incurred by the Indemnitee in connection with the defense of such
Proceeding; or (ii) subject to the remaining provisions of this Section 9.1(b),
for any settlement agreed to by the Indemnitee, without the prior written
approval of the Shareholder, which shall not be unreasonably delayed or
withheld. If the Shareholder assumes the defense of a Proceeding, no compromise
or settlement of any Third Party Claims subject to the Proceeding may be
effected by the Shareholder without the Indemnitee's consent, which shall not be
unreasonably delayed or withheld. If notice is given to the Shareholder of the
commencement of any Proceeding and the Shareholder does not, within twenty (20)
days after Indemnitee's notice is given, give notice to the Indemnitee of his
election to assume the defense of such Proceeding, the Shareholder will be bound
by any determination made in such Proceeding or any compromise or settlement
effected by the Indemnitee. Notwithstanding the foregoing, if the Indemnitee
determines in good faith that there is a reasonable probability that a
Proceeding may adversely and materially affect it other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement,
31
<PAGE>
the Indemnitee may, by notice to the Shareholder, assume the exclusive right to
defend, compromise or settle such Proceeding.
(c) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(c) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof. Notwithstanding any of the foregoing provisions of this Section
9, (i) the Company shall have no liability to the Shareholder under Section
9.1(c) above with respect to any claim for a Loss as to which the Shareholder
does not deliver to the Company prior to the second anniversary of the Closing
Date written notice of the circumstances that give rise to such claim; and (ii)
the Shareholder shall have no liability to the Indemnitee under Section 9.1(a)
and/or Section 9.1(b) above with respect to any claim for a Loss as to which the
Company does not deliver to the Shareholder prior to the second anniversary of
the Closing Date written notice of the circumstances that give rise to such
claim.
32
<PAGE>
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
John W. Wilcox, Jr.
MLQ Express, Inc.
3200 Professional Parkway, Suite 225
Atlanta, Georgia 30339
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
33
<PAGE>
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections
34
<PAGE>
3.1, 3.2. and 6.2 hereof will result in irreparable harm for which there is no
adequate remedy at law and that the Company and/or the Corporation shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the party seeking
arbitration, in accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA") and judgment on the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. It is
acknowledged by the Corporation and the Shareholder that money damages are
inadequate to compensate the Company and/or the Corporation for a breach of the
terms of this Agreement, and that the Company and/or the Corporation shall be
entitled to specific performance of the terms of this Agreement. The arbitrator
may enter a default decision against any party who fails to participate in the
proceeding. The decision of the arbitrator shall be final, conclusive, binding
and non-appealable. The Shareholder and the Company and/or the Corporation shall
each pay his or its respective costs and expenses of arbitration and the cost of
the arbitrator shall be paid 50% by the Shareholder and 50% by the Company
and/or the Corporation.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except
35
<PAGE>
that (1) the number of preemptory strikes shall not be limited, and (2) if the
parties fail to select the arbitrator from three lists, AAA shall have the power
to make an appointment. If an arbitrator should die, withdraw, or otherwise
become incapable of serving, a replacement shall be selected and appointed in a
like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof. The Company shall not initiate any direct
contact with any of the Corporation's employees, vendors (including, without
limitation, independent contractors) or customers prior to the Closing.
36
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
MLQ EXPRESS, INC.
By: /s/ John W. Wilcox, Jr.
- - - - -------------------------- -------------------------------------
Name: John W. Wilcox, Jr.
Title: Chief Executive Officer
Witness: "SHAREHOLDER"
By: /s/ John W. Wilcox, Jr.
- - - - -------------------------- -------------------------------------
John W. Wilcox, Jr.
37
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 19th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Time Couriers LLC, a Massachusetts limited liability
company (the "Business Contribution Member"), Tom Cromwell, William Krupman,
Michael Stone, Peter Begley, Thomas Hagerty, Kimberly Cilley and Christopher
Hart (collectively, the "Shareholders") and [DMS Subsidiary Number ___], a
Delaware corporation that is wholly owned subsidiary of the Company (the
"Specific Company Subsidiary"). Unless defined herein, all capitalized terms
used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996 by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member is in the business of providing
dispatch and courier services (such business, and any other lines of business
related thereto, the "Business");
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of the Business Contribution Member;
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below, and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other
1
<PAGE>
information required by this Agreement, and approval of the same by the Company,
the parties hereto will close in escrow pursuant to the terms and conditions set
forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into employment
agreements with [set forth names of back-office personnel being retained] (the
"Back-Office Employees"), in the form attached hereto as Exhibit A, as well as
non-competition agreements with each of the Shareholders of the Business
Contribution Member and certain employees of the Business Contribution Member
and the Specific Company Subsidiary in the form attached hereto as Exhibit B
(such employment agreements and non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements");
WHEREAS, the parties intend that at the Closing the Business Contribution
Member will change its corporate name and/or trade name, as necessary, so that
the Specific Company Subsidiary may trade under the trade name previously used
for the Business (which trade name is specifically acquired by the Specific
Company Subsidiary hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member and each Shareholder,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
2
<PAGE>
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Business Contribution Member shall be obliged to deliver to the Company,
within thirty (30) days after execution of this Agreement: (i) the audited
financial statements required pursuant to Section 1.4 below and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Business Contribution Member and the Shareholders a disclosure document,
together with a notice (the "Notice") specifying the date by which the Business
Contribution Member and the Shareholders must execute and deliver satisfactory
representation letters in order to consummate the sale of the Assets and
assumption of the Assumed Liabilities pursuant to the terms of this Agreement.
Upon timely delivery from the Business Contribution Member and all
of the Shareholders of representation letters satisfactory to the Company, the
parties will close in escrow (the "Closing in Escrow") pursuant to the terms and
conditions of this Agreement. Such Closing in Escrow shall take place at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue,
N.W., Suite 400, Washington, D.C. 20036 (or such other place as is mutually
agreed upon by the parties) within thirty (30) days (or such shorter period as
is specified in the Notice) after timely delivery of satisfactory representation
letters from the Business Contribution Member and the Shareholders.
In the event that the Business Contribution Member and/or one or
more of the Shareholders do not timely deliver satisfactory representation
letters (as determined in the sole discretion of the Company), this Agreement
will be of no further force or effect, except for any and all obligations under
Sections 3.2 (confidentiality), 1.4 (reimbursement of audit expenses) and 8.2
(effect of termination under Section 8.1), which obligations will survive
termination of this Agreement.
3
<PAGE>
1.2. Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
(ii) All rights to the trade name "Time Couriers LLC", the
brand name "Time Couriers LLC", logos, and other Intellectual Property as
defined in Section 2.11.(d) hereinbelow, customer lists, goodwill and other
intangible assets; and
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (the "Contracts"), as set forth on Exhibit D attached hereto.
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member, and only those liabilities and obligations, which
are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
4
<PAGE>
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member and/or the Shareholders shall, as appropriate, enter into,
execute and deliver to the law firm of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., as escrow agent: (i) a bill of sale, (ii) an instrument of assignment
and assumption (the form and substance of which shall be reasonably acceptable
to the Company), and (iii) any other instruments of conveyance or transfer which
may be necessary in the sole discretion of the Company, including, without
limitation, any instruments of assignment in connection with the Intellectual
Property and the Contracts, each in form and substance reasonably acceptable to
the Company, pursuant to which the Business Contribution Member and/or the
Shareholders shall convey, assign, transfer and deliver to the Company all
right, title and interest in, to and under the Assets, free and clear of any and
all Encumbrances (as defined in Section 2.3(a) below), and the Company shall
assume the Assumed Liabilities from the Business Contribution Member. At the
Closing in Escrow, the Business Contribution Member shall also cause to be
delivered the opinion of its counsel as to such matters as counsel to the
Company may reasonably require, including but not limited to such counsel's
opinion that: the Business Contribution Member is in good standing; the Business
Contribution Member is authorized to conduct its business in each jurisdiction
in which it is doing business; the Business Contribution Member and the
Shareholders have full power to enter into and perform their respective
obligations under this Agreement, as well the Related Agreements to which they
are a party; this Agreement, and the Related Agreements to which the Business
Contribution Member and/or the Shareholders are a party, constitute legal, valid
and binding obligations of the Business Contribution Member and the
Shareholders, respectively, enforceable in accordance with their respective
terms (except as enforcement may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditor's rights, and principles of
equity); and neither the Business Contribution Member nor any of the
Shareholders is threatened with or affected by any actions, proceedings or
investigations wherein an unfavorable decision, ruling or finding could have a
materially adverse effect on the financial condition or operation of the
Business
5
<PAGE>
and/or the Assets, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
Without limiting the foregoing, the Business Contribution Member and/or the
Shareholders shall take whatever steps are necessary (such as filings with the
United States Patent and Trademark Office) to transfer the Intellectual Property
to the Specific Company Subsidiary.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets, subject to
downward adjustment for the full amount of the Assumed Liabilities as listed on
Exhibit F attached hereto (the "Purchase Price"), shall be $100,000 (the
"Initial Purchase Price") plus the amount required to be paid to the
Shareholders following the full eight-quarter period as set forth in this
Section 1.4.
The parties hereto agree to allocate the Purchase Price to the
Assets in accordance with the manner set forth on Schedule 1.4 attached hereto
and in accordance with the applicable provisions of Section 1060 of the Code
(the "Price Allocation"). Accordingly, each party to this Agreement shall adopt
and utilize such Price Allocation for purposes of all tax returns filed by them
and shall not voluntarily take any position inconsistent therewith in connection
with any examination of any tax return, any refund claim, any litigation
proceeding or otherwise. Each of the Company and the Business Contribution
Member shall file on a timely basis a Form 8594 in accordance with the
requirements of Section 1060 of the Code and the provisions of this Section 1.4.
In the event that the Price Allocation is disputed by an taxing authority, the
party receiving
6
<PAGE>
notice of the dispute shall promptly notify the other parties hereto of such
dispute and the parties hereto shall consult with each other concerning
resolution of the dispute.
Unless the Company gives the Shareholders and the Business
Contribution Member written notice to the contrary, the Shareholders and the
Business Contribution Member shall deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) audited financial statements of the
Business, including balance sheets dated as of December 31, 1994, 1995 and 1996,
and income statements and cash flow statements for each of the three twelve
month periods ended on such dates; (ii) unaudited financial statements of the
Business, including a balance sheet dated as of June 30, 1996, and an income
statement and cash flow statement for the twelve month period ended on June 30,
1996; and (iii) unaudited, reviewed financial statements of the Business,
including a balance sheet dated as of June 30, 1997 and an income statement and
a cash flow statement for the six month period ended June 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
November 12, 1997, but does occur on or before December 12, 1997, then in that
event, in lieu of the unaudited, reviewed financial statements of the Business
for the six month period ended June 30, 1997, the Shareholders and the Business
Contribution Member shall deliver to the Company, within thirty days after
written request from the Company: (i) an updated set of audited financial
statements of the Business, including a balance sheet dated as of June 30, 1997,
and income statements and cash flow statements for the six month period ended
June 30, 1997; (ii) unaudited financial statements for the Business, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Business, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders and the Business Contribution Member shall
deliver to the Company, within thirty days after written request from the
Company, such additional audited and/or unaudited, reviewed financial statements
of the Business as the Company may reasonably request.
7
<PAGE>
All of the financial statements referred to in this Section 1.4
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.4,
within the prescribed time limits, shall be the sole responsibility of the
Business Contribution Member, provided that the Company will, upon the request
of the Business Contribution Member, advance such costs on behalf of the
Business Contribution Member. In the event that the Business Contribution Member
and/or one or more of the Shareholders do not timely deliver satisfactory
shareholder representation letters and complete the Closing in Escrow, the
Business Contribution Member and the Shareholders shall be jointly and severally
responsible for immediately refunding to the Company any such advanced costs; in
the event that all such representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Business Contribution
Member and the Shareholders shall be relieved of their obligation to refund to
the Company any such advanced costs.
The Company shall pay the Initial Purchase Price in (restricted)
stock of the Company (the "Company Stock") at the Closing. The number of shares
of Company Stock to be issued as payment of the Initial Purchase Price shall
equal $100,000 divided by the Initial Public Offering price per share as set
forth on the cover page of the Prospectus relating to the Initial Public
Offering (adjusted for stock splits, if any). The Shareholders acknowledge that
the sale of the Company Stock shall be restricted for a period of time by virtue
of a "lock-up" agreement which may be imposed by the Company, and the
Shareholders shall execute such a "lock-up" agreement, as may be required by the
Company, by which the sale of the Company Stock is restricted (perhaps
prohibited) for a period of two years from the date of the consummation of the
Initial Public Offering.
Within 30 days following the end of the eighth full fiscal quarter
immediately following the Initial Public Offering (such eight-quarter period is
referred to herein as the "Eight Quarter Period"), the Company agrees to issue
to the Shareholders the number of shares of Common Stock equal to $700,000
divided by the Initial Public Offering price per share (adjusted for stock
splits, if any), provided that the average monthly revenues of the Business
Contribution Member for such fiscal quarter was at least $100,000. If the
average monthly revenues of the
8
<PAGE>
Business Contribution Member for such fiscal quarter were less than $100,000,
the Company shall issue to the Shareholders the number of shares of Common Stock
equal to (a) the average monthly revenues of the Business Contribution Member
for such fiscal quarter divided by $100,000, multiplied by (b) $700,000 divided
by the Initial Public Offering price per share (adjusted for stock splits, if
any). In addition to the foregoing, if the average monthly revenues of the
Business Contribution Member for such fiscal quarter are greater than $100,000,
the Company shall issue to the Shareholders the number of shares of Common
Stock, calculated on the basis of the fair market value of such stock on the
last business day of such quarter, equal to (x) the average monthly revenues of
the Business Contribution Member for such fiscal quarter less $100,000,
multiplied by (y) seven.
At the request of the Shareholders made to the Company in writing at
any time after the first full fiscal quarter following the Initial Public
Offering, the Company shall make one or more loans to the Shareholders in an
aggregate amount equal to up to 50% of the Available Amount. For purposes of
this Section, "Available Amount" shall mean, at the time of the loan request,
(a) the highest average monthly revenues (but not exceeding $100,000) of the
Business Contribution Member in any full fiscal quarter in the Eight Quarter
Period divided by $100,000 multiplied by (b) $700,000 divided by the Initial
Public Offering price per share multiplied by the current value per share of the
Company Stock (adjusted for stock splits, if any) as reported on NASDAQ at the
date of the loan (the "Stock Value"). Said loan by the Company to the
Shareholder (the "Shareholder Loan") shall bear interest at a rate of seven
percent (7%) per annum, and shall be secured by all of the Company Stock paid as
part of the Delayed Purchase Price at the time such Company Stock is issued to
the Shareholders. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock shall be on
such terms as are reasonably acceptable to the Company, which terms shall
include, but shall not be limited to, the retention of all of the Company Stock
by the Company until full repayment of the Shareholder Loan (including accrued
interest) and a requirement that at any time the Available Amount falls below
200% of the loan amount outstanding with the Shareholders, the Shareholders (x)
provide additional collateral to secure the Shareholder loan or (y) repay a
sufficient portion of the Shareholder loan. The Shareholder shall have the right
to
9
<PAGE>
prepay the Shareholder Loan (plus accrued interest) at any time without penalty.
The Shareholder Loan shall mature as of the fourth anniversary of the
consummation of the Initial Public Offering. In the event that the Shareholder
Loan (including accrued interest) is not repaid in full upon maturity, the
Company shall enjoy all rights of a secured party under the Uniform Commercial
Code then in effect in the State of New York.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement (the "Closing")
shall take place at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
1333 New Hampshire Avenue, N.W., Suite 400, Washington, D.C. 20036,
contemporaneously with the closing of the Reorganization Event unless the
Initial Public Offering unless the Initial Public Offering does not occur by
March 31, 1998, in which case this Agreement shall be rendered null and void, or
unless another date, time or place is agreed to in writing by the parties hereto
(the day on which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P. shall
deliver to the Company the bill of sale, instruments of assignment and
assumption, transfer documents, and other documents and materials theretofore
held in escrow from the Closing in Escrow; (ii) the Business Contribution Member
and the Shareholders shall deliver to the Company updated certificates, dated
the Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.3(a) above; and (iii) the
Company shall deliver the Initial Purchase Price to the Business Contribution
Member, which shall be payable to the Business Contribution Member pursuant to
the terms of Section 1.4 above, and with the Company Stock collateralized
against the Business Contribution Member Loan being delivered to the Company as
appropriate). At Closing, Company, Business Contribution Member, Shareholders
and Specific Company Subsidiary shall also take all additional steps as may be
necessary or appropriate to deliver the Assets to the Specific Company
Subsidiary, have the Specific Company Subsidiary assume the Assumed Liabilities,
and put the Specific Company Subsidiary in physical possession and operating
control of the Business and all of the Assets.
10
<PAGE>
2. Representations, Warranties and Covenants of the Business
Contribution Member and the Shareholders.
The Business Contribution Member and the Shareholders hereby jointly
and severally represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Business Contribution
Member is a Limited Liability Corporation ("LLC") duly organized, validly
existing and in good standing under the laws of the State of Massachusettes, and
has all requisite corporate power and authority to own, lease and operate its
properties (including, without limitation, the Assets) and to carry on its
business as now being conducted (including, without limitation, the Business).
The Business Contribution Member is duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is conducting
(including, without limitation, the Business), or the operation, ownership or
leasing of its properties (including, without limitation, the Assets), makes
such qualification necessary.
2.2. Authority and Enforceability.
(a) Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite corporate power and authority to
execute and deliver this Agreement and each of the Related Agreements to which
it is a party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Business
Contribution Member. This Agreement and each of the Related Agreements to which
the Business Contribution Member is a party has been duly executed and delivered
by the Business Contribution Member, and this Agreement and each of the Related
Agreements to which the Business Contribution Member is a party constitute the
legal, valid and binding obligations of the Business Contribution Member,
enforceable against the Business Contribution Member in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
11
<PAGE>
(b) Matters Relating to the Shareholders. The Shareholders
have all requisite legal right, power and authority to enter into this Agreement
and each of the Related Agreements to which they are a party and to agree to the
transactions contemplated hereby and thereby and to perform all of their
respective obligations hereunder and thereunder. This Agreement and each of the
Related Agreements to which any of the Shareholders are a party constitute the
legal, valid and binding obligations of the Shareholders, enforceable against
the Shareholders in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
2.3. Title to Assets; Condition.
(a) The Business Contribution Member owns beneficially and of
record, and has good and marketable title to, the Assets, free and clear of any
Encumbrances. For purposes of this Agreement, the term "Encumbrances" shall mean
restrictions, conditions, covenants, liens, easements, charges, encroachments or
any other matter affecting fee simple title (other than the Assumed
Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this Agreement
to be effected at the Closing, the Company will (i) have all right, title, and
interest in and to, or will have a valid right to use, without liability to
third party(ies), the Assets; and (ii) have all assets, rights, Back-Office
Employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the
12
<PAGE>
Business after the Closing Date in substantially the same manner as presently
conducted by the Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member and the Shareholders of this
Agreement and each of the Related Agreements to which they are, respectively, a
party, and the consummation of the transactions contemplated hereby and thereby
by each of the Business Contribution Member and the Shareholders will not (a)
conflict with or violate any provision of the articles or certificate of
incorporation or by-laws of the Business Contribution Member, (b) except as set
forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an Encumbrance, under or pursuant
to (i) any of the Contracts, or (ii) any other material agreements to which the
Business Contribution Member and/or any of the Shareholders are a party, or (d)
violate any law applicable to the Business Contribution Member or any of the
Shareholders or by which any of the Assets is bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Business Contribution Member or the Business is
currently subject (or which the Business Contribution Member or the Business was
subject to during the previous three years) or which are otherwise applicable to
the Business
13
<PAGE>
Contribution Member or the Assets or to the conduct of the Business, and (ii)
all correspondence from the date hereof with respect to any of the matters
referred to in clause (b) or clause (i) of this Section 2.6. Neither the
Business Contribution Member nor any of the Shareholders is aware of any
proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on either the Business or the Business Contribution Member.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member and/or any of the
Shareholders, threatened that questions the validity of this Agreement or the
Related Agreements or any action taken or to be taken by the Business
Contribution Member or any of the Shareholders in connection with the
consummation of the transactions contemplated hereby or thereby or which seeks
to prohibit, enjoin or otherwise challenge any of the transactions contemplated
hereby or thereby. Exhibit H sets forth an accurate and complete list, and a
brief description (setting forth the names of the parties involved, the court or
other governmental or mediating entity involved, the relief sought and the
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Business Contribution Member and/or any of
the Shareholders, threatened against or affecting the Business Contribution
Member, the Business or any of the Assets. To the knowledge of the Business
Contribution Member and/or any of the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit H. Except as set forth in Exhibit H, there is no
outstanding or, to the knowledge of the Business Contribution Member and/or any
of the Shareholders, threatened judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Business Contribution Member, the Business or any of the Assets.
2.8. Financial Advisors.
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business
14
<PAGE>
Contribution Member and/or any of the Shareholders in connection with the
negotiations relating to or the transactions contemplated by this Agreement or
the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member and/or any of the Shareholders. Such fees, commissions, like payments or
expense reimbursements as are described on Exhibit I attached hereto shall
remain liabilities and expenses of the Business Contribution Member and/or the
Shareholders exclusively, and are specifically excluded from the Assumed
Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which, together with the financial statements
(including the notes and exhibits thereto), to be delivered to the Company
pursuant to Section 1.4 herein (the "Financial Statements") were and will be
prepared in accordance with the books and records of the Business, are and will
be complete and correct in all material respects, have and will have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), applied consistently with the past practices of the Business, except
where otherwise specifically noted therein, and present and will present fairly
in all material respects the financial position, results of operations and
changes in financial position or cash flows, whichever is applicable, of the
Business as at the dates and for the periods indicated (subject, in the case of
the unaudited financial statements, to normal year-end audit adjustments).
Without limiting the foregoing, no undisclosed liabilities or obligations of any
nature (whether known or unknown, or absolute, accrued, contingent or otherwise)
shall exist as at Closing in Escrow or the Closing not reflected in the
Business's most recently dated balance sheet supplied to the Company. The
Business Contribution Member has paid all federal, state and local income,
profits, franchises, sales, use, occupation, property, excise and payroll taxes,
and all license fees and other charges imposed upon it, and has timely filed all
tax returns and related documents required to be filed with any governmental
authority. There are no outstanding or proposed statements of deficiency in tax
payments to any federal, state, local or
15
<PAGE>
foreign government with respect to the Business Contribution Member for any tax
period. As of the dates such Financial Statements were and will be prepared, all
accounts receivable reflected on the Financial Statements (i) have and will have
arisen from bona fide transactions in the ordinary course of the Business
Contribution Member's business, consistent with its past practices, and (ii) are
good and collectible at the aggregate recorded amounts thereof, net of any
applicable reserves for returns or doubtful accounts which are reflected in such
Financial Statements (such reserves, the "Reserves"); such Reserves are adequate
and reasonable and were established in accordance with GAAP.
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d)
hereinbelow) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly-used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for the conduct of the Business as now conducted. After Closing,
the Specific Company Subsidiary will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Business as now conducted.
16
<PAGE>
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property , and neither the Business Contribution Member nor any
of the Shareholders have received any notice or claim (whether written, oral or
otherwise) challenging the Business Contribution Member's ownership or rights in
such Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto; the Business Contribution
Member has all legal and other rights required to transfer the ownership of the
Intellectual Property to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid and
enforceable without any qualification, limitation or restriction on its use, and
neither the Business Contribution Member nor any of the Shareholders has
received any notice or claim (whether written oral or otherwise) challenging the
validity or enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual Property
nor any other Intellectual Property used by the Business Contribution Member
will conflict with, infringe upon, violate or interfere with or constitute an
appropriation of any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property
17
<PAGE>
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted; and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date.
Neither the Business Contribution Member nor any of the Shareholders has granted
to any other Person or entity any rights or permissions to use any of the
Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
18
<PAGE>
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be assumed by the Specific Company Subsidiary directly from and after
Closing, the Business Contribution Member hereby agrees to keep such insurance
policy(ies) as are reflected by such Assumed Liabilities in full force and
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is valid and enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity); (ii) no Default (as defined below) exists under any Contract either by
the Business Contribution Member or by any other party thereto; (iii) neither
the Business Contribution Member nor any of the Shareholders is aware of the
assertion by any third party of any claim of Default or breach under any of the
Contracts; and (iv) neither the Business Contribution Member nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Business Contribution
Member to either (x) terminate or significantly change its existing business
relationship with the Business Contribution Member either now or in the
foreseeable future, or (y) fail to renew or extend its existing business
relationship with the Business Contribution Member at the end of the term of
19
<PAGE>
any existing contractual arrangement such entity may have with the Business
Contribution Member. For purposes of this Agreement, the term "Default" means,
with respect to any Contract, (x) any breach of or default under such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration or any obligation to repay with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member or any of the
Shareholders in connection with this Agreement, the Related Agreements or the
transactions contemplated hereby or thereby 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 statement contained herein or therein, in light of the
circumstances under which they were made, not misleading. Neither the Business
Contribution Member nor any of the Shareholders knows of any facts which are
reasonably likely to cause a material adverse effect on the Assets or the
Business.
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, the Shareholders, and Certain Employees
of the Business Contribution Member
Each of the Shareholders, the Business Contribution Member,
and certain employees of the Business Contribution Member noted on Exhibit B
attached hereto, shall have, at the Closing in Escrow, entered into agreements,
the form of which is attached to this Agreement as Exhibit B.
3.2. Confidentiality. The Business Contribution Member and the
Shareholders shall abide by the terms of the Confidentiality Agreement between
the Business Contribution Member and the Company (or the Company's predecessor,
Dispatch Management Services LLC) executed on August 12, 1997. The Business
Contribution Member, the Shareholders, and the
20
<PAGE>
Specific Company Subsidiary each acknowledge and agree that the Company shall
have the right to disclose certain information concerning the Specific Company
Subsidiary, the Assets and/or the Business to third parties (which third parties
will in turn be bound by an agreement similar to the Confidentiality Agreement),
for such general corporate purposes as includes but is not limited to obtaining
financing and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member and the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not
21
<PAGE>
(a) conflict with or violate any provision of the Certificate of Incorporation
or By-laws of the Company; (b) except as set forth on Exhibit E, require any
consent, waiver, approval, authorization or permission of, or filing with or
notification to, any third party; (c) result in or constitute a default, or
require any consent or approval of or notice to any person or entity under or
pursuant to any of the contracts to which the Company is a party; or (d) violate
any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit H. Except as set forth in
Exhibit H, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or
22
<PAGE>
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member and the Shareholders,
jointly and severally, covenant and agree that (except as expressly contemplated
or permitted by this Agreement, or to the extent that the Company shall
otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (ii) preserve the present
relationship of the Business Contribution Member with Persons having business
dealings with the Business Contribution Member;
(c) comply with all laws and with all contractual and other
obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any Encumbrance;
23
<PAGE>
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on the Business or the Assets,
and (ii) any Legal Proceeding commenced by or against the Business Contribution
Member or any Legal Proceeding commenced or threatened relating to the
transactions contemplated by this Agreement; and
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member or the Shareholders in this Agreement or the
Related Agreements untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, the Business Contribution
Member shall take all steps necessary to change its corporate name and/or trade
name to a name not confusingly similar to the trade name being conveyed
hereunder and to be utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Business Contribution Member shall cooperate
fully therein. In order that the Company may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation as
it may reasonably request of the affairs of the Business and the Business
Contribution Member, each of the Business Contribution Member and the
Shareholders shall use their respective best efforts to
24
<PAGE>
cause the Business Contribution Member's officers, employees, consultants,
agents, accountants, attorneys and other representatives to cooperate fully with
such Company representatives in connection with such review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Business Contribution
Member nor any of the Shareholders shall pursue, initiate, encourage or engage
in any negotiations or discussions with any third parties concerning the sale of
the Business, the Assets, or any part thereof or concerning the terms and
conditions of this Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member and the Shareholders shall give prompt notice to the Company of (a) any
notice of, or other communication relating to, a default under any contract
material to the financial condition, properties, business operations, or results
of operations of the Business and/or the Business Contribution Member to which
it is a party or is subject, (b) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement or any of the
Related Agreements, or (c) any material adverse change in the properties
(including but not limited to the Assets), business operations, results of
operations, financial condition or prospects of the
25
<PAGE>
Business, other than changes resulting from general economic conditions. In
addition, the Business Contribution Member and the Shareholders shall be
required to update the schedules and other information supplied pursuant to this
Agreement at such time as the information contained therein changes in any
material respect.
6.6 Working Capital as of the Closing Date. The Shareholders and the
Business Contribution Member shall ensure that the Assets, less the Assumed
Liabilities, includes at least $0 working capital (defined as the excess of
current (liquid) assets over current liabilities) as of the Closing Date.
For purposes of determining whether the required working capital
existed as of the Closing Date, the Company will cause to be prepared, promptly
following the Closing, a balance sheet setting forth the Assets and Assumed
Liabilities as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, consistent with past practices of the Business
Contribution Member, and shall include full accrual of all tax liabilities of
the Business Contribution Member as of the Closing Date (including but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that less than the prescribed $0 working capital existed as
of the Closing Date, as determined by such balance sheet, the Shareholders
and/or the Business Contribution Member shall forthwith pay the Company an
amount equal to the difference between the actual working capital as of the
Closing Date and $0 working capital (the "Shortfall"). If the Shareholders
and/or the Business Contribution Member do not pay the Shortfall to the Company
within five (5) days after demand, then, in addition to all other remedies which
the Company may have, the Company may deduct the amount of the Shortfall from
any of the obligations of the Company to the Shareholders or the Business
Contribution Member (including, but not limited to, the Earn-Out to which the
Business Contribution Member may be entitled thereafter).
In the event that the Business Contribution Member shall notify the
Company in writing within five days after demand is made by the Company for
payment of the Shortfall of its decision to dispute the amount of the Shortfall,
the Company shall forthwith instruct Price Waterhouse LLP to audit the balance
sheet of the Business as of the Closing Date, and to calculate the working
capital therein in accordance with GAAP. Price Waterhouse LLP shall
26
<PAGE>
then determine the amount of the Shortfall as set out in this paragraph 6.6,
whose decision shall be final and binding on the parties hereto. The Business
Contribution Member shall forthwith pay to the Company the amount of such
Shortfall, together with fifty percent (50%) of the cost of the audit conducted
by Price Waterhouse LLP. In the event Price Waterhouse LLP determines the
Shortfall to have been zero, the entire cost of such audit shall be borne by the
Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member and the Shareholders set forth in
this Agreement (with regard to any supplements or updates thereto) shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of the Closing in Escrow Date and the Closing Date as though made on
and as of the Closing in Escrow Date and the Closing Date, respectively,
27
<PAGE>
except as otherwise contemplated by this Agreement, and the Company shall have
received a certificate from the Shareholders and the Business Contribution
Member (signed by a senior executive officer of the Business Contribution
Member) certifying to such effect.
(b) Performance of Obligations. The Business Contribution
Member and the Shareholders shall each have performed all obligations required
to be performed by each such party under this Agreement at or prior to the
Closing in Escrow Date and the Closing Date, respectively, and the Company shall
have received a certificate from the Shareholders and the Business Contribution
Member (signed by a senior executive officer of the Business Contribution
Member) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Assets or the Business.
(d) Contractual Consents. The Business Contribution Member
and/or the Shareholders shall have given all notices to, and obtained all
consents, approvals or authorizations of or from, any individual, corporation or
other party which may be necessary to permit the consummation of the
transactions contemplated hereby (including, without limitation, any consents
required under the Contracts, or which may be required to permit the change of
ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member and/or the Shareholders are a party shall
have been duly executed and delivered by such party. In addition, the Related
Agreements shall have been entered into by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member
and the Shareholders. The obligations of the Business Contribution Member and
the Shareholders to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Business Contribution Member and the Shareholders), any
or all of which may be waived in whole or in part by the Business Contribution
Member or the Shareholders.
28
<PAGE>
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that the Business Contribution
Member and/or any of the Shareholders do not timely deliver representation
letters satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or
29
<PAGE>
shareholders except (i) for the obligation of the Business Contribution Member
and the Shareholders to refund to the Company the audit expenses as set forth in
Section 1.4 of this Agreement; (ii) for any and all obligations under the
confidentiality provisions contained in Section 3.2 of this Agreement; and (iii)
to the extent that such termination results from the willful breach by a party
hereto of any of its representations or warranties, or of any of its covenants
or agreements, as set forth in this Agreement. In the event that termination
results from the willful breach by a party hereto of any of its representations
or warranties, or of any of its covenants or agreements, as set forth in this
Agreement, the breaching party shall be liable to the non-breaching party for
all direct damages (but not indirect or consequential damages) incurred as a
result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member and
the Shareholders. The Business Contribution Member and the Shareholders each
hereby agrees to jointly and severally indemnify, defend and hold harmless the
Company, the Specific Company Subsidiary, and their respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business Contribution Member's most recently dated balance
sheet delivered to the Company, (ii) any inaccuracy in or breach of any of the
Business Contribution Member's and/or any of the Shareholders' representations,
warranties, covenants or agreements contained in this Agreement, the Related
Agreements or in any other agreement or document entered into or delivered on or
after the date hereof in connection with this Agreement or any of the
transactions contemplated hereby and thereby, (ii) any liability or obligation
of the Business Contribution Member and/or any of the Shareholders other than an
Assumed Liability, and (iii) any non-compliance with any notice requirement, if
any, which may be contained in the Uniform Commercial Code as adopted by the
State of Massachusetts, relating to bulk sales. Provided, however, the
indemnification by the Business Contribution Member
30
<PAGE>
and/or the Shareholders under this Section 9.1.(a) shall include direct damages
only (and not indirect or consequential damages). For purposes of this
Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member and/or
the Shareholders from and against and in respect of any and all Losses resulting
from, arising out of, relating to, imposed upon or incurred by the Business
Contribution Member and/or the Shareholders by reason of (i) any inaccuracy in
or breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby; or (ii) any failure to discharge the Assumed Liabilities as
required by their terms. Provided, however, the indemnification by the Company
under this Section 9.1.(b) shall include direct damages only (and not indirect
or consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
31
<PAGE>
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street, Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Business Contribution Member or the
Shareholders, to:
Time Couriers LLC
_____________________________
_____________________________
_____________________________
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not
32
<PAGE>
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of all parties hereto with
respect to any of the terms contained herein, and each party hereto agrees to be
bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Business Contribution Member and the Shareholders acknowledge
that the failure to comply with any of the provisions of Sections 3.1, 3.2. and
6.3 hereof will result in irreparable harm for which there is no adequate remedy
at law and that the Company and/or the Specific Company Subsidiary shall be
entitled, without the necessity of proving actual damages, to injunctive relief
33
<PAGE>
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Specific Company Subsidiary.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Business Contribution Member and the Shareholders that money damages are
inadequate to compensate the Company and/or the Specific Company Subsidiary for
a breach of the terms of this Agreement, and that the Company and/or the
Specific Company Subsidiary shall be entitled to specific performance of the
terms of this Agreement. The arbitrator may enter a default decision against any
party who fails to participate in the proceeding. The decision of the arbitrator
shall be final, conclusive, binding and non-appealable. The losing party shall
pay all costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an
34
<PAGE>
appointment. If an arbitrator should die, withdraw, or otherwise become
incapable of serving, a replacement shall be selected and appointed in a like
manner.
10.11. Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
35
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
- - - - ------------------------- -------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest: TIME COURIERS LLC
By:
- - - - ------------------------- -------------------------------------
Name:
Title:
"SPECIFIC COMPANY SUBSIDIARY"
Attest: -----------------------------------------
By: /s/ Linda Jenkinson
- - - - ------------------------- -------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
36
<PAGE>
"SHAREHOLDERS"
/s/ Tom Cromwell
- - - - -------------------------- -----------------------------------------
Witness: Tom Cromwell
/s/ William Krupman
- - - - -------------------------- -----------------------------------------
Witness: William Krupman
/s/ Michael Stone
- - - - -------------------------- -----------------------------------------
Witness: Michael Stone
/s/ Peter Begley
- - - - -------------------------- -----------------------------------------
Witness: Peter Begley
/s/ Thomas Hagerty
- - - - -------------------------- -----------------------------------------
Witness: Thomas Hagerty
/s/ Kimberly Cilley
- - - - -------------------------- -----------------------------------------
Witness: Kimberly Cilley
/s/ Christopher Hart
- - - - -------------------------- -----------------------------------------
Witness: Christopher Hart
37
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Eveready Express Corp., a New York corporation (the
"Business Contribution Member"), Marlene R. Spirt, Mary B. Spirt (collectively,
the "Shareholders") and [DMS Subsidiary Number ___] a _________________________
(the "Specific Company Subsidiary"). Unless defined herein, all capitalized
terms used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996 by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member is in the business of providing
point-to-point urgent messenger services (such business, and any other lines of
business related thereto, the "Business");
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of the Business Contribution Member;
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below,) and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
<PAGE>
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary will enter into non-competition
agreements with each of the Shareholders of the Business Contribution Member and
Leon Spirt and Jack Spirt in the form attached hereto as Exhibit B (such
non-competition agreements, together with all other agreements which are entered
into by the parties hereto pursuant to this Agreement or in connection with any
of the transactions contemplated hereby, the "Related Agreements");
WHEREAS, the parties intend that at the Closing the Business Contribution
Member will change its corporate name and/or trade name, as necessary, so that
the Specific Company Subsidiary may trade under the trade name previously used
for the Business (which trade name is specifically acquired by the Specific
Company Subsidiary hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member and each Shareholder,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Business Contribution Member shall be obliged to deliver to the Company,
within thirty (30) days after execution of this Agreement: (i) the unaudited
financial statements required pursuant to Section 1.4 below and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the
2
<PAGE>
common stock, par value $.01 per share, of the Company (the "Initial Public
Offering"), the Company will deliver to the Business Contribution Member and the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Business Contribution Member and the
Shareholders must execute and deliver satisfactory representation letters in
order to consummate the sale of the Assets and assumption of the Assumed
Liabilities pursuant to the terms of this Agreement.
Upon timely delivery from the Business Contribution Member and all
of the Shareholders of representation letters satisfactory to the Company, the
parties will close in escrow (the "Closing in Escrow") pursuant to the terms and
conditions of this Agreement. Such Closing in Escrow shall take place at the
offices of Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th
Floor, Washington, D.C. 20005 (or such other place as is mutually agreed upon by
the parties) within thirty (30) days (or such shorter period as is specified in
the Notice) after timely delivery of satisfactory representation letters from
the Business Contribution Member and the Shareholders.
In the event that the Business Contribution Member and/or one or
more of the Shareholders do not timely deliver satisfactory representation
letters (as determined in the sole discretion of the Company), this Agreement
will be of no further force or effect, except for any and all obligations under
Sections 3.2 (confidentiality), 1.4 (reimbursement of audit expenses) and 8.2
(effect of termination under Section 8.1), which obligations will survive
termination of this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
(ii) All rights to the trade and/or brand names
"Eveready Express Corp.", and "Dash Messenger Service", logos, and other
Intellectual Property as defined in Section 2.11.(d) hereinbelow, customer
lists, goodwill and other intangible assets; and
3
<PAGE>
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (the "Contracts"), as set forth on Exhibit D attached hereto.
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member, and only those liabilities and obligations, which
are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member and/or the Shareholders shall, as appropriate, enter into,
execute and deliver to the law firm of Silver, Freedman & Taff, LLP, as escrow
agent: (i) a bill of sale, (ii) an instrument of assignment and assumption (the
form and substance of which shall be reasonably acceptable to the Company), and
(iii) any other instruments of conveyance or transfer which may be necessary in
the sole discretion of the Company, including,
4
<PAGE>
without limitation, any instruments of assignment in connection with the
Intellectual Property and the Contracts, each in form and substance reasonably
acceptable to the Company, pursuant to which the Business Contribution Member
and/or the Shareholders shall convey, assign, transfer and deliver to the
Company all right, title and interest in, to and under the Assets, free and
clear of any and all Encumbrances (as defined in Section 2.3(a) below), and the
Company shall assume the Assumed Liabilities from the Business Contribution
Member. At the Closing in Escrow, the Business Contribution Member shall also
cause to be delivered the opinion of its counsel as to such matters as counsel
to the Company may reasonably require, including but not limited to such
counsel's opinion that: the Business Contribution Member is in good standing;
the Business Contribution Member is authorized to conduct its business in each
jurisdiction in which it is doing business; the Business Contribution Member and
the Shareholders have full power to enter into and perform their respective
obligations under this Agreement, as well the Related Agreements to which they
are a party; this Agreement, and the Related Agreements to which the Business
Contribution Member and/or the Shareholders are a party, constitute legal, valid
and binding obligations of the Business Contribution Member and the
Shareholders, respectively, enforceable in accordance with their respective
terms (except as enforcement may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditor's rights, and principles of
equity); and neither the Business Contribution Member nor any of the
Shareholders is threatened with or affected by any actions, proceedings or
investigations wherein an unfavorable decision, ruling or finding could have a
materially adverse effect on the financial condition or operation of the
Business and/or the Assets, or could prevent, enjoin or otherwise affect the
transactions contemplated by this Agreement.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
Without limiting the foregoing, the Business Contribution Member and/or the
Shareholders shall take whatever steps are necessary (such as filings with the
United States Patent and Trademark Office) to transfer the Intellectual Property
to the Specific Company Subsidiary.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume
5
<PAGE>
the Assumed Liabilities, and the Business Contribution Member will be obliged to
sell the Assets, subject to the Assumed Liabilities, at the purchase price
specified in Section 1.4 below, on the Closing Date specified in Section 1.5
below.
1.4. Purchase Price. The purchase price for the Assets (the
"Purchase Price") shall be $1,436,750, and subject to further adjustment (if
any) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.4 below).
The parties hereto agree to allocate the Purchase Price to the
Assets in accordance with the manner set forth on Schedule 1.4 attached hereto
and in accordance with the applicable provisions of Section 1060 of the Code
(the "Price Allocation"). Accordingly, each party to this Agreement shall adopt
and utilize such Price Allocation for purposes of all tax returns filed by them
and shall not voluntarily take any position inconsistent therewith in connection
with any examination of any tax return, any refund claim, any litigation
proceeding or otherwise. Each of the Company and the Business Contribution
Member shall file on a timely basis a Form 8594 in accordance with the
requirements of Section 1060 of the Code and the provisions of this Section 1.4.
In the event that the Price Allocation is disputed by an taxing authority, the
party receiving notice of the dispute shall promptly notify the other parties
hereto of such dispute and the parties hereto shall consult with each other
concerning resolution of the dispute.
Unless the Company gives the Shareholders and the Business
Contribution Member written notice to the contrary, the Shareholders and the
Business Contribution Member shall deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) unaudited financial statements of
the Business, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Business, including a balance sheet dated as of June 30, 1996, and an income
statement and cash flow statement for the twelve month period ended on June 30,
1996: and (iii) unaudited, financial statements of the Business, including a
balance sheet dated as of June 30, 1997 and an income statement and a cash flow
statement for the six month period ended June 30, 1997. The intent of providing
the unaudited financial statements referred to in the foregoing sentence is to
resolve any auditing issues prior to calculation of the Purchase Price, so that
the Purchase Price may be quickly and efficiently calculated. In the event that
the closing of
6
<PAGE>
the Initial Public Offering has not occurred on or before November 12, 1997, but
does occur on or before December 12, 1997, then in that event, in lieu of the
unaudited financial statements of the Business for the six month period ended
June 30, 1997, the Shareholders and the Business Contribution Member shall
deliver to the Company, within thirty days after written request from the
Company: (i) an updated set of unaudited financial statements of the Business,
including a balance sheet dated as of June 30, 1997, and income statements and
cash flow statements for the six month period ended June 30, 1997; (ii)
unaudited financial statements for the Business, including a balance sheet dated
as of September 30, 1996, and an income statement and cash flow statement for
the twelve month period ended on September 30, 1996; and (iii) unaudited
financial statements of the Business, including a balance sheet dated as of
September 30, 1997 and income statements and cash flow statements for the three
month period ended September 30, 1997. In the event that the closing of the
Initial Public Offering has not occurred on or before December 12, 1997, then
upon written request from the Company given on or before March 1, 1998, the
Shareholders and the Business Contribution Member shall deliver to the Company,
within 30 days after written request from the Company, such additional unaudited
financial statements of the Business as the Company may reasonably request.
The cost of providing all of the financial statements required by
this Section 1.4, within the prescribed time limits, shall be the sole
responsibility of the Business Contribution Member, provided that the Company
will, upon the request of the Business Contribution Member, advance such costs
on behalf of the Business Contribution Member. In the event that the Business
Contribution Member and/or one or more of the Shareholders do not timely deliver
satisfactory shareholder representation letters and complete the Closing in
Escrow, the Business Contribution Member and the Shareholders shall be jointly
and severally responsible for immediately refunding to the Company any such
advanced costs; in the event that all such representation letters are
satisfactory and are timely received, and the Closing in Escrow is completed,
the Business Contribution Member and the Shareholders shall be relieved of their
obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next
7
<PAGE>
paragraph, and seventy percent (70%) of the Purchase Price in (restricted) stock
of the Company (the "Company Stock"), at the Closing. The number of shares of
Company Stock to be issued as partial payment of the Purchase Price shall be
equal to the aggregate dollar value of the stock component of the Purchase Price
divided by the Initial Public Offering price per share as set forth on the cover
page of the prospectus relating to the Initial Public Offering. The Business
Contribution Member and the Shareholders acknowledge that the sale of the
Company Stock will be restricted for a period of time by virtue of a "lock-up"
agreement which may be imposed by the Company, and the Business Contribution
Member and the Shareholders shall execute such a "lock-up" agreement, as may be
required by the Company, by which the sale of the Company Stock is restricted
(perhaps prohibited) for a period of two (2) years from the date of the closing
of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Business Contribution
Member ratably over the two year periods beginning January 1, 1998 and ending
December 31, 1999 provided that the Specific Company Subsidiary achieves the
targeted performance standards set forth in Exhibit G attached hereto. In the
event that the Specific Company Subsidiary fails to achieve the "Business
Contribution Percentage Maintenance" requirement set forth in Exhibit G during
any calendar quarter, then for each calendar quarter in which the Specific
Company Subsidiary fails to achieve such requirement, the cash portion of the
Purchase Price shall be reduced by one-eighth (1/8) of the Maximum Earn-Out. In
the event that the Specific Company Subsidiary, fails to achieve the revenue
requirement set forth in Exhibit G for any year, then for each calendar quarter
of such year that the Specific Company Subsidiary failed to achieve revenue of
at least one-quarter (1/4) of such annual requirement, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue requirement for such calendar quarter (25% of the annual requirement
set forth on Exhibit G), and the denominator of which is the revenue required
during such calendar quarter (25% of the annual requirement set forth on Exhibit
G). The maximum reduction with respect to the failure to meet the "Business
Contribution Percentage Maintenance" requirement or the revenue requirement for
any calendar quarter shall be one eighth (1/8) of the Maximum Earn-Out. The
Maximum Earn-Out, less any reductions as set forth in this paragraph, is
hereinafter referred to as the "Earn-Out". The Earn-Out shall bear interest at
the
8
<PAGE>
rate of 7% per annum commencing as of the Closing Date (i.e., once the Earn-Out
is determined, the Shareholders will be due such amount plus interest at the
rate of 7% per annum on such amount, accrued from the Closing Date until the
date of payment of the Earn-Out to the Shareholders). The Earn-Out shall be paid
to the Business Contribution Member promptly following calculation of the
Specific Company Subsidiary's performance for the quarter ending December 31,
1999. The Company covenants and agrees to maintain sufficient cash, or
availability of cash (e.g., by way of a line of credit) in order to fund the
Earn-Out.
At the request of the Business Contribution Member made to the
Company in writing not later than the Closing in Escrow, the Company shall
(immediately after Closing) make a loan to the Business Contribution Member in
an amount equal to up to 30% of the Purchase Price. Said loan by the Company to
the Business Contribution Member (the "Business Contribution Member Loan") shall
bear interest at a rate of seven percent (7%) per annum, and shall be secured by
all of the Company Stock paid as part of the Purchase Price at Closing. The
collateral security agreement evidencing the collateralization of the Business
Contribution Member Loan with the Company Stock and the Earn-Out shall be on
such terms as are reasonably acceptable to the Company, which terms shall
include, but shall not be limited to, the retention of all of the Company Stock
by the Company until full repayment of the Business Contribution Loan. The
Business Contribution Member shall have the right to prepay the Business
Contribution Member Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Business Contribution Member Loan (plus accrued interest) against the Earn-Out
as earned each quarter. The Business Contribution Member Loan shall mature as of
the date that the Earn-Out is payable. In the event that the Business
Contribution Member Loan is not repaid in full upon maturity, the Company shall
enjoy all rights of a secured party under the Uniform Commercial Code then in
effect in the State of Maryland, provided that the Company's only recourse shall
be first against the remaining Earn-Out and then against the Company Stock it
holds as collateral, and there shall not be any recourse against the Business
Contribution Member or the Shareholders individually.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of
9
<PAGE>
the Assets, subject to the Assumed Liabilities, pursuant to this Agreement (the
"Closing") shall take place at the offices of Silver, Freedman & Taff, L.L.P.,
1100 New York Avenue, N.W., Suite 700E, Washington, D.C. 20005,
contemporaneously with the closing of the Initial Public Offering unless the
Initial Public Offering does not occur by March 31, 1998, in which case this
Agreement shall be rendered null and void, or unless another date, time or place
is agreed to in writing by the parties hereto (the day on which the Closing
takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the bill of sale, instruments of assignment and assumption,
transfer documents, and other documents and materials theretofore held in escrow
from the Closing in Escrow; (ii) the Business Contribution Member and the
Shareholders shall deliver to the Company updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.3(a) above; and (iii) the
Company shall deliver the Purchase Price to the Business Contribution Member
(less the Maximum Earn-Out, which shall be payable to the Business Contribution
Member pursuant to the terms of Section 1.4 above, and with the Company Stock
collateralized against the Business Contribution Member Loan being delivered to
the Company as appropriate). At Closing, Company, Business Contribution Member,
Shareholders and Specific Company Subsidiary shall also take all additional
steps as may be necessary or appropriate to deliver the Assets to the Specific
Company Subsidiary, have the Specific Company Subsidiary assume the Assumed
Liabilities, and put the Specific Company Subsidiary in physical possession and
operating control of the Business and all of the Assets.
2. Representations, Warranties and Covenants of the Business Contribution
Member and the Shareholders.
The Business Contribution Member and the Shareholders hereby jointly
and severally represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Business Contribution
Member is a "C" Corporation duly organized, validly existing and in good
standing under the laws of the State of New York, and has all requisite
corporate power and authority to own, lease and operate its properties
(including, without limitation, the Assets) and to carry on its business as now
being conducted (including, without limitation, the Business). The Business
Contribution Member is duly
10
<PAGE>
qualified and in good standing to conduct business in each jurisdiction in which
the business it is conducting (including, without limitation, the Business), or
the operation, ownership or leasing of its properties (including, without
limitation, the Assets), makes such qualification necessary.
2.2. Authority and Enforceability.
(a) Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite corporate power and authority to
execute and deliver this Agreement and each of the Related Agreements to which
it is a party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Business
Contribution Member. This Agreement and each of the Related Agreements to which
the Business Contribution Member is a party has been duly executed and delivered
by the Business Contribution Member, and this Agreement and each of the Related
Agreements to which the Business Contribution Member is a party constitute the
legal, valid and binding obligations of the Business Contribution Member,
enforceable against the Business Contribution Member in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
(b) Matters Relating to the Shareholders. The Shareholders
have all requisite legal right, power and authority to enter into this Agreement
and each of the Related Agreements to which they are a party and to agree to the
transactions contemplated hereby and thereby and to perform all of their
respective obligations hereunder and thereunder. This Agreement and each of the
Related Agreements to which any of the Shareholders are a party constitute the
legal, valid and binding obligations of the Shareholders, enforceable against
the Shareholders in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
11
<PAGE>
2.3. Title to Assets; Condition.
(a) The Business Contribution Member owns beneficially and of
record, and has good and marketable title to, the Assets, free and clear of any
Encumbrances. For purposes of this Agreement, the term "Encumbrances" shall mean
restrictions, conditions, covenants, liens, easements, charges, encroachments or
any other matter affecting fee simple title (other than the Assumed
Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this Agreement
to be effected at the Closing, the Company will (i) have all right, title, and
interest in and to, or will have a valid right to use, without liability to
third party(ies), the Assets; and (ii) have all assets, rights, Back-Office
Employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Business after the
Closing Date in substantially the same manner as presently conducted by the
Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member and the Shareholders of this
Agreement and each of the Related Agreements to which they are, respectively, a
party, and the consummation of the transactions contemplated hereby and thereby
by each of the Business Contribution Member and the Shareholders will not (a)
conflict with or violate any provision of the articles or certificate of
incorporation or by-laws of the Business Contribution Member, (b) except as set
forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an Encumbrance, under or pursuant
to (i) any of the Contracts, or (ii) any other material agreements to which the
Business Contribution Member and/or any of the Shareholders
12
<PAGE>
are a party, or (d) violate any law applicable to the Business Contribution
Member or any of the Shareholders or by which any of the Assets is bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Business Contribution Member or the Business is
currently subject (or which the Business Contribution Member or the Business was
subject to during the previous three years) or which are otherwise applicable to
the Business Contribution Member or the Assets or to the conduct of the
Business, and (ii) all correspondence from the date hereof with respect to any
of the matters referred to in clause (b) or clause (i) of this Section 2.6.
Neither the Business Contribution Member nor any of the Shareholders is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on either the Business or the Business Contribution Member.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member and/or any of the
Shareholders, threatened that questions the validity of this Agreement or the
Related Agreements or any action taken or to be taken by the Business
Contribution Member or any of the Shareholders in connection with the
consummation of the transactions contemplated hereby or thereby or which seeks
to prohibit, enjoin or otherwise challenge any of the transactions contemplated
hereby or thereby. Exhibit H sets forth an accurate and complete list, and a
brief description (setting forth the names of the parties involved, the court or
13
<PAGE>
other governmental or mediating entity involved, the relief sought and the
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Business Contribution Member and/or any of
the Shareholders, threatened against or affecting the Business Contribution
Member, the Business or any of the Assets. To the knowledge of the Business
Contribution Member and/or any of the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit H. Except as set forth in Exhibit H, there is no
outstanding or, to the knowledge of the Business Contribution Member and/or any
of the Shareholders, threatened judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Business Contribution Member, the Business or any of the Assets.
2.8. Financial Advisors.
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business Contribution Member and/or any of the
Shareholders in connection with the negotiations relating to or the transactions
contemplated by this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member and/or any of the Shareholders. Such fees, commissions, like payments or
expense reimbursements as are described on Exhibit I attached hereto shall
remain liabilities and expenses of the Business Contribution Member and/or the
Shareholders exclusively, and are specifically excluded from the Assumed
Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which, together with the financial statements
(including the notes and exhibits thereto), to be delivered to the Company
pursuant to Section 1.4 herein (the "Financial Statements") were and will be
prepared in accordance with the books and records of the Business, are and will
be complete and correct in all
14
<PAGE>
material respects, have and will have been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"), applied consistently with the
past practices of the Business, except where otherwise specifically noted
therein, and present and will present fairly in all material respects the
financial position, results of operations and changes in financial position or
cash flows, whichever is applicable, of the Business as at the dates and for the
periods indicated (subject, in the case of the unaudited financial statements,
to normal year-end audit adjustments). Without limiting the foregoing, no
undisclosed liabilities or obligations of any nature (whether known or unknown,
or absolute, accrued, contingent or otherwise) shall exist as at Closing in
Escrow or the Closing not reflected in the Business's most recently dated
balance sheet supplied to the Company. The Business Contribution Member has paid
all federal, state and local income, profits, franchises, sales, use,
occupation, property, excise and payroll taxes, and all license fees and other
charges imposed upon it, and has timely filed all tax returns and related
documents required to be filed with any governmental authority. There are no
outstanding or proposed statements of deficiency in tax payments to any federal,
state, local or foreign government with respect to the Business Contribution
Member for any tax period. As of the dates such Financial Statements were and
will be prepared, all accounts receivable reflected on the Financial Statements
(i) have and will have arisen from bona fide transactions in the ordinary course
of the Business Contribution Member's business, consistent with its past
practices, and (ii) are good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for returns or doubtful accounts which
are reflected in such Financial Statements (such reserves, the "Reserves"); such
Reserves are adequate and reasonable and were established in accordance with
GAAP.
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of
15
<PAGE>
all Intellectual Property (as defined in Section 2.11.(d) hereinbelow) which is
owned by the Business Contribution Member, licensed by the Business Contribution
Member, licensed to the Business Contribution Member, or otherwise used or able
to be used in the Business (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Business Contribution Member either for free or through
established retail facilities) and indicates, with respect to each item of
Intellectual Property listed thereon, the owner thereof and, if applicable, the
name of the licensor and licensee thereof and the terms of such license or other
contract relating thereto. The Business Contribution Member owns or has the
lawful right to use all Intellectual Property as currently used or as necessary
for the conduct of the Business as now conducted. After Closing, the Specific
Company Subsidiary will have the right to use all of the Intellectual Property
as currently used or as necessary for the conduct of the Business as now
conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property , and neither the Business Contribution Member nor any
of the Shareholders have received any notice or claim (whether written, oral or
otherwise) challenging the Business Contribution Member's ownership or rights in
such Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto; the Business Contribution
Member has all legal and other rights required to transfer the ownership of the
Intellectual Property to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Business Contribution Member nor any of the Shareholders has
received any notice or claim (whether written oral or otherwise) challenging the
validity or enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Business Contribution
Member will conflict with, infringe upon,
16
<PAGE>
violate or interfere with or constitute an appropriation of any right, title or
interest held by any other person or entity, and there have been no claims made
with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property used or able to be used by the Business
Contribution Member in the conduct of its business (including, without
limitation, the Business) as heretofore conducted; and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date.
Neither the Business Contribution
17
<PAGE>
Member nor any of the Shareholders has granted to any other Person or entity any
rights or permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be assumed by the Specific Company Subsidiary directly from and after
Closing, the Business Contribution Member hereby agrees to keep such insurance
policy(ies) as are reflected by such Assumed Liabilities in full force and
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is valid and enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar
18
<PAGE>
laws affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity); (ii) no Default (as
defined below) exists under any Contract either by the Business Contribution
Member or by any other party thereto; (iii) neither the Business Contribution
Member nor any of the Shareholders is aware of the assertion by any third party
of any claim of Default or breach under any of the Contracts; and (iv) neither
the Business Contribution Member nor any of the Shareholders is aware of any
present intention on the part of any significant customer or supplier or other
business partner of the Business Contribution Member to either (x) terminate or
significantly change its existing business relationship with the Business
Contribution Member either now or in the foreseeable future, or (y) fail to
renew or extend its existing business relationship with the Business
Contribution Member at the end of the term of any existing contractual
arrangement such entity may have with the Business Contribution Member. For
purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any breach of or default under such Contract, (y) any event, other
than the normal passage of time, which would (either with or without notice or
lapse of time or both) give rise to any right of termination, cancellation or
acceleration or any obligation to repay with respect to such Contract, or (z)
any event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member or any of the
Shareholders in connection with this Agreement, the Related Agreements or the
transactions contemplated hereby or thereby 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 statement contained herein or therein, in light of the
circumstances under which they were made, not misleading. Neither the Business
Contribution Member nor any of the Shareholders knows of any facts which are
reasonably likely to cause a material adverse effect on the Assets or the
Business.
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
19
<PAGE>
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, the Shareholders, and Certain Employees of the
Business Contribution Member
Each of the Shareholders, the Business Contribution Member, and
certain employees of the Business Contribution Member noted on Exhibit B
attached hereto, shall have, at the Closing in Escrow, entered into agreements,
the form of which is attached to this Agreement as Exhibit B.
3.2. Confidentiality. The Business Contribution Member and the
Shareholders shall abide by the terms of the Confidentiality Agreement between
the Business Contribution Member and the Company (or the Company's predecessor,
Dispatch Management Services LLC). The Business Contribution Member, the
Shareholders, and the Specific Company Subsidiary each acknowledge and agree
that the Company shall have the right to disclose certain information concerning
the Specific Company Subsidiary, the Assets and/or the Business to third parties
(which third parties will in turn be bound by an agreement similar to the
Confidentiality Agreement), for such general corporate purposes as includes but
is not limited to obtaining financing and/or underwriting, and for general
marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member and the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of
20
<PAGE>
the transactions contemplated hereby and thereby have been duly authorized by
all necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions
21
<PAGE>
contemplated hereby or thereby or which seeks to prohibit, enjoin or otherwise
challenge any of the transactions contemplated hereby or thereby. Exhibit H sets
forth an accurate and complete list, and a brief description (setting forth the
names of the parties involved, the court or other governmental or mediating
entity involved, the relief sought and the substantive allegations and the
status thereof), of each Legal Proceeding pending or, to the knowledge of the
Company, threatened against or affecting the Company. To the knowledge of the
Company, no event has occurred and no circumstance, matter or set of facts exist
which would constitute a valid basis for the assertion by any third party of any
claim or Legal Proceeding, other than those listed on Exhibit H. Except as set
forth in Exhibit H, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member and the Shareholders,
jointly and severally, covenant and agree that (except as expressly contemplated
or permitted by this Agreement, or to the extent that the Company shall
otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
22
<PAGE>
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (ii) preserve the present
relationship of the Business Contribution Member with Persons having business
dealings with the Business Contribution Member;
(c) comply with all laws and with all contractual and other
obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any Encumbrance;
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on the Business or the Assets,
and (ii) any Legal Proceeding commenced by or against the Business Contribution
Member or any Legal Proceeding commenced or threatened relating to the
transactions contemplated by this Agreement.
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member or the Shareholders in this Agreement or the
Related Agreements untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, the Business Contribution
Member shall take all steps necessary to change its corporate name and/or trade
name to a name not confusingly similar to the trade name being conveyed
hereunder and to be utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the
23
<PAGE>
Business and the Business Contribution Member and examination of its books and
records as the Company may reasonably request, and to make extracts and copies
of such books and records. Any such investigation and examination shall be
conducted during regular business hours and under reasonable circumstances, and
the Business Contribution Member shall cooperate fully therein. In order that
the Company may have full opportunity to make such physical, business,
accounting and legal review, examination or investigation as it may reasonably
request of the affairs of the Business and the Business Contribution Member,
each of the Business Contribution Member and the Shareholders shall use their
respective best efforts to cause the Business Contribution Member's officers,
employees, consultants, agents, accountants, attorneys and other representatives
to cooperate fully with such Company representatives in connection with such
review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Business Contribution
Member nor any of the Shareholders shall pursue, initiate, encourage or engage
in any negotiations or discussions with any third parties concerning the sale of
the Business, the Assets, or any part thereof or concerning the terms and
conditions of this Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member and the Shareholders shall give prompt notice to the Company of (a) any
notice of, or other communication
24
<PAGE>
relating to, a default under any contract material to the financial condition,
properties, business operations, or results of operations of the Business and/or
the Business Contribution Member to which it is a party or is subject, (b) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement or any of the Related Agreements, or (c) any
material adverse change in the properties (including but not limited to the
Assets), business operations, results of operations, financial condition or
prospects of the Business, other than changes resulting from general economic
conditions. In addition, the Business Contribution Member and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.6 Working Capital as of the Closing Date. The Shareholders and the
Business Contribution Member shall ensure that the Assets, less the Assumed
Liabilities, includes at least $205,250 working capital (defined as the excess
of current (liquid) assets over current liabilities) as of the Closing Date.
For purposes of determining whether the required working capital existed
as of the Closing Date, the Company will cause to be prepared, promptly
following the Closing, a balance sheet setting forth the Assets and Assumed
Liabilities as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, consistent with past practices of the Business
Contribution Member. In the event that less than the prescribed $205,250 working
capital existed as of the Closing Date, as determined by such balance sheet, the
Shareholders and/or the Business Contribution Member shall forthwith pay the
Company an amount equal to the difference between the actual working capital as
of the Closing Date and $205,250 working capital (the "Shortfall"). If the
Shareholders and/or the Business Contribution Member do not pay the Shortfall to
the Company within five (5) days after demand, then, in addition to all other
remedies which the Company may have, the Company may deduct the amount of the
Shortfall from any of the obligations of the Company to the Shareholders or the
Business Contribution Member (including, but not limited to, the Earn-Out to
which the Business Contribution Member may be entitled thereafter).
In the event that the Business Contribution Member shall
notify the Company in writing within five days after demand is made by the
Company for payment of the Shortfall of its
25
<PAGE>
decision to dispute the amount of the Shortfall, the Company shall forthwith
instruct Price Waterhouse LLP to audit the balance sheet of the Business as of
the Closing Date, and to calculate the working capital therein in accordance
with GAAP. Price Waterhouse LLP shall then determine the amount of the Shortfall
as set out in this paragraph 6.6, whose decision shall be final and binding on
the parties hereto. The Business Contribution Member shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member and the Shareholders set forth in
this Agreement (with regard to any supplements or updates thereto) shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified,
26
<PAGE>
earlier date) as of the Closing in Escrow Date and the Closing Date as though
made on and as of the Closing in Escrow Date and the Closing Date, respectively,
except as otherwise contemplated by this Agreement, and the Company shall have
received a certificate from the Shareholders and the Business Contribution
Member (signed by a senior executive officer of the Business Contribution
Member) certifying to such effect.
(b) Performance of Obligations. The Business Contribution
Member and the Shareholders shall each have performed all obligations required
to be performed by each such party under this Agreement at or prior to the
Closing in Escrow Date and the Closing Date, respectively, and the Company shall
have received a certificate from the Shareholders and the Business Contribution
Member (signed by a senior executive officer of the Business Contribution
Member) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Assets or the Business.
(d) Contractual Consents. The Business Contribution Member
and/or the Shareholders shall have given all notices to, and obtained all
consents, approvals or authorizations of or from, any individual, corporation or
other party which may be necessary to permit the consummation of the
transactions contemplated hereby (including, without limitation, any consents
required under the Contracts, or which may be required to permit the change of
ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member and/or the Shareholders are a party shall
have been duly executed and delivered by such party. In addition, the Related
Agreements shall have been entered into by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member
and the Shareholders. The obligations of the Business Contribution Member and
the Shareholders to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Business Contribution Member and the
27
<PAGE>
Shareholders), any or all of which may be waived in whole or in part by the
Business Contribution Member or the Shareholders.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Business Contribution
Member and/or any of the Shareholders do not timely deliver representation
letters satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or shareholders except (i)
for
28
<PAGE>
the obligation of the Business Contribution Member and the Shareholders to
refund to the Company the audit expenses as set forth in Section 1.4 of this
Agreement; (ii) for any and all obligations under the confidentiality provisions
contained in Section 3.2 of this Agreement; and (iii) to the extent that such
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement. In the event that termination results from the willful
breach by a party hereto of any of its representations or warranties, or of any
of its covenants or agreements, as set forth in this Agreement, the breaching
party shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member and
the Shareholders. The Business Contribution Member and the Shareholders each
hereby agrees to jointly and severally indemnify, defend and hold harmless the
Company, the Specific Company Subsidiary, and their respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business Contribution Member's most recently dated balance
sheet delivered to the Company, (ii) any inaccuracy in or breach of any of the
Business Contribution Member's and/or any of the Shareholders' representations,
warranties, covenants or agreements contained in this Agreement, the Related
Agreements or in any other agreement or document entered into or delivered on or
after the date hereof in connection with this Agreement or any of the
transactions contemplated hereby and thereby, (ii) any liability or obligation
of the Business Contribution Member and/or any of the Shareholders other than an
Assumed Liability, and (iii) any non-compliance with any notice requirement, if
any, which may be contained in the Uniform Commercial Code as adopted by the
State of New York relating to bulk sales. Provided, however, the indemnification
by the Business Contribution Member and/or the Shareholders under this Section
9.1.(a) shall include direct damages only (and not indirect or consequential
damages). For purposes
29
<PAGE>
of this Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member and/or
the Shareholders from and against and in respect of any and all Losses resulting
from, arising out of, relating to, imposed upon or incurred by the Business
Contribution Member and/or the Shareholders by reason of (i) any inaccuracy in
or breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby; or (ii) any failure to discharge the Assumed Liabilities as
required by their terms. Provided, however, the indemnification by the Company
under this Section 9.1.(b) shall include direct damages only (and not indirect
or consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified
30
<PAGE>
or registered mail, postage prepaid, and shall be deemed to be given, dated and
received when so delivered personally or by courier or telecopied, or, if
mailed, five business days after the date of mailing to the following address or
telecopy number, or to such other address or addresses as such Person may
subsequently designate by written notice given hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Business Contribution Member or the Shareholders, to:
Leon Spirt
Eveready Express Corp.
714 Lexington Avenue
New York, New York 10022
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Asset Transfer Agreement, if any, between the parties, which Agreement will be
of no further force or effect upon execution of this Agreement), both written
and oral, among the parties with respect to the subject matter hereto and is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of all parties
31
<PAGE>
hereto with respect to any of the terms contained herein, and each party hereto
agrees to be bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Business Contribution Member and the Shareholders acknowledge
that the failure to comply with any of the provisions of Sections 3.1, 3.2. and
6.3 hereof will result in irreparable harm for which there is no adequate remedy
at law and that the Company and/or the Specific Company Subsidiary shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Specific Company Subsidiary.
32
<PAGE>
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Business Contribution Member and the Shareholders that money damages are
inadequate to compensate the Company and/or the Specific Company Subsidiary for
a breach of the terms of this Agreement, and that the Company and/or the
Specific Company Subsidiary shall be entitled to specific performance of the
terms of this Agreement. The arbitrator may enter a default decision against any
party who fails to participate in the proceeding. The decision of the arbitrator
shall be final, conclusive, binding and non-appealable. The losing party shall
pay all costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
33
<PAGE>
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
- - - - ----------------------------- --------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest: EVEREADY EXPRESS CORP.
/s/ Mary B. Spirt By: /s/ Mary B. Spirt
- - - - ----------------------------- --------------------------------
Name: Mary B. Spirt Name: Mary B. Spirt
Title: Secretary Title: President
"SPECIFIC COMPANY SUBSIDIARY"
Attest: -----------------------------------------
By: /s/ Linda Jenkinson
- - - - ----------------------------- --------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"SHAREHOLDERS"
/s/ Marlene R. Spirt
- - - - ----------------------------- ------------------------------------
Witness: Marlene R. Spirt
34
<PAGE>
/s/ Mary B. Spirt
- - - - ----------------------------- ------------------------------------
Witness: Mary B. Spirt
35
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 14th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Kangaroo Express of Colorado Springs, Inc., a Colorado
corporation (the "Corporation"), and Doris Orner, (the "Shareholder"). Unless
defined herein, all capitalized terms used in this Agreement shall have the
meaning given them in the Operating Agreement of Dispatch Management Services
LLC dated December 1, 1996 by and between the Members of Dispatch Management
Services LLC, as amended (the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with the
Shareholder and certain employees of the Corporation in the form attached hereto
as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. The Corporation may remove
from the Corporation prior to the closing of the transaction contemplated by
this Agreement all the rolling stock operated by the Corporation as set forth on
Schedule I to this Agreement. At the Company's option, the Notice shall include
a requirement that the Shareholder purchase certain assets of the Corporation
(at then current book value), assume certain liabilities of the Corporation, and
cause certain employees of the Corporation to be terminated from employment by
the Corporation. If, prior to the Closing Date (as defined in Section 1.4
below): (i) the Shareholder does not purchase the (unwanted) assets specified by
the Company in the Notice, then such assets will be acquired by the Company
without any adjustment to the Purchase Price (as defined in Section 1.3 below);
(ii) the Shareholder does not assume the (unwanted) liabilities specified by the
Company in the Notice, then the Company will reduce the cash portion of the
purchase price by the dollar amount of any such liabilities (including early
repayment costs, if any) of the Corporation
2
<PAGE>
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such terminations of employment, and
the Company will reduce the cash portion of the purchase price by the amount of
such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C. 20036
(or such other place as is mutually agreed upon by the parties) within thirty
(30) days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P, as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to
3
<PAGE>
the Corporation all of the Shareholder's and/or third parties' right, title and
interest in and to all Intellectual Property (as defined in Section 2.14(d)
hereinbelow) owned by any of the Shareholder and/or third parties and heretofore
licensed to or used by the Corporation; (v) Certificates of Good Standing for
the Corporation as issued by the Secretaries of State of Colorado; (vi) the
certificates, dated the Closing in Escrow Date, required pursuant to Sections
7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of counsel to the
Shareholder and the Corporation as to such matters as counsel to the Company may
reasonably require, including but not limited to such counsel's opinion that:
(A) the Corporation is in good standing; (B) the Corporation is authorized to
conduct its business in each jurisdiction in which it is doing business; (C) the
Shareholder and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholder, and the Related Agreements to which the Shareholder are a party,
constitute the legal, valid and binding obligations of the Shareholder, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholder are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements, except as set forth in
Exhibit E.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
4
<PAGE>
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to $1, 798,712.60, subject to adjustment (if any) as
provided in Section 1.1 above, and subject to further adjustment (if any) as a
result of a reduction in the Maximum Earn-Out (as defined in this Section 1.3
below).
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1,
5
<PAGE>
1998, the Shareholder shall deliver to the Company, within thirty days after
written request from the Company, such additional audited and/or unaudited,
reviewed financial statements of the Corporation as the Company may reasonably
request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder. In the event that
the Shareholder does not timely deliver a satisfactory shareholder
representation letter and complete the Closing in Escrow, the Shareholder shall
immediately refund to the Company any such advanced costs; in the event that
such shareholder representation letter is satisfactory and is timely received,
and the Closing in Escrow is completed, the Shareholder shall be relieved of
his/her obligation to refund to the Company any such advanced costs even if the
Closing never occurs provided that the Corporation is not in default on its
obligations hereunder; provided further that in no event shall the Corporation
or the Shareholder be obligated to pay more than $30,000 for the expenses of
such audit..
The Company shall pay forty percent (40%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and sixty percent (60%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Shareholder acknowledges that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholder shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholder ratably over
the 8
6
<PAGE>
quarter annual periods beginning January 1, 1998 and ending December 31, 1999
provided that the Corporation achieves the targeted performance standards set
forth in Exhibit B attached hereto. In the event that the Corporation fails to
achieve the margin requirement set forth in Exhibit B during any calendar
quarter, then for each calendar quarter in which the Corporation fails to
achieve such margin requirement, the cash portion of the Purchase Price shall be
reduced by one eighth (1/8) of the Maximum Earn-Out. In the event that the
Corporation achieves the margin requirement during the relevant calendar
quarter, but fails to achieve the revenue requirement set forth in Exhibit B,
then for each such calendar quarter, the cash portion of the Purchase Price
shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out, multiplied
by: (ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar quarter and the revenue requirement for
such calendar quarter as set forth in Exhibit B, and the denominator of which is
the revenue required during such calendar quarter as set forth in Exhibit B. In
the event that the Corporation fails to achieve either the margin requirement or
the revenue requirement set forth in Exhibit B, the Shareholder may elect to
make a contribution to the Corporation in cash in an amount sufficient to allow
such requirements to be met, in which the Maximum Earn-Out will not be reduced
as described above. The Maximum Earn-Out, less any reductions as set forth in
this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out shall
bear interest at the rate of 7% per annum commencing as of the Closing Date
(i.e., once the Earn-Out is determined, the Shareholder will be due such amount
plus interest at the rate of 7% per annum on such amount, accrued from the
Closing Date until the date of payment of the Earn-Out to the Shareholder). The
Earn-Out shall be paid to the Shareholder promptly following calculation of the
Corporation's performance for the quarter ending December 31, 1999. The Company
covenants and agrees to maintain sufficient cash, or availability of cash (e.g.,
by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholder made to the Company in writing not later
than the Closing in Escrow, the Company shall (immediately after Closing) make a
loan to the Shareholder in an amount equal to up to 40% of the Purchase Price.
Said loan by the Company to the Shareholder (the "Shareholder Loan") shall bear
interest at a rate of seven percent (7%) per annum, and shall be secured by all
of the Company Stock paid as part of the Purchase Price at
7
<PAGE>
Closing. The collateral security agreement evidencing the collateralization of
the Shareholder Loan with the Company Stock and the Earn-Out shall be on such
terms as are reasonably acceptable to the Company, which terms shall include,
but shall not be limited to, the retention of all of the Company Stock by the
Company until full repayment of the Shareholder Loan (including accrued
interest). The Shareholder shall have the right to prepay the Shareholder Loan
(plus accrued interest) at any time without penalty and shall have the right to
direct the Company to offset the balance due under the Shareholder Loan (plus
accrued interest) against the Earn-Out as earned each quarter. The Shareholder
Loan shall mature as of the date that the Earn-Out is payable. In the event that
the Shareholder Loan (including accrued interest) is not repaid in full upon
maturity, the Company shall enjoy all rights of a secured party under the
Uniform Commercial Code then in effect in the State of New York, provided that
the Company's only recourse shall be first against the remaining Earn-Out and
then against the Company Stock it holds as collateral, and there shall not be
any recourse against the Shareholder individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W.,
Washington, D.C. 20036, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholder shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated
8
<PAGE>
opinion of counsel as referred to in Section 1.2(a)(vii) above; and (iii) the
Company shall deliver the Purchase Price to the Shareholder (less the Maximum
Earn-Out, which shall be payable to the Shareholder pursuant to the terms of
Section 1.3 above, and with the Company Stock collateralized against the
Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is an "S"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of ____ shares of ____ par value
capital stock of which ____ shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been
9
<PAGE>
duly authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing (including leases related to
rolling stock), the Corporation will (i) have all right, title, and interest in
and to, or will have a valid right to use, without liability to third
party(ies), such assets and properties; and (ii) have all assets, rights,
employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Corporation after the
Closing Date in substantially the same manner as presently conducted by the
Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and
10
<PAGE>
thereby by the Shareholder and the Corporation will not (a) conflict with or
violate any provision of the articles or certificate of incorporation or by-laws
of the Corporation, (b) except as set forth in Exhibit D, require any consent,
waiver, approval, authorization, permission, or filing with or notification to,
any third party, (c) result in or constitute a default, or require any consent
or approval of or notice to any person or entity, or result in the creation of
an encumbrance, under or pursuant to (i) any of the contracts to which the
Corporation is a party (including but not limited to contracts of insurance and
leases as applicable), or (ii) any other material agreements to which the
Shareholder is a party, or (d) violate any law applicable to the Shareholder or
the Corporation.
2.8. Compliance with Laws.
(a) To the best of the knowledge of the Corporation and the
Shareholder, the Corporation is, and at all times during the past three years
has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation in connection with
the consummation of the transactions contemplated hereby or thereby or which
seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated
11
<PAGE>
hereby or thereby. Exhibit E sets forth an accurate and complete list, and a
brief description (setting forth the names of the parties involved, the court or
other governmental or mediating entity involved, the relief sought and the
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Corporation and/or the Shareholder,
threatened against or affecting the Corporation. To the knowledge of the
Corporation and/or the Shareholder, no event has occurred and no circumstance,
matter or set of facts exist which would constitute a valid basis for the
assertion by any third party of any claim or Legal Proceeding, other than those
listed on Exhibit E. Except as set forth in Exhibit E, there is no outstanding
or, to the knowledge of the Corporation and/or the Shareholder, threatened,
judgment, injunction, order or consent or similar decree or agreement
(including, without limitation, any consent or similar decree or agreement with
any governmental entity) against, affecting or naming the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholder and shall be paid in full by him/her at the Closing
in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
12
<PAGE>
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements (such
reserves, the "Reserves"); such Reserves are adequate and reasonable and were
established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or
13
<PAGE>
conducted its business, other than in the ordinary course consistent with past
practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership, free and clear of any and all encumbrances, of all of the
Intellectual Property, provided, however, that the Company understands and
acknowledges that neither the Corporation nor the Shareholder can warrant
ownership or license rights to its name, trade name, trade mark, and service
mark and the Company accepts such intellectual property "as is" without
warranty. Neither the Corporation nor the Shareholder has received any notice or
claim (whether written, oral or otherwise) challenging the Corporation's
ownership or rights in such Intellectual Property or suggesting that any other
entity has any claim of legal or beneficial ownership with respect thereto.
Neither the Shareholder nor the Corporation are in default under any license
agreements pertaining to the Intellectual Property used in the Corporation's
business and licensed to the Shareholder and/or the Corporation; all such
license agreements are valid and in full force and effect, and shall continue in
full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid and
enforceable without any qualification, limitation or restriction on its use, and
neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
14
<PAGE>
(iii) Neither the use of any of the Intellectual Property
nor any other Intellectual Property used by the Corporation will conflict with,
infringe upon, violate or interfere with, or constitute an appropriation of, any
right, title or interest held by any other person or entity, and there have been
no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation has
no liability or obligations to any third parties incident to the Intellectual
Property used or able to be used by the Corporation in the conduct of its
business as heretofore conducted; and
(vi) The Corporation has timely met all of its obligations
to any third parties incident to the Intellectual Property used or able to be
used by the Corporation in the conduct of its business as heretofore conducted,
and such obligations have been and will be correctly and adequately disclosed in
the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to (x)
protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
15
<PAGE>
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing;
provided however that the name, trade name, trade mark and service of the
Corporation that is specifically identified as Excluded Property on Exhibit H is
not Intellectual Property and the Corporation does not make any of the
representations and warranties set forth in this Section 2.14 about Intellectual
Property with respect to such Excluded Property.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation, except as set
forth in Exhibit E. During the past two years, the Corporation has not been
refused any insurance coverage by any insurer from which the Corporation has
sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect
16
<PAGE>
to any formal or informal stock option, profit sharing, pension, retirement,
bonus, stock bonus, thrift-savings, incentive, benefit, welfare, cafeteria,
medical insurance, dental insurance, life insurance, accidental death and
dismemberment insurance, disability insurance or other similar plan, policy or
arrangement (collectively referred to herein as the "Plans"). The Corporation is
not in default under the terms of any of the Plans. The Corporation has made all
contributions to each of the Plans required by the terms of the respective
Plans, as well as all contributions required to be made in order to satisfy all
requirements of law. Each of the Plans has sufficient assets to satisfy (under
reasonable and permitted actuarial assumptions) its obligations on a termination
basis, and the level of contributions required pursuant to the terms of each
Plan is sufficient to satisfy (under reasonable and permitted actuarial
assumptions) the obligations of such Plan on a continuing basis for benefits
accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus
17
<PAGE>
Budget Reconciliation Act of 1986, as amended ("COBRA"), and has complied with
all such continuation of coverage requirements. The execution and delivery of
this Agreement will not involve a prohibited transaction within the meaning of
ERISA or Section 4975 of the Code.
2.20. Employee Relations. To the best of the knowledge of the
Corporation and the Shareholder, the Corporation is in substantial compliance
with all applicable federal, state and local laws, statutes, regulations,
orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
pursuant to statutory
18
<PAGE>
rights or in tort, contract or otherwise, against the Corporation arising out of
or in connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. To the best of the knowledge of the Corporation and
the Shareholder, the Corporation and its employees and agents have all licenses,
permits, orders, approvals and authorizations necessary for the conduct of its
business as presently conducted. The Corporation and its employees and agents
have all licenses, permits, orders, approvals and authorizations necessary for
the operation of the real and personal property presently leased to, owned or
operated by the Corporation. None of the permits issued to the Corporation will
be adversely affected by the consummation of the transactions contemplated by
this Agreement. No suspension or cancellation of any such licenses, permits,
orders, approvals or authorizations is pending or, to the best of the
Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Corporation nor the Shareholder is aware
of any present intention on the part of any significant customer or supplier or
other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event,
19
<PAGE>
other than the normal passage of time, which would (either with or without
notice or lapse of time or both) give rise to any right of termination,
cancellation or acceleration of, or any obligation to repay, with respect to
such Contract, or (z) any event, other than the normal passage of time, which
would result in either a significant increase in the obligations or liabilities
of, or a loss of any significant benefit of, the party in question under such
Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. Each of the Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on August 28,
1997. The Shareholder and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
20
<PAGE>
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
21
<PAGE>
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto)
22
<PAGE>
or any Related Agreement or any information supplied to the Shareholder by or on
behalf of the Company in connection with this Agreement, the Related Agreements
or the transactions contemplated hereby or thereby 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 statement contained herein or therein, in light of
the circumstances under which they were made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
23
<PAGE>
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholder
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholder shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
24
<PAGE>
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $224,839 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing
25
<PAGE>
Date. Such balance sheet shall be prepared in accordance with GAAP, and shall
include full accrual of all assets and liabilities of the Corporation as of the
Closing Date (including, but not limited to, accrued tax liabilities as if the
tax year ended on the Closing Date). In the event that the Corporation has less
than the prescribed $224,839 working capital as of the Closing Date, as
determined by such balance sheet, the Shareholder shall forthwith pay the
Company an amount equal to the difference between the actual working capital as
of the Closing Date and $224,839 working capital (the "Shortfall"). If the
Shareholder does not pay the Shortfall to the Company within five (5) days after
demand, then, in addition to all other remedies which the Company may have, the
Company may deduct the amount of the Shortfall from any of the obligations of
the Company to the Shareholder (including, but not limited to, the Earn-Out to
which the Shareholder may be entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
26
<PAGE>
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder
27
<PAGE>
shall have given all notices to, and obtained all consents, approvals or
authorizations of or from, any individual, corporation or other party which may
be necessary to permit the consummation of the transactions contemplated hereby
(including, without limitation, any consents required under the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
such party. In addition, the Related Agreements shall have been entered into by
the respective parties thereto.
(f) Transfer of Encumbered Assets. Prior to the Closing, the
Corporation shall have caused to be transferred out of the Corporation (i) all
of the assets of the Corporation that are not reflected on the balance sheet of
the Corporation and (ii) all of the assets of the Corporation that are
encumbered, secure obligations of the Corporation, or otherwise have liens
against them, such that at the time of the Closing, the Corporation's assets
shall consist only of those assets reflected on the balance sheet of the
Corporation and those that are free and clear of liens and encumbrances.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have
28
<PAGE>
been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of either the Initial Public Offering or the transactions contemplated by this
Agreement does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholder to refund to the Company the audit expenses as
set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
29
<PAGE>
(a) Indemnification by the Corporation and the Shareholder.
The Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholder under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of (i) any inaccuracy in
or breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby and (ii) any and all liability arising from the conduct of
business after Closing. Provided, however, the
30
<PAGE>
indemnification by the Company under this Section 9.1.(b) shall include
direct damages only.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
Allen Orner
Kangaroo Express of Colorado Springs, Inc.
31
<PAGE>
4137 Sinton Road
Colorado Springs, Colorado 80907
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or
32
<PAGE>
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholder that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the
33
<PAGE>
terms of this Agreement. The arbitrator may enter a default decision against any
party who fails to participate in the proceeding. The decision of the arbitrator
shall be final, conclusive, binding and non-appealable. The losing party shall
pay all costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
34
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
KANGAROO EXPRESS OF COLORADO
SPRINGS, INC.
By: /s/ Allen Orner
- - - - ------------------------- -------------------------------------
Name: Allen Orner
Title: President
Witness: "SHAREHOLDER"
/s/ Doris Orner
- - - - ------------------------- -----------------------------------------
Doris Orner
35
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 10th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), National Messenger, Inc., a California corporation (the
"Corporation"), and Robert D. Swineford and Steven C. Swineford, (collectively,
the "Shareholders"). Unless defined herein, all capitalized terms used in this
Agreement shall have the meaning given them in the Operating Agreement of
Dispatch Management Services LLC dated December 1, 1996 by and between the
Members of Dispatch Management Services LLC, as amended (the "Operating
Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
1
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; (ii) the schedules
required pursuant to Section 2 below; and (iii) the agreements required pursuant
to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $____________ per
share, of the Company (the "Initial Public Offering"), the Company will deliver
to the Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders do not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a
2
<PAGE>
reasonable estimate of the costs and expenses to be incurred in connection with
such terminations of employment, and the Company will reduce the cash portion of
the purchase price by the amount of such reasonable estimate.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholders and/or third parties and heretofore licensed to or used
3
<PAGE>
by the Corporation; (v) Certificates of Good Standing for the Corporation as
issued by the Secretaries of State of [name all states in which Corporation does
business]; (vi) the certificates, dated the Closing in Escrow Date, required
pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of
counsel to the Shareholders and the Corporation as to such matters as counsel to
the Company may reasonably require, including but not limited to such counsel's
opinion that: (A) the Corporation is in good standing; (B) the Corporation is
authorized to conduct its business in each jurisdiction in which it is doing
business; (C) the Shareholders and the Corporation have the full power to enter
into and perform their respective obligations under this Agreement; (D) this
Agreement constitutes the legal, valid and binding obligations of the
Corporation and the Shareholders, and the Related Agreements to which the
Shareholders are a party, constitute the legal, valid and binding obligations of
the Shareholders, each enforceable in accordance with their respective terms
(except as enforcement may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditor's rights, and principles of
equity); and (E) neither the Corporation nor the Shareholders are threatened
with or affected by any actions, proceedings or investigations wherein an
unfavorable decision, ruling or finding could have a material adverse effect on
the financial condition or operation of the Corporation, or could prevent,
enjoin or otherwise affect the transactions contemplated by this Agreement or
the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to two-thirds (2/3) of the Corporation's net revenue
during the twelve calendar months ending June 30, 1997, subject to adjustment
(if any) as provided in Section 1.1 above, and subject
4
<PAGE>
to further adjustment (if any) as a result of a reduction in the Maximum
Earn-Out (as defined in this Section 1.3 below).
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholders shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders shall deliver to the Company, within thirty days
after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
5
<PAGE>
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholders, provided that the Company will, upon the request of the
Shareholders, advance such costs on behalf of the Shareholders. In the event
that all of the Shareholders do not timely deliver satisfactory shareholder
representation letters and complete the Closing in Escrow, the Shareholders
shall immediately refund to the Company any such advanced costs; in the event
that all such shareholder representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Shareholders shall be
relieved of their obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
Shareholders acknowledge that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholders shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation fails to achieve such margin requirement, the cash portion of the
Purchase Price shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In
the event that the Corporation achieves the margin requirement during the
relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue
6
<PAGE>
requirement for such calendar quarter as set forth in Exhibit B, and the
denominator of which is the revenue required during such calendar quarter as set
forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth in
this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out shall
bear interest at the rate of 7% per annum commencing as of the Closing Date
(i.e., once the Earn-Out is determined, the Shareholders will be due such amount
plus interest at the rate of 7% per annum on such amount, accrued from the
Closing Date until the date of payment of the Earn-Out to the Shareholders). The
Earn-Out shall be paid to the Shareholders promptly following calculation of the
Corporation's performance for the quarter ending December 31, 1999. The Company
covenants and agrees to maintain sufficient cash, or availability of cash (e.g.,
by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders, collectively, in an amount equal to up to 30%
of the Purchase Price. Said loan by the Company to the Shareholders (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Shareholders shall have the right to prepay
the Shareholder Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Shareholder Loan (plus accrued interest) against the Earn-Out as earned each
quarter. The Shareholder Loan shall mature as of the date that the Earn-Out is
payable. In the event that the Shareholder Loan (including accrued interest) is
not repaid in full upon maturity, the Company shall enjoy all rights of a
secured party under the Uniform Commercial Code then in effect in the State of
Maryland, provided that the Company's only recourse shall be first against the
remaining Earn-Out and then against the Company Stock it holds as collateral,
and there shall not be any recourse against the Shareholders individually.
7
<PAGE>
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholders (less the
Maximum Earn-Out, which shall be payable to the Shareholders pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of California, and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted. The Corporation is duly qualified and in good standing to
8
<PAGE>
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 100,000 shares of no par value
capital stock of which 1,800 shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is
9
<PAGE>
subject to any restriction, mortgage, pledge, lien, security interest, lease,
charge, encumbrance, objection or joint ownership, other than liens for current
real or personal property taxes not yet due and payable. The Corporation's
assets are in good operating condition and repair, ordinary wear and tear
excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of
10
<PAGE>
any applicable law. The Company has been provided with true and complete copies
of (i) all injunctions, judgments, orders or consent or similar decrees or
agreements of any governmental entity to which the Corporation is currently
subject (or which the Corporation was subject to during the previous three
years), and (ii) all correspondence through the date hereof with respect to any
of the matters referred to in clause (b) or clause (i) of this Section 2.8. None
of the Shareholders nor the Corporation is aware of any proposed legislation or
law which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders
11
<PAGE>
and/or the Corporation in connection with the negotiations relating to or the
transactions contemplated by this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements
12
<PAGE>
(i) have and will have arisen from bona fide transactions in the ordinary course
of the Corporation's business, consistent with its past practices, and (ii) are
good and collectible at the aggregate recorded amounts thereof, net of any
applicable reserves for returns or doubtful accounts which are reflected in such
Financial Statements (such reserves, the "Reserves"); such Reserves are adequate
and reasonable and were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
13
<PAGE>
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license agreements are valid and in full force and effect,
and shall continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
14
<PAGE>
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not
15
<PAGE>
been properly filed by the Corporation. During the past two years, the
Corporation has not been refused any insurance coverage by any insurer from
which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not
16
<PAGE>
waived, with respect to any employee benefit plan and no such accumulated
funding deficiency currently exists. Except as set forth on Exhibit L hereto,
the Corporation is not required, and has not been required in the past, to make
any payments or contributions under the terms of any "multi-employer plan" (as
defined in Section 3(37) of ERISA and Section 414(f) of the Code) or by any
collective bargaining agreement with respect to any employee benefit plan.
Neither the Corporation nor any of the Plans has ever incurred any withdrawal
liability (including any contingent or secondary withdrawal liability) within
the meaning of Section 4201 and Section 4204 of ERISA with respect to any
multi-employer plan. The Corporation and the trustees or the administrators of
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986
17
<PAGE>
(together with the regulations promulgated thereunder, hereinafter collectively
referred to as "IRCA"); the Worker Adjustment and Retraining Notification Act;
the Employee Polygraph Protection Act; the Drug-Free Workplace Act of 1988; the
Health Insurance Portability and Accountability Act of 1996; the Code; the
regulations promulgated under each such act; and any and all other federal,
state and local laws, regulations and requirements of any nature applicable to
the Corporation. The Corporation further represents that it is not in arrears in
the payment of wages to any employee (except to the extent of its normal payroll
practices), and there are no claims, liabilities, demands or causes of action,
realized or unrealized, actual, potential or contingent, pursuant to statutory
rights or in tort, contract or otherwise, against the Corporation arising out of
or in connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or
18
<PAGE>
supplier or other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on July 26,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose
19
<PAGE>
certain information concerning the Corporation to third parties (which third
parties will in turn be bound by an agreement similar to the Confidentiality
Agreement), for such general corporate purposes as includes but is not limited
to obtaining financing and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
20
<PAGE>
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
21
<PAGE>
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
22
<PAGE>
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate,
23
<PAGE>
encourage or engage in any negotiations or discussions with any third parties
concerning the sale of the Corporation, its assets, or any part thereof or
concerning the terms and conditions of this Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $216,000 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation
24
<PAGE>
had the required working capital as of the Closing Date, the Company will cause
to be prepared, promptly following the Closing, a balance sheet of the
Corporation as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, and shall include full accrual of all assets and
liabilities of the Corporation as of the Closing Date (including, but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the prescribed $216,000
working capital as of the Closing Date, as determined by such balance sheet, the
Shareholders shall forthwith pay the Company an amount equal to the difference
between the actual working capital as of the Closing Date and $216,000 working
capital (the "Shortfall"). If the Shareholders do not pay the Shortfall to the
Company within five (5) days after demand, then, in addition to all other
remedies which the Company may have, the Company may deduct the amount of the
Shortfall from any of the obligations of the Company to the Shareholders
(including, but not limited to, the Earn-Out to which the Shareholders may be
entitled thereafter).
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any
25
<PAGE>
governmental entity, requisite to the transactions contemplated hereby, shall
have been filed, occurred or have been obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
26
<PAGE>
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
27
<PAGE>
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained
28
<PAGE>
in this Agreement, the Related Agreements or in any other agreement or document
entered into or delivered on or after the date hereof in connection with this
Agreement or any of the transactions contemplated hereby and/or thereby.
Provided, however, the indemnification by the Corporation and the Shareholders
under this Section 9.1.(a) shall include direct damages only (and not indirect
or consequential damages). For purposes of this Agreement, the term "Losses"
means any and all deficiencies, judgments, settlements, demands, claims, actions
or causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
29
<PAGE>
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
National Messenger, Inc.
3303 Harbor Boulevard
Suite H-2
Costa Mesa, California 92626
Attention: Steven Swineford
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
30
<PAGE>
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the parties dated July 26, 1997, which
Agreement will be of no further force or effect upon execution of this
Agreement), both written and oral, among the parties with respect to the subject
matter hereto and is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
all parties hereto with respect to any of the terms contained herein, and each
party hereto agrees to be bound by any such amendment, modification or
supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any
31
<PAGE>
party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholders that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except
32
<PAGE>
that (1) the number of preemptory strikes shall not be limited, and (2) if the
parties fail to select the arbitrator from three lists, AAA shall have the power
to make an appointment. If an arbitrator should die, withdraw, or otherwise
become incapable of serving, a replacement shall be selected and appointed in a
like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
By: /s/ Robert D. Swineford
- - - - ---------------------------------- ----------------------------------
Name: Robert D. Swineford
Title: President
Witness: "SHAREHOLDERS"
/s/ Robert D. Swineford
- - - - ---------------------------------- -------------------------------------
Robert D. Swineford
Witness:
/s/ Steven C. Swineford
- - - - ---------------------------------- -------------------------------------
Steven C. Swineford
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 10th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Fleetfoot Max, Inc., a Washington corporation
(the"Corporation"), and the Shareholders of Corporation as set forth on Schedule
I, (collectively, the "Shareholders"). Unless defined herein, all capitalized
terms used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996 by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
1
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders do not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such terminations of
2
<PAGE>
employment, and the Company will reduce the cash portion of the purchase price
by the amount of such reasonable estimate.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholders and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretary
3
<PAGE>
of State of the State of Washington; (vi) the certificates, dated the Closing in
Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and
(vii) the opinion of counsel to the Shareholders and the Corporation as to such
matters as counsel to the Company may reasonably require, including but not
limited to such counsel's opinion that: (A) the Corporation is in good standing;
(B) the Corporation is authorized to conduct its business in each jurisdiction
in which it is doing business; (C) the Shareholders and the Corporation have the
full power to enter into and perform their respective obligations under this
Agreement; (D) this Agreement constitutes the legal, valid and binding
obligations of the Corporation and the Shareholders, and the Related Agreements
to which the Shareholders are a party, constitute the legal, valid and binding
obligations of the Shareholders, each enforceable in accordance with their
respective terms (except as enforcement may be limited by bankruptcy, insolvency
and other similar laws affecting the enforcement of creditor's rights, and
principles of equity); and (E) neither the Corporation nor the Shareholders are
threatened with or affected by any actions, proceedings or investigations
wherein an unfavorable decision, ruling or finding could have a material adverse
effect on the financial condition or operation of the Corporation, or could
prevent, enjoin or otherwise affect the transactions contemplated by this
Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to two-thirds (2/3) of the Corporation's net revenue
during the twelve calendar months ending June 30, 1997, subject to adjustment
(if any) as provided in Section 1.1 above, and subject to further adjustment (if
any) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.3 below).
4
<PAGE>
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholders shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders shall deliver to the Company, within thirty days
after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
5
<PAGE>
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholders, provided that the Company will, upon the request of the
Shareholders, advance such costs on behalf of the Shareholders. In the event
that all of the Shareholders do not timely deliver satisfactory shareholder
representation letters and complete the Closing in Escrow, the Shareholders
shall immediately refund to the Company any such advanced costs; in the event
that all such shareholder representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Shareholders shall be
relieved of their obligation to refund to the Company any such advanced costs.
The Company shall pay twenty percent (20%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and eighty percent (80%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
Shareholders acknowledge that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholders shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation fails to achieve such margin requirement, the cash portion of the
Purchase Price shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In
the event that the Corporation achieves the margin requirement during the
relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue
6
<PAGE>
requirement for such calendar quarter as set forth in Exhibit B, and the
denominator of which is the revenue required during such calendar quarter as set
forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth in
this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out shall
bear interest at the rate of 7% per annum commencing as of the Closing Date
(i.e., once the Earn-Out is determined, the Shareholders will be due such amount
plus interest at the rate of 7% per annum on such amount, accrued from the
Closing Date until the date of payment of the Earn-Out to the Shareholders). The
Earn-Out shall be paid to the Shareholders promptly following calculation of the
Corporation's performance for the quarter ending December 31, 1999. The Company
covenants and agrees to maintain sufficient cash, or availability of cash (e.g.,
by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders, collectively, in an amount equal to up to 20%
of the Purchase Price. Said loan by the Company to the Shareholders (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Shareholders shall have the right to prepay
the Shareholder Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Shareholder Loan (plus accrued interest) against the Earn-Out as earned each
quarter. The Shareholder Loan shall mature as of the date that the Earn-Out is
payable. In the event that the Shareholder Loan (including accrued interest) is
not repaid in full upon maturity, the Company shall enjoy all rights of a
secured party under the Uniform Commercial Code then in effect in the State of
Maryland, provided that the Company's only recourse shall be first against the
remaining Earn-Out and then against the Company Stock it holds as collateral,
and there shall not be any recourse against the Shareholders individually.
7
<PAGE>
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholders (less the
Maximum Earn-Out, which shall be payable to the Shareholders pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Washington, and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted. The Corporation is duly qualified and in good standing to
8
<PAGE>
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 500,000 shares of $.05 par value
capital stock of which 256,857 shares are and will be as of the Closing in
Escrow Date and the Closing Date issued and outstanding. All issued and
outstanding shares of the capital stock of the Corporation have been duly
authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is
9
<PAGE>
subject to any restriction, mortgage, pledge, lien, security interest, lease,
charge, encumbrance, objection or joint ownership, other than liens for current
real or personal property taxes not yet due and payable. The Corporation's
assets are in good operating condition and repair, ordinary wear and tear
excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of
10
<PAGE>
any applicable law. The Company has been provided with true and complete copies
of (i) all injunctions, judgments, orders or consent or similar decrees or
agreements of any governmental entity to which the Corporation is currently
subject (or which the Corporation was subject to during the previous three
years), and (ii) all correspondence through the date hereof with respect to any
of the matters referred to in clause (b) or clause (i) of this Section 2.8. None
of the Shareholders nor the Corporation is aware of any proposed legislation or
law which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders
11
<PAGE>
and/or the Corporation in connection with the negotiations relating to or the
transactions contemplated by this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements
12
<PAGE>
(i) have and will have arisen from bona fide transactions in the ordinary course
of the Corporation's business, consistent with its past practices, and (ii) are
good and collectible at the aggregate recorded amounts thereof, net of any
applicable reserves for returns or doubtful accounts which are reflected in such
Financial Statements (such reserves, the "Reserves"); such Reserves are adequate
and reasonable and were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
13
<PAGE>
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license agreements are valid and in full force and effect,
and shall continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
14
<PAGE>
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not
15
<PAGE>
been properly filed by the Corporation. During the past two years, the
Corporation has not been refused any insurance coverage by any insurer from
which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not
16
<PAGE>
waived, with respect to any employee benefit plan and no such accumulated
funding deficiency currently exists. Except as set forth on Exhibit L hereto,
the Corporation is not required, and has not been required in the past, to make
any payments or contributions under the terms of any "multi-employer plan" (as
defined in Section 3(37) of ERISA and Section 414(f) of the Code) or by any
collective bargaining agreement with respect to any employee benefit plan.
Neither the Corporation nor any of the Plans has ever incurred any withdrawal
liability (including any contingent or secondary withdrawal liability) within
the meaning of Section 4201 and Section 4204 of ERISA with respect to any
multi-employer plan. The Corporation and the trustees or the administrators of
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986
17
<PAGE>
(together with the regulations promulgated thereunder, hereinafter collectively
referred to as "IRCA"); the Worker Adjustment and Retraining Notification Act;
the Employee Polygraph Protection Act; the Drug-Free Workplace Act of 1988; the
Health Insurance Portability and Accountability Act of 1996; the Code; the
regulations promulgated under each such act; and any and all other federal,
state and local laws, regulations and requirements of any nature applicable to
the Corporation. The Corporation further represents that it is not in arrears in
the payment of wages to any employee (except to the extent of its normal payroll
practices), and there are no claims, liabilities, demands or causes of action,
realized or unrealized, actual, potential or contingent, pursuant to statutory
rights or in tort, contract or otherwise, against the Corporation arising out of
or in connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or
18
<PAGE>
supplier or other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 17,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose
19
<PAGE>
certain information concerning the Corporation to third parties (which third
parties will in turn be bound by an agreement similar to the Confidentiality
Agreement), for such general corporate purposes as includes but is not limited
to obtaining financing and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
20
<PAGE>
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
21
<PAGE>
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
22
<PAGE>
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate,
23
<PAGE>
encourage or engage in any negotiations or discussions with any third parties
concerning the sale of the Corporation, its assets, or any part thereof or
concerning the terms and conditions of this Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $199,906 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation
24
<PAGE>
had the required working capital as of the Closing Date, the Company will cause
to be prepared, promptly following the Closing, a balance sheet of the
Corporation as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, and shall include full accrual of all assets and
liabilities of the Corporation as of the Closing Date (including, but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the prescribed $199,906
working capital as of the Closing Date, as determined by such balance sheet, the
Shareholders shall forthwith pay the Company an amount equal to the difference
between the actual working capital as of the Closing Date and $199,906 working
capital (the "Shortfall"). If the Shareholders do not pay the Shortfall to the
Company within five (5) days after demand, then, in addition to all other
remedies which the Company may have, the Company may deduct the amount of the
Shortfall from any of the obligations of the Company to the Shareholders
(including, but not limited to, the Earn-Out to which the Shareholders may be
entitled thereafter).
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any
25
<PAGE>
governmental entity, requisite to the transactions contemplated hereby, shall
have been filed, occurred or have been obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
26
<PAGE>
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
27
<PAGE>
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained
28
<PAGE>
in this Agreement, the Related Agreements or in any other agreement or document
entered into or delivered on or after the date hereof in connection with this
Agreement or any of the transactions contemplated hereby and/or thereby.
Provided, however, the indemnification by the Corporation and the Shareholders
under this Section 9.1.(a) shall include direct damages only (and not indirect
or consequential damages). For purposes of this Agreement, the term "Losses"
means any and all deficiencies, judgments, settlements, demands, claims, actions
or causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
29
<PAGE>
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
Fleetfoot Max, Inc.
227 Ninth Avenue North
Seattle, Washington 98109
Attention: Gary Brose
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes
30
<PAGE>
the entire agreement and supersedes all prior agreements and understandings
(including but not limited to that certain Class C Stock Transfer Agreement
between the parties dated May 1997, which Agreement will be of no further force
or effect upon execution of this Agreement), both written and oral, among the
parties with respect to the subject matter hereto and is not intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto with respect to any
of the terms contained herein, and each party hereto agrees to be bound by any
such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections
31
<PAGE>
3.1, 3.2. and 6.2 hereof will result in irreparable harm for which there is no
adequate remedy at law and that the Company and/or the Corporation shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholders that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should
32
<PAGE>
die, withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
FLEETFOOT MAX, INC.
By: /s/ Gary Brose
- - - - ---------------------------------- ----------------------------------
Name: Gary Brose
Title: President
Witness: "SHAREHOLDERS"
THE SHAREHOLDERS LISTED ON THE
ATTACHED SCHEDULE I
/s/ Gary Brose
- - - - ---------------------------------- ----------------------------------
Gary Brose, Individually
By: /s/ Gary Brose
- - - - ---------------------------------- ----------------------------------
Gary Brose, on behalf of the
Shareholders pursuant to powers of
attorney
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation (the "Company"), Profall, Inc. d/b/a "1-800-COURIER-LAX" and
"EXPRESS-IT-LAX", a California corporation which has elected S Corporation
treatment for federal income tax purposes (the "Business Contribution Member"),
Thomas Westfall, Alyson Westfall, David Prosser and Adriene Prosser
(collectively, the "Shareholders") and [DMS Corp. Subsidiary Number ___] a
Delaware corporation to-be-formed (the "Specific Company Subsidiary"). Unless
defined herein, all capitalized terms used in this Agreement shall have the
meaning given them in the Operating Agreement of Dispatch Management Services
LLC ("DMS") dated December 1, 1996 by and between the Members of DMS, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member is in the business of providing
point-to-point urgent messenger services (such business, and any other lines of
business related thereto, the "Business");
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of the Business Contribution Member;
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below), and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
1
<PAGE>
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into an
employment agreement with Scott Fergusen (the "Back-Office Employee"), in the
form attached hereto as Exhibit A, as well as non-competition agreements with
each of the Shareholders of the Business Contribution Member and the Back-Office
Employee in the form attached hereto as Exhibit B (such employment agreement and
non-competition agreements, together with all other agreements which are entered
into by the parties hereto pursuant to this Agreement or in connection with any
of the transactions contemplated hereby, the "Related Agreements");
WHEREAS, the parties intend that at the Closing the Business Contribution
Member will change its corporate name and/or trade name, as necessary, so that
the Specific Company Subsidiary may trade under the trade name previously used
for the Business (which trade name is specifically acquired by the Specific
Company Subsidiary hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member and each Shareholder,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Business Contribution Member shall be obliged to use their reasonable
best efforts to deliver to the Company, within thirty (30) days after execution
of this Agreement: (i) the audited financial
2
<PAGE>
statements required pursuant to Section 1.4 below and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of common stock, par value $.01 per share, of the
Company (the "Initial Public Offering"), the Company will deliver to the
Business Contribution Member and the Shareholders a disclosure document,
together with a notice (the "Notice") specifying the date by which the Business
Contribution Member and the Shareholders must execute and deliver satisfactory
representation letters in order to consummate the sale of the Assets and
assumption of the Assumed Liabilities pursuant to the terms of this Agreement.
Upon timely delivery from the Business Contribution Member and all
of the Shareholders of representation letters satisfactory to the Company, the
parties will close in escrow (the "Closing in Escrow") pursuant to the terms and
conditions of this Agreement. Such Closing in Escrow shall take place at the
offices of Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th
Floor, Washington, D.C. 20005 (or such other place as is mutually agreed upon by
the parties) within thirty (30) days (or such shorter period as is specified in
the Notice) after timely delivery of satisfactory representation letters from
the Business Contribution Member and the Shareholders.
In the event that the Business Contribution Member and/or one or
more of the Shareholders do not timely deliver satisfactory representation
letters (as determined in the sole discretion of the Company), this Agreement
will be of no further force or effect, except for any and all obligations under
Sections 3.2 (confidentiality), 1.4 (reimbursement of audit expenses) and 8.2
(effect of termination under Section 8.1), which obligations will survive
termination of this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
3
<PAGE>
(ii) All rights, if any, to the trade and/or brand names
"1-800-COURIER-LAX", and "EXPRESS-IT-LAX", logos, and other Intellectual
Property as defined in Section 2.11.(d) hereinbelow, customer lists, goodwill
and other intangible assets; and
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (the "Contracts"), as set forth on Exhibit D attached hereto.
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member (other than contractual obligations under the
Contracts provided for in paragraph (ii) below), and only those liabilities and
obligations, which are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member and/or the Shareholders shall, as
4
<PAGE>
appropriate, enter into, execute and deliver to the law firm of Silver, Freedman
& Taff, LLP, as escrow agent: (i) a bill of sale, (ii) an instrument of
assignment and assumption (the form and substance of which shall be reasonably
acceptable to the Company and Business Contribution Member), and (iii) any other
instruments of conveyance or transfer which may be necessary in the sole
discretion of the Company, including, without limitation, any instruments of
assignment in connection with the Intellectual Property, if any, and the
Contracts, each in form and substance reasonably acceptable to the Company,
pursuant to which the Business Contribution Member and/or the Shareholders shall
convey, assign, transfer and deliver to the Company all right, title and
interest in, to and under the Assets, free and clear of any and all Encumbrances
(as defined in Section 2.3(a) below), and the Company shall assume the Assumed
Liabilities from the Business Contribution Member. At the Closing in Escrow, the
Business Contribution Member shall also cause to be delivered the opinion of its
counsel as to such matters as counsel to the Company may reasonably require,
including but not limited to such counsel's opinion that: the Business
Contribution Member is in good standing; the Business Contribution Member is
authorized to conduct its business in each jurisdiction in which it is doing
business; the Business Contribution Member and the Shareholders have full power
to enter into and perform their respective obligations under this Agreement, as
well the Related Agreements to which they are a party; this Agreement, and the
Related Agreements to which the Business Contribution Member and/or the
Shareholders are a party, constitute legal, valid and binding obligations of the
Business Contribution Member and the Shareholders, respectively, enforceable in
accordance with their respective terms (except as enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditor's rights, and principles of equity); and, to the knowledge of counsel,
neither the Business Contribution Member nor any of the Shareholders is
threatened with or affected by any actions, proceedings or investigations
wherein an unfavorable decision, ruling or finding could have a materially
adverse effect on the financial condition or operation of the Business and/or
the Assets, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement. For purposes of rendering the opinion, the
Company has agreed to allow counsel to assume that Maryland law or the law
governing any of the Related Agreements, is identical to California law. In
addition, the Company shall deliver
5
<PAGE>
to Silver Freedman & Taff, L.L.P. all of the foregoing documents that are
applicable and the share certificates representing the Company Stock to be
issued to the Business Contribution Member.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this
Agreement..
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets (the
"Purchase Price") shall be (i) $1,210,560; plus (ii) $97,925, the fair market
value of the tangible assets of the Corporation's "1-800-COURIER-LAX" operations
(the "Tangible Asset Value") as set forth on Schedule 1.4. The Purchase Price
shall be subject to adjustment (if any) as a result of a reduction in the
Maximum Earn-Out (as defined in this Section 1.4 below).
The parties hereto hereby agree to allocate the Purchase Price to
the Assets in accordance with the manner set forth on Schedule 1.4 attached
hereto and in accordance with the applicable provisions of Section 1060 of the
Code (the "Price Allocation"). Accordingly, each party to this Agreement shall
adopt and utilize such Price Allocation for purposes of all tax returns filed by
them and shall not voluntarily take any position inconsistent therewith in
connection with any examination of any tax return, any refund claim, any
litigation proceeding or otherwise. Each of the Company and the Business
Contribution Member shall file on a timely basis a Form 8594 in accordance with
the requirements of Section 1060 of the Code and the provisions of this Section
1.4. In the event that the Price Allocation is disputed by any taxing authority,
the party receiving notice of the dispute shall promptly notify the other
parties hereto of such dispute and the parties hereto shall consult with each
other concerning resolution of the dispute.
Unless the Company gives the Shareholders and the Business
Contribution Member written notice to the contrary, the Shareholders and the
Business Contribution Member shall use their
6
<PAGE>
reasonable best efforts to deliver to the Company, within thirty (30) days after
execution of this Agreement: (i) audited financial statements of the Business,
including balance sheets dated as of December 31, 1994, 1995 and 1996, and
income statements and cash flow statements for each of the three twelve month
periods ended on such dates; (ii) unaudited financial statements of the
Business, including a balance sheet dated as of June 30, 1996, and an income
statement and cash flow statement for the twelve month period ended on June 30,
1996: and (iii) unaudited, reviewed financial statements of the Business,
including a balance sheet dated as of June 30, 1997 and an income statement and
a cash flow statement for the six month period ended June 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
November 12, 1997, but does occur on or before December 12, 1997, then in that
event, in lieu of the unaudited, reviewed financial statements of the Business
for the six month period ended June 30, 1997, the Shareholders and the Business
Contribution Member shall use their reasonable best efforts to deliver to the
Company, within thirty days after written request from the Company: (i) an
updated set of audited financial statements of the Business, including a balance
sheet dated as of June 30, 1997, and income statements and cash flow statements
for the six month period ended June 30, 1997; (ii) unaudited financial
statements for the Business, including a balance sheet dated as of September 30,
1996, and an income statement and cash flow statement for the 12 month period
ended on September 30, 1996; and (iii) unaudited, reviewed financial statements
of the Business, including a balance sheet dated as of September 30, 1997 and
income statements and cash flow statements for the three month period ended
September 30, 1997. In the event that the closing of the Initial Public Offering
has not occurred on or before December 12, 1997, then upon written request from
the Company given on or before March 1, 1998, the Shareholders and the Business
Contribution Member shall use their reasonable best efforts to deliver to the
Company, within 30 days after written request from the Company, such additional
audited and/or unaudited, reviewed financial statements of the Business as the
Company may reasonably request.
All of the financial statements referred to in this Section 1.4
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.4,
within the prescribed time limits, shall be the sole responsibility of the
Business Contribution Member, provided that the Company will advance such
7
<PAGE>
costs on behalf of the Business Contribution Member. So long as all conditions
to Closing are satisfied, including, but not limited to the closing of the
Initial Public Offering, only in the event that the Business Contribution Member
and/or one or more of the Shareholders do not deliver satisfactory shareholder
representation letters by the deadline specified in the Notice and complete the
Closing in Escrow, the Business Contribution Member and the Shareholders shall
be jointly and severally responsible for immediately refunding to the Company
any such advanced costs (up to the amount of the actual audit costs incurred not
to exceed $20,000); in the event that all such representation letters are
satisfactory and are timely received, and the Closing in Escrow is completed,
the Business Contribution Member and the Shareholders shall be relieved of their
obligation to refund to the Company such amount of advanced costs.
The Company shall pay seventy percent (70%) of the Purchase Price in
cash, which is subject to reduction in accordance with the terms of the next
paragraph, and thirty percent (30%) of the Purchase Price in (restricted) stock
of the Company (the "Company Stock"), at the Closing (the number of shares of
Company Stock to be issued to the Business Contribution Member at the Closing to
satisfy the stock portion of the Purchase Price shall be determined by dividing
$392,546 by the per share price of Company Stock to the public in the Initial
Public Offering). The Business Contribution Member and the Shareholders
acknowledge that the sale of the Company Stock will be restricted for a period
of time by virtue of a "lock-up" agreement which may be imposed by the Company
(the "Lock-up Agreement"), and the Business Contribution Member and the
Shareholders shall execute the Lock-Up Agreement, as may be required by the
Company, by which the sale of the Company Stock is restricted (perhaps
prohibited) for a period of two (2) years from the date of the closing of the
Initial Public Offering.
Three hundred ninety-two thousand, five hundred forty-six dollars
($392,546) of the cash portion of the Purchase Price (the "Maximum Earn-Out")
shall be earned by the Business Contribution Member ratably over the two years
beginning January 1, 1998 and ending December 31, 1999 provided that the
Specific Company Subsidiary or any affiliates of it or the Company or the
Business Contribution Member achieves gross revenue in Los Angeles or Orange
Counties from business which utilizes the brand names "1-800-COURIER",
"EXPRESS-IT" or "1-800-DELIVER" ("Gross Revenue") of at least $1,815,840 each
such year. In the event that the Specific Company
8
<PAGE>
Subsidiary or any affiliates of it or the Company or the Business Contribution
Member fails to achieve such standard, the cash portion of the Purchase Price
shall be reduced by: (i) one half (1/2) of the Maximum Earn-Out, multiplied by:
(ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar year and $1,815,840, and the denominator
of which is $1,815,840. The Maximum Earn-Out, less any reductions as set forth
in this paragraph is hereinafter referred to as the "Earn-Out". The Earn-Out
shall bear interest at the rate of 7% per annum commencing as of the Closing
Date (i.e., once the Earn-Out is determined, the Shareholders will be due such
amount plus interest at the rate of 7% per annum on such amount, accrued from
the Closing Date until the date of payment of the Earn-Out to the Shareholders).
The Earn-Out shall be paid to the Business Contribution Member promptly
following calculation of the Gross Revenue for the quarter ending December 31,
1999 but no later than March 31, 2000. The Company covenants and agrees to
maintain sufficient cash, or availability of cash (e.g., by way of a line of
credit) in order to fund the Earn-Out.
At the request of the Business Contribution Member made to the Company in
writing not later than the Closing in Escrow, the Company shall concurrently
with the Closing make a loan to the Business Contribution Member in an amount
equal to up to 30% of the Purchase Price. Said loan by the Company to the
Business Contribution Member (the "Business Contribution Member Loan") shall
bear interest at a rate of seven percent (7%) per annum, and shall be secured by
all of the Company Stock paid as part of the Purchase Price at Closing. The
collateral security agreement evidencing the collateralization of the Business
Contribution Member Loan with the Company Stock and the Earn-Out shall be in the
form of Exhibit G hereto. The Business Contribution Member shall have the right
to prepay the Business Contribution Member Loan (plus accrued interest) at any
time without penalty and shall have the right to direct the Company to offset
the balance due under the Business Contribution Member Loan (plus accrued
interest) against the Earn-Out as earned each quarter. The Business Contribution
Member Loan shall mature as of the date that the Earn-Out is payable. In the
event that the Business Contribution Member Loan is not repaid in full upon
maturity, the Company shall enjoy all rights of a secured party under the
Uniform Commercial Code then in effect in the State of Maryland, provided that
the Company's only recourse shall be first against the remaining Earn-Out and
then against the Company Stock it holds as collateral, and there shall not
9
<PAGE>
be any recourse against the Business Contribution Member or the Shareholders
individually. For purposes of exercising its rights as a secured creditor, the
value of the Company Stock shall be the market price (without a discount of any
kind) on the date that the Earn-Out is payable.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement (the "Closing")
shall take place at the offices of Silver, Freedman & Taff, L.L.P., 1100 New
York Avenue, N.W., Suite 700E, Washington, D.C. 20005, contemporaneously with
the closing of the Initial Public Offering unless the closing of the Initial
Public Offering does not occur by March 31, 1998, in which case this Agreement
shall be rendered null and void, or unless another date, time or place is agreed
to in writing by the parties hereto (the day on which the Closing takes place
being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the bill of sale, instruments of assignment and assumption,
transfer documents, and other documents and materials theretofore held in escrow
from the Closing in Escrow; (ii) the Business Contribution Member and the
Shareholders shall deliver to the Company updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.3(a) above; and (iii) the
Company shall deliver the Purchase Price to the Business Contribution Member
(less the Maximum Earn-Out, which shall be payable to the Business Contribution
Member pursuant to the terms of Section 1.4 above, and with the Company Stock
collateralized against the Business Contribution Member Loan being delivered to
the Company as appropriate). At Closing, the Company shall deliver or cause
Silver Freedman & Taff, L.L.P. to deliver the foregoing documents that are
applicable, the cash portion of the Purchase Price and the proceeds of the Loan.
At Closing, Company, Business Contribution Member, Shareholders and Specific
Company Subsidiary shall also take all additional steps as may be necessary or
appropriate to deliver the Assets to the Specific Company Subsidiary, have the
Specific Company Subsidiary assume the Assumed Liabilities, and put the Specific
Company Subsidiary in physical possession and operating control of the Business
and all of the Assets. Simultaneously with the Closing, to the extent necessary,
the cash portion of the Purchase Price shall be used to pay in full any
outstanding loans
10
<PAGE>
of the Business Contribution Member that are secured by the Assets. Appropriate
lien releases will be obtained from the relevant lender.
2. Representations, Warranties and Covenants of the Business Contribution
Member and the Shareholders.
Except as otherwise set forth in any schedule or exhibit provided
simultaneously herewith or prior to the Closing. The Business Contribution
Member and the Shareholders hereby jointly and severally represent, warrant and
covenant to the Company as follows (it being understood and agreed that any item
disclosed in any schedule or exhibit in reference to a particular section hereof
will be deemed to be disclosed for all purposes of this Agreement):
2.1. Organization, Standing and Power. The Business Contribution
Member is an "S" Corporation duly organized, validly existing and in good
standing under the laws of the State of California, and has all requisite
corporate power and authority to own, lease and operate its properties
(including, without limitation, the Assets) and to carry on its business as now
being conducted (including, without limitation, the Business). The Business
Contribution Member is duly qualified and in good standing to conduct business
in each jurisdiction in which the business it is conducting (including, without
limitation, the Business), or the operation, ownership or leasing of its
properties (including, without limitation, the Assets), makes such qualification
necessary.
2.2. Authority and Enforceability.
(a) Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite corporate power and authority to
execute and deliver this Agreement and each of the Related Agreements to which
it is a party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Business
Contribution Member. This Agreement and each of the Related Agreements to which
the Business Contribution Member is a party has been duly executed and delivered
by the Business Contribution Member, and this Agreement and each of the Related
Agreements to which the Business Contribution Member is a party constitute the
legal, valid and binding obligations of the Business Contribution Member,
11
<PAGE>
enforceable against the Business Contribution Member in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
(b) Matters Relating to the Shareholders. The Shareholders
have all requisite legal right, power and authority to enter into this Agreement
and each of the Related Agreements to which they are a party and to agree to the
transactions contemplated hereby and thereby and to perform all of their
respective obligations hereunder and thereunder. This Agreement and each of the
Related Agreements to which any of the Shareholders are a party constitute the
legal, valid and binding obligations of the Shareholders, enforceable against
the Shareholders in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
2.3. Title to Assets; Condition.
(a) Except as provided on Schedule 2.3, the Business
Contribution Member owns beneficially and of record, and has good and marketable
title to, the Assets, free and clear of any Encumbrances. For purposes of this
Agreement, the term "Encumbrances" shall mean restrictions, conditions,
covenants, liens, easements, charges, encroachments or any other matter
affecting fee simple title (other than the Assumed Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this
12
<PAGE>
Agreement to be effected at the Closing, the Company will (i) have all right,
title, and interest in and to, or will have a valid right to use, without
liability to third party(ies), the Assets; and (ii) except as provided on
Schedule 2.4, have all assets, rights, Back-Office Employees, subcontractors and
other persons and items which are reasonably necessary to carry on the business
and operations of the Business after the Closing Date in substantially the same
manner as presently conducted by the Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member and the Shareholders of this
Agreement and each of the Related Agreements to which they are, respectively, a
party, and the consummation of the transactions contemplated hereby and thereby
by each of the Business Contribution Member and the Shareholders will not (a)
conflict with or violate any provision of the articles or certificate of
incorporation or by-laws of the Business Contribution Member, (b) except as set
forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (c) except as set
forth in Exhibit E, result in or constitute a default, or require any consent or
approval of or notice to any person or entity, or result in the creation of an
Encumbrance, under or pursuant to (i) any of the Contracts, or (ii) any other
material agreements to which the Business Contribution Member and/or any of the
Shareholders are a party, or (d) violate any law applicable to the Business
Contribution Member or any of the Shareholders or by which any of the Assets is
bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity
13
<PAGE>
to which the Business Contribution Member or the Business is currently subject
(or which the Business Contribution Member or the Business was subject to during
the previous three years) or which are otherwise applicable to the Business
Contribution Member or the Assets or to the conduct of the Business, and (ii)
all correspondence from the date hereof with respect to any of the matters
referred to in clause (b) or clause (i) of this Section 2.6. Neither the
Business Contribution Member nor any of the Shareholders is aware of any
proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on either the Business or the Business Contribution Member.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member and/or any of the
Shareholders, threatened that questions the validity of this Agreement or the
Related Agreements or any action taken or to be taken by the Business
Contribution Member or any of the Shareholders in connection with the
consummation of the transactions contemplated hereby or thereby or which seeks
to prohibit, enjoin or otherwise challenge any of the transactions contemplated
hereby or thereby. Exhibit H sets forth an accurate and complete list, and a
brief description (setting forth the names of the parties involved, the court or
other governmental or mediating entity involved, the relief sought and the
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Business Contribution Member and/or any of
the Shareholders, threatened against or affecting the Business Contribution
Member, the Business or any of the Assets. To the knowledge of the Business
Contribution Member and/or any of the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit H. Except as set forth in Exhibit H, there is no
outstanding or, to the knowledge of the Business Contribution Member and/or any
of the Shareholders, threatened judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Business Contribution Member, the Business or any of the Assets.
2.8. Financial Advisors.
14
<PAGE>
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business Contribution Member and/or any of the
Shareholders in connection with the negotiations relating to or the transactions
contemplated by this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member and/or any of the Shareholders. Such fees, commissions, like payments or
expense reimbursements as are described on Exhibit I attached hereto shall
remain liabilities and expenses of the Business Contribution Member and/or the
Shareholders exclusively, and are specifically excluded from the Assumed
Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which, together with the financial statements
(including the notes and exhibits thereto), to be delivered to the Company
pursuant to Section 1.4 herein (the "Financial Statements") were and will be
prepared in accordance with the books and records of the Business, are and will
be complete and correct in all material respects, have and will have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), applied consistently with the past practices of the Business, except
where otherwise specifically noted therein, and present and will present fairly
in all material respects the financial position, results of operations and
changes in financial position or cash flows, whichever is applicable, of the
Business as at the dates and for the periods indicated (subject, in the case of
the unaudited financial statements, to normal year-end audit adjustments).
Without limiting the foregoing, no undisclosed liabilities or obligations of any
nature (whether known or unknown, or absolute, accrued, contingent or otherwise)
shall exist as at Closing in Escrow or the Closing not reflected in the
Business's most recently dated balance sheet supplied to the Company, [other
than those incurred in the ordinary course of business consistent with past
practice]. The Business Contribution Member has paid all federal, state and
local income, profits, franchises, sales, use, occupation, property, excise and
payroll taxes, and all license fees and other charges imposed upon it, and has
timely filed all tax returns and related documents required to be filed with any
15
<PAGE>
governmental authority. There are no outstanding or proposed statements of
deficiency in tax payments to any federal, state, local or foreign government
with respect to the Business Contribution Member for any tax period. As of the
dates such Financial Statements were and will be prepared, all accounts
receivable reflected on the Financial Statements (i) have and will have arisen
from bona fide transactions in the ordinary course of the Business Contribution
Member's business, consistent with its past practices, [and (ii) to the best of
Business Contribution Member's knowledge, are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements
(such reserves, the "Reserves"); such Reserves are adequate and reasonable and
were established in accordance with GAAP.]
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d) herein
below) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly-used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for the conduct of the Business as now conducted. After Closing,
the Specific Company Subsidiary will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Business as now conducted, except as set forth in Exhibit K.
16
<PAGE>
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property , and neither the Business Contribution Member nor any
of the Shareholders have received any notice or claim (whether written, oral or
otherwise) challenging the Business Contribution Member's ownership or rights in
such Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto; the Business Contribution
Member has all legal and other rights required to transfer the ownership of the
Intellectual Property to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Business Contribution Member nor any of the Shareholders has
received any notice or claim (whether written oral or otherwise) challenging the
validity or enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Business Contribution
Member will conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title or interest held by any other
person or entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property used
17
<PAGE>
or able to be used by the Business Contribution Member in the conduct of its
business (including, without limitation, the Business) as heretofore conducted;
and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date.
Neither the Business Contribution Member nor any of the Shareholders has granted
to any other Person or entity any rights or permissions to use any of the
Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
18
<PAGE>
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be assumed by the Specific Company Subsidiary directly from and after
Closing, the Business Contribution Member hereby agrees to keep such insurance
policy(ies) as are reflected by such Assumed Liabilities in full force and
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is valid and enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity); (ii) no Default (as defined below) exists under any Contract either by
the Business Contribution Member or by any other party thereto; (iii) neither
the Business Contribution Member nor any of the Shareholders is aware of the
assertion by any third party of any claim of Default or breach under any of the
Contracts; and (iv) neither the Business Contribution Member nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Business Contribution
Member to either (x) terminate or significantly change its existing business
relationship with the Business Contribution Member either now or in the
foreseeable future, or (y) fail to renew or extend its existing business
relationship with the Business Contribution Member at the end of the term of any
existing contractual arrangement such entity may have with the Business
Contribution Member. For purposes of this Agreement, the term "Default" means,
with
19
<PAGE>
respect to any Contract, (x) any breach of or default under such Contract, (y)
any event, other than the normal passage of time, which would (either with or
without notice or lapse of time or both) give rise to any right of termination,
cancellation or acceleration or any obligation to repay with respect to such
Contract, or (z) any event, other than the normal passage of time, which would
result in either a significant increase in the obligations or liabilities of, or
a loss of any significant benefit of, the party in question under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member or any of the
Shareholders in connection with this Agreement, the Related Agreements or the
transactions contemplated hereby or thereby 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 statement contained herein or therein, in light of the
circumstances under which they were made, not misleading. Neither the Business
Contribution Member nor any of the Shareholders knows of any facts which are
reasonably likely to cause a material adverse effect on the Assets or the
Business.
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, the Shareholders, and Certain Employees
of the Business Contribution Member
Each of the Shareholders, the Business Contribution Member and
the Back-Office Employee shall have, at the Closing in Escrow, entered into
agreements, the form of which is attached to this Agreement as Exhibit B.
3.2. Confidentiality. The Business Contribution Member and the
Shareholders shall abide by the terms of the Confidentiality Agreement between
the Business Contribution Member and DMS executed on June 30, 1997. The Business
Contribution Member, the Shareholders, and the Specific Company Subsidiary each
acknowledge and agree that the Company shall have the right to disclose certain
information concerning the Specific Company Subsidiary, the Assets and/or the
Business to third parties (which third parties will in turn be bound by an
agreement similar to the
20
<PAGE>
Confidentiality Agreement), for such general corporate purposes as includes but
is not limited to obtaining financing and/or underwriting, and for general
marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member and the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or Bylaws of the Company, or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default,
21
<PAGE>
or require any consent or approval of or notice to any person or entity under or
pursuant to any of the contracts to which the Company is a party; or (d) violate
any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit H. Except as set forth in
Exhibit H, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
22
<PAGE>
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Financial Advisors. No person or entity has acted directly or
indirectly as a broker or finder for or to the Company in connection with the
negotiations relating to or the transactions contemplated by this Agreement or
the Related Agreements.
4.8. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member and the Shareholders,
jointly and severally, covenant and agree that (except as expressly contemplated
or permitted by this Agreement, or to the extent that the Company shall
otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (ii) preserve the present
relationship of the Business Contribution Member with Persons having business
dealings with the Business Contribution Member;
(c) materially comply with all laws and with all contractual
and other obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any new Encumbrance;
23
<PAGE>
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a Material Adverse Effect (as hereinafter defined) on the
Business or the Assets, and (ii) any Legal Proceeding commenced by or against
the Business Contribution Member or any Legal Proceeding commenced or threatened
relating to the transactions contemplated by this Agreement.
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member or the Shareholders in this Agreement or the
Related Agreements untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, the Business Contribution
Member shall take all steps necessary to change its corporate name and/or trade
name to a name not confusingly similar to the trade name being conveyed
hereunder and to be utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Business Contribution Member shall cooperate
fully therein. In order that the Company may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation as
it may reasonably request of the affairs of the Business and the Business
Contribution Member, each of the Business Contribution Member and the
Shareholders shall use their respective best efforts to cause the Business
Contribution Member's
24
<PAGE>
officers, employees, consultants, agents, accountants, attorneys and other
representatives to cooperate fully with such Company representatives in
connection with such review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Business Contribution
Member nor any of the Shareholders shall pursue, initiate, encourage or engage
in any negotiations or discussions with any third parties concerning the sale of
the Business, the Assets, or any part thereof or concerning the terms and
conditions of this Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member and the Shareholders shall give prompt notice to the Company of (a) any
notice of, or other communication relating to, a default under any contract
material to the financial condition, properties, business operations, or results
of operations of the Business and/or the Business Contribution Member to which
it is a party or is subject, (b) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement or any of the
Related Agreements, or (c) any Material Adverse Change (as hereinafter defined)
in the properties (including but not limited to the Assets), business
operations, results of operations, financial condition or prospects of the
Business, other than changes resulting from general economic conditions. In
addition, the Business Contribution Member and the
25
<PAGE>
Shareholders shall be required to update the schedules and other information
supplied pursuant to this Agreement at such time as the information contained
therein changes in any material respect.
6.6 Working Capital as of the Closing Date. The Shareholders and the
Business Contribution Member shall ensure that the Assets, less the Assumed
Liabilities, includes at least $127,940 working capital (defined as the excess
of current (liquid) assets over current liabilities (excluding ongoing
obligations under Contracts)) as of the Closing Date. The calculation of working
capital for purposes of this Section 6.6 shall not include any portion of the
Tangible Asset Value.
For purposes of determining whether the required working capital existed
as of the Closing Date, the Company will cause to be prepared, within 30 days of
the Closing, a balance sheet setting forth the Assets and Assumed Liabilities as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, consistent with past practices of the Business Contribution Member (the
"Closing Date Balance Sheet"). In the event that more than the prescribed
$127,940 working capital existed as of the Closing Date, as determined by the
Closing Date Balance Sheet, the Company shall pay within five days thereafter,
the Business Contribution Member an amount equal to such excess. In the event
that less than the prescribed $127,940 working capital existed as of the Closing
Date, as determined by such balance sheet, the Shareholders and/or the Business
Contribution Member shall forthwith pay the Company an amount equal to the
difference between the actual working capital as of the Closing Date and
$127,940 working capital (the "Shortfall"). If the Shareholders and/or the
Business Contribution Member do not pay the Shortfall to the Company within five
days after demand, then, in addition to all other remedies which the Company may
have, the Company may deduct the amount of the Shortfall from any of the
obligations of the Company to the Shareholders or the Business Contribution
Member (including, but not limited to, the Earn-Out to which the Business
Contribution Member may be entitled thereafter).
In the event that the Business Contribution Member shall
notify the Company in writing within five days after delivery of the Closing
Date Balance Sheet of a dispute with respect to same, the parties shall notify
the certified public accounting firm of Price Waterhouse LLP (the "Accountants")
of the need for them to review the Closing Date Balance Sheet. The Accountants
shall make the final determination with respect to the correctness of the
Closing Date Balance Sheet in light of the terms and provisions of this
Agreement. In the event Price Waterhouse LLP declines
26
<PAGE>
to act as the Accountant, then the parties shall mutually select an independent
certified public accounting firm. The decision of the Accountants shall be final
and binding on the parties. Upon such determination, the relevant party shall
immediately pay the other party any amount owning pursuant to the previous
paragraph. In addition, such party shall pay interest at the rate of seven
percent (7%) per annum from the date notice of dispute was rendered. The parties
shall bear equally the cost of the Accountant.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member and the Shareholders set forth in
this Agreement (with regard to any supplements or updates thereto) shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of the Closing in Escrow Date and the Closing Date as though made on
and as of the Closing in Escrow Date and the Closing Date, respectively, except
as otherwise contemplated by this
27
<PAGE>
Agreement, and the Company shall have received a certificate from the
Shareholders and the Business Contribution Member (signed by a senior executive
officer of the Business Contribution Member) certifying to such effect.
(b) Performance of Obligations. The Business Contribution
Member and the Shareholders shall each have performed all obligations required
to be performed by each such party under this Agreement at or prior to the
Closing in Escrow Date and the Closing Date, respectively, and the Company shall
have received a certificate from the Shareholders and the Business Contribution
Member (signed by a senior executive officer of the Business Contribution
Member) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a Material Adverse Effect on the Assets or the Business. For purposes
of this Agreement, "Material Adverse Effect" or "Material Adverse Change" means
with respect to the Assets or Business, any significant and substantial adverse
affect or change in the condition (financial or other), business, results of
operations, assets, liabilities or operations, assets, liabilities or operations
of the Business, or any event or condition which would with the passage of time,
constitute a "material adverse change."
(d) Contractual Consents. The Business Contribution Member
and/or the Shareholders shall have given all notices to, and obtained all
consents, approvals or authorizations of or from, any individual, corporation or
other party which may be necessary to permit the consummation of the
transactions contemplated hereby (including, without limitation, any consents
required under the Contracts, or which may be required to permit the change of
ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member and/or the Shareholders are a party shall
have been duly executed and delivered by such party. In addition, the Related
Agreements shall have been entered into by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member
and the Shareholders. The obligations of the Business Contribution Member and
the Shareholders to effect
28
<PAGE>
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the Business
Contribution Member and the Shareholders), any or all of which may be waived in
whole or in part by the Business Contribution Member or the Shareholders.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
or
(c) by the Company in the event that the Business Contribution
Member and/or any of the Shareholders do not timely deliver representation
letters satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or shareholders except (i)
for
29
<PAGE>
the obligation of the Business Contribution Member and the Shareholders to
refund to the Company the audit expenses as set forth in Section 1.4 of this
Agreement in the event the Agreement is terminated by the Company pursuant to
Section 8.1(c) after all conditions to closing have been satisfied, including,
but not limited to the closing of the Initial Public Offering; (ii) for any and
all obligations under the confidentiality provisions contained in Section 3.2 of
this Agreement; and (iii) to the extent that such termination results from the
willful breach by a party hereto of any of its representations or warranties, or
of any of its covenants or agreements, as set forth in this Agreement. In the
event that termination results from the willful breach by a party hereto of any
of its representations or warranties, or of any of its covenants or agreements,
as set forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member and
the Shareholders. The Business Contribution Member and the Shareholders each
hereby agrees to jointly and severally indemnify, defend and hold harmless the
Company, the Specific Company Subsidiary, and their respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business Contribution Member's most recently dated balance
sheet delivered to the Company), (ii) any material inaccuracy in or breach of
any of the Business Contribution Member's and/or any of the Shareholders'
representations, warranties, covenants or agreements contained in this
Agreement, the Related Agreements or in any other agreement or document entered
into or delivered on or after the date hereof in connection with this Agreement
or any of the transactions contemplated hereby and thereby, (iii) any liability
or obligation of the Business Contribution Member and/or any of the Shareholders
other than an Assumed Liability, and (iv) any non-compliance with any notice
requirement, if any, which may be contained in the Uniform Commercial Code as
adopted by the State of California relating to bulk sales. Provided, however,
30
<PAGE>
the indemnification by the Business Contribution Member and/or the Shareholders
under this Section 9.1.(a) shall include direct damages only (and not indirect
or consequential damages). For purposes of this Agreement, the term "Losses"
means any and all deficiencies, judgments, settlements, demands, claims, actions
or causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor); notwithstanding anything else herein to the contrary, the amount of
indemnification by the Business Contribution Member and the Shareholders,
collectively, shall not exceed the Purchase Price actually received by the
Business Contribution Member.
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member and/or
the Shareholders from and against and in respect of any and all Losses resulting
from, arising out of, relating to, imposed upon or incurred by the Business
Contribution Member and/or the Shareholders by reason of (i) any inaccuracy in
or breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby; or (ii) any failure to discharge the Assumed Liabilities as
required by their terms. Provided, however, the indemnification by the Company
under this Section 9.1.(b) shall include direct damages only (and not indirect
or consequential damages) and shall be limited in the aggregate to the Purchase
Price actually received by the Business Contribution Member.
9.2. Notice of Asserted Liability. Promptly after any party hereto
becomes aware of any fact, condition or event that may give rise to Losses for
which idemnification may be sought under this Section 9, the party entitled to
indemnification shall give notice thereof in the manner provided in Section 10.2
of this Agreement (the "Claims Notice") to the other party ("Indemnitor"). The
Claims Notice shall include a description in reasonable detail of any claim or
the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") against indemnitee, and shall indicate
the amount (estimated, if necessary) of the Losses that have
31
<PAGE>
been or may be suffered by indemnitee. Failure of indemnitee to promptly give
notice hereunder shall not affect rights to indemnification hereunder, except to
the extent that Indemnitor demonstrates actual damage caused by such failure.
Upon Indemnitor's request, indemnitee shall provide Indemnitor with such
reasonable documentation as Indemnitor shall request pertaining to any general
claim(s) made by indemnitee.
9.3. Opportunity to Defend. Indemnitor may elect to compromise or
defend, at its own expense and by its own counsel, any claim; provided, however,
that Indemnitor may not compromise or settle any Asserted Liability without the
consent of indemnitee, such consent not to be unreasonably withheld, unless such
compromise or settlement requires no more than a monetary payment for which
indemnitee and any other indemnifiable parties hereunder are fully indemnified
or involves other matters not binding upon indemnitee or such other
indemnifiable parties. If Indemnitor elects to compromise or defend such claim,
it shall within 15 days (or sooner, if the nature of the claim so requires)
notify indemnitee of its intent to do so and indemnitee shall cooperation the
compromise of, or defense against, such claim. If indemnitor elects not to
compromise or defend any claim, fails to notify indemnitee of its election as
herein provided or contests its obligation to indemnify, indemnitee may pay,
compromise or defend such claim without prejudice to any right it may have
hereunder. In any event, each party may participate, at its own expense, in the
defense of any claim in respect of which it may have an indemnification
obligation under Section 9.1. If either party chooses to defend or participate
in the defense of any claim, it shall have the right to receive from the other
party any books, records or other documents within such party's control that are
necessary or appropriate for such defense.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
32
<PAGE>
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Business Contribution Member or the
Shareholders, to:
Larry Braun
Sheppard, Mullin, Richter & Hampton, LLP
Forty-Eighth Floor
333 South Hope Street
Los Angeles, CA 90071-1448
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
33
<PAGE>
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. The Business Contribution Member shall have the
right to assign its rights under this Agreement to the Shareholders subject to
the Company's approval, in its reasonable discretion, of the assignment
documents used to effect such assignment.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Business Contribution Member and the Shareholders acknowledge
that the failure to comply with any of the provisions of Sections 3.1, 3.2. and
6.3 hereof will result in irreparable harm for which there is no adequate remedy
at law and that the Company and/or the Specific Company Subsidiary shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Specific Company Subsidiary.
34
<PAGE>
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in Los
Angeles County, California, in accordance with the commercial arbitration rules
of the American Arbitration Association ("AAA") and judgment on the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. It is acknowledged by the Business Contribution Member and the
Shareholders that money damages are inadequate to compensate the Company and/or
the Specific Company Subsidiary for a breach of the terms of this Agreement, and
that the Company and/or the Specific Company Subsidiary shall be entitled to
specific performance of the terms of this Agreement. The arbitrator may enter a
default decision against any party who fails to participate in the proceeding.
The decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
35
<PAGE>
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
36
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
- - - - --------------------------------- ---------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest: PROFALL, INC.
By: /s/ David Prosser
- - - - --------------------------------- ---------------------------------------
Name: David Prosser
Title: President
"SPECIFIC COMPANY SUBSIDIARY"
Attest:
------------------------------------------
By: /s/ Linda Jenkinson
- - - - --------------------------------- ---------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Witness: "SHAREHOLDERS"
/s/ Thomas Westfall
- - - - --------------------------------- ------------------------------------------
Thomas Westfall
37
<PAGE>
Witness:
/s/ Alyson Westfall
- - - - --------------------------------- ------------------------------------------
Alyson Westfall
Witness:
/s/ David Prosser
- - - - --------------------------------- ------------------------------------------
David Prosser
Witness:
/s/ Adriene Prosser
- - - - --------------------------------- ------------------------------------------
Adriene Prosser
38
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 11th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Express Enterprises, Inc., a Michigan corporation (the
"Corporation"), and Paul J. Alberts and Donald E. Stoelt, (collectively, the
"Shareholders"). Unless defined herein, all capitalized terms used in this
Agreement shall have the meaning given them in the Operating Agreement of
Dispatch Management Services LLC dated December 1, 1996 by and between the
Members of Dispatch Management Services LLC, as amended (the "Operating
Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
1
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; (ii) the schedules
required pursuant to Section 2 below; and (iii) the agreements required pursuant
to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $0.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders do not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a
2
<PAGE>
reasonable estimate of the costs and expenses to be incurred in connection with
such terminations of employment, and the Company will reduce the cash portion of
the purchase price by the amount of such reasonable estimate.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholders and/or third parties and heretofore licensed to or used
3
<PAGE>
by the Corporation; (v) Certificates of Good Standing for the Corporation as
issued by the Secretary of State of Michigan; (vi) the certificates, dated the
Closing in Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b)
hereinbelow; and (vii) the opinion of counsel to the Shareholders and the
Corporation as to such matters as counsel to the Company may reasonably require,
including but not limited to such counsel's opinion that: (A) the Corporation is
in good standing; (B) the Corporation is authorized to conduct its business in
each jurisdiction in which it is doing business; (C) the Shareholders and the
Corporation have the full power to enter into and perform their respective
obligations under this Agreement; (D) this Agreement constitutes the legal,
valid and binding obligations of the Corporation and the Shareholders, and the
Related Agreements to which the Shareholders are a party, constitute the legal,
valid and binding obligations of the Shareholders, each enforceable in
accordance with their respective terms (except as enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditor's rights, and principles of equity); and (E) neither the Corporation
nor the Shareholders are threatened with or affected by any actions, proceedings
or investigations wherein an unfavorable decision, ruling or finding could have
a material adverse effect on the financial condition or operation of the
Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to two-thirds (2/3) of the Corporation's net revenue
during the twelve calendar months ending June 30, 1997, subject to adjustment
(if any) as provided in Section 1.1 above, and subject
4
<PAGE>
to further adjustment (if any) as a result of a reduction in the Maximum
Earn-Out (as defined in this Section 1.3 below).
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholders shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders shall deliver to the Company, within thirty days
after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
5
<PAGE>
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholders, provided that the Company will, upon the request of the
Shareholders, advance such costs on behalf of the Shareholders. In the event
that all of the Shareholders do not timely deliver satisfactory shareholder
representation letters and complete the Closing in Escrow, the Shareholders
shall immediately refund to the Company any such advanced costs; in the event
that all such shareholder representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Shareholders shall be
relieved of their obligation to refund to the Company any such advanced costs.
The Company shall pay forty percent (40%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and sixty percent (60%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
Shareholders acknowledge that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholders shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation fails to achieve such margin requirement, the cash portion of the
Purchase Price shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In
the event that the Corporation achieves the margin requirement during the
relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue
6
<PAGE>
requirement for such calendar quarter as set forth in Exhibit B, and the
denominator of which is the revenue required during such calendar quarter as set
forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth in
this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out shall
bear interest at the rate of 7% per annum commencing as of the Closing Date
(i.e., once the Earn-Out is determined, the Shareholders will be due such amount
plus interest at the rate of 7% per annum on such amount, accrued from the
Closing Date until the date of payment of the Earn-Out to the Shareholders). The
Earn-Out shall be paid to the Shareholders promptly following calculation of the
Corporation's performance for the quarter ending December 31, 1999. The Company
covenants and agrees to maintain sufficient cash, or availability of cash (e.g.,
by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders, collectively, in an amount equal to up to 40%
of the Purchase Price. Said loan by the Company to the Shareholders (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Shareholders shall have the right to prepay
the Shareholder Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Shareholder Loan (plus accrued interest) against the Earn-Out as earned each
quarter. The Shareholder Loan shall mature as of the date that the Earn-Out is
payable. In the event that the Shareholder Loan (including accrued interest) is
not repaid in full upon maturity, the Company shall enjoy all rights of a
secured party under the Uniform Commercial Code then in effect in the State of
Maryland, provided that the Company's only recourse shall be first against the
remaining Earn-Out and then against the Company Stock it holds as collateral,
and there shall not be any recourse against the Shareholders individually.
7
<PAGE>
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholders (less the
Maximum Earn-Out, which shall be payable to the Shareholders pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Michigan, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to
8
<PAGE>
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 50,000 shares of $1.00 par value
capital stock of which 500 shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is
9
<PAGE>
subject to any restriction, mortgage, pledge, lien, security interest, lease,
charge, encumbrance, objection or joint ownership, other than liens for current
real or personal property taxes not yet due and payable. The Corporation's
assets are in good operating condition and repair, ordinary wear and tear
excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of
10
<PAGE>
any applicable law. The Company has been provided with true and complete copies
of (i) all injunctions, judgments, orders or consent or similar decrees or
agreements of any governmental entity to which the Corporation is currently
subject (or which the Corporation was subject to during the previous three
years), and (ii) all correspondence through the date hereof with respect to any
of the matters referred to in clause (b) or clause (i) of this Section 2.8. None
of the Shareholders nor the Corporation is aware of any proposed legislation or
law which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders
11
<PAGE>
and/or the Corporation in connection with the negotiations relating to or the
transactions contemplated by this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements
12
<PAGE>
(i) have and will have arisen from bona fide transactions in the ordinary course
of the Corporation's business, consistent with its past practices, and (ii) are
good and collectible at the aggregate recorded amounts thereof, net of any
applicable reserves for returns or doubtful accounts which are reflected in such
Financial Statements (such reserves, the "Reserves"); such Reserves are adequate
and reasonable and were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
13
<PAGE>
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license agreements are valid and in full force and effect,
and shall continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
14
<PAGE>
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not
15
<PAGE>
been properly filed by the Corporation. During the past two years, the
Corporation has not been refused any insurance coverage by any insurer from
which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not
16
<PAGE>
waived, with respect to any employee benefit plan and no such accumulated
funding deficiency currently exists. Except as set forth on Exhibit L hereto,
the Corporation is not required, and has not been required in the past, to make
any payments or contributions under the terms of any "multi-employer plan" (as
defined in Section 3(37) of ERISA and Section 414(f) of the Code) or by any
collective bargaining agreement with respect to any employee benefit plan.
Neither the Corporation nor any of the Plans has ever incurred any withdrawal
liability (including any contingent or secondary withdrawal liability) within
the meaning of Section 4201 and Section 4204 of ERISA with respect to any
multi-employer plan. The Corporation and the trustees or the administrators of
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986
17
<PAGE>
(together with the regulations promulgated thereunder, hereinafter collectively
referred to as "IRCA"); the Worker Adjustment and Retraining Notification Act;
the Employee Polygraph Protection Act; the Drug-Free Workplace Act of 1988; the
Health Insurance Portability and Accountability Act of 1996; the Code; the
regulations promulgated under each such act; and any and all other federal,
state and local laws, regulations and requirements of any nature applicable to
the Corporation. The Corporation further represents that it is not in arrears in
the payment of wages to any employee (except to the extent of its normal payroll
practices), and there are no claims, liabilities, demands or causes of action,
realized or unrealized, actual, potential or contingent, pursuant to statutory
rights or in tort, contract or otherwise, against the Corporation arising out of
or in connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or
18
<PAGE>
supplier or other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 18,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose
19
<PAGE>
certain information concerning the Corporation to third parties (which third
parties will in turn be bound by an agreement similar to the Confidentiality
Agreement), for such general corporate purposes as includes but is not limited
to obtaining financing and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
20
<PAGE>
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
21
<PAGE>
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
22
<PAGE>
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate,
23
<PAGE>
encourage or engage in any negotiations or discussions with any third parties
concerning the sale of the Corporation, its assets, or any part thereof or
concerning the terms and conditions of this Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $150,000 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation
24
<PAGE>
had the required working capital as of the Closing Date, the Company will cause
to be prepared, promptly following the Closing, a balance sheet of the
Corporation as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, and shall include full accrual of all assets and
liabilities of the Corporation as of the Closing Date (including, but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the prescribed $150,000
working capital as of the Closing Date, as determined by such balance sheet, the
Shareholders shall forthwith pay the Company an amount equal to the difference
between the actual working capital as of the Closing Date and $150,000 working
capital (the "Shortfall"). If the Shareholders do not pay the Shortfall to the
Company within five (5) days after demand, then, in addition to all other
remedies which the Company may have, the Company may deduct the amount of the
Shortfall from any of the obligations of the Company to the Shareholders
(including, but not limited to, the Earn-Out to which the Shareholders may be
entitled thereafter).
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any
25
<PAGE>
governmental entity, requisite to the transactions contemplated hereby, shall
have been filed, occurred or have been obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
26
<PAGE>
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
27
<PAGE>
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained
28
<PAGE>
in this Agreement, the Related Agreements or in any other agreement or document
entered into or delivered on or after the date hereof in connection with this
Agreement or any of the transactions contemplated hereby and/or thereby.
Provided, however, the indemnification by the Corporation and the Shareholders
under this Section 9.1.(a) shall include direct damages only (and not indirect
or consequential damages). For purposes of this Agreement, the term "Losses"
means any and all deficiencies, judgments, settlements, demands, claims, actions
or causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
29
<PAGE>
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
Express Enterprises, Inc.
6735 Brandt Street
Romulus, Michigan 48174
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not
30
<PAGE>
limited to that certain Class C Stock Transfer Agreement between the parties
dated May 16, 1997, which Agreement will be of no further force or effect upon
execution of this Agreement), both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law
31
<PAGE>
and that the Company and/or the Corporation shall be entitled, without the
necessity of proving actual damages, to injunctive relief in addition to damages
and all other remedies which may otherwise be available to the Company and/or
the Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholders that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should
32
<PAGE>
die, withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
- - - - ---------------------------------- ----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
By: /s/ Donald E. Stoelt
- - - - ---------------------------------- ----------------------------------
Name: Donald E. Stoelt
Title: President
Witness: "SHAREHOLDERS"
By: /s/ Donald E. Stoelt
- - - - ---------------------------------- ----------------------------------
Donald E. Stoelt
Witness:
/s/ Paul J. Alberts
- - - - ---------------------------------- ----------------------------------
Paul J. Alberts
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 23rd day of
October, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), A & W Couriers, Inc., a Texas corporation (the
"Corporation"), and Joan Levy, (the "Shareholder"). Unless defined herein, all
capitalized terms used in this Agreement shall have the meaning given them in
the Operating Agreement of Dispatch Management Services LLC dated December 1,
1996 by and between the Members of Dispatch Management Services LLC, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with the
Shareholder and certain employees of the Corporation in the form attached hereto
as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties
<PAGE>
hereto pursuant to this Agreement or in connection with any of the transactions
contemplated hereby, the "Related Agreements"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholder does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholder does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and
2
<PAGE>
(iii) the Corporation has not terminated the employment of the (unwanted)
employees specified by the Company in the Notice, then the Company will make a
reasonable estimate of the costs and expenses to be incurred in connection with
such terminations of employment, and the Company will reduce the cash portion of
the purchase price by the amount of such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C. 20036
(or such other place as is mutually agreed upon by the parties) within thirty
(30) days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2. Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P, as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
\issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to
<PAGE>
the Corporation all of the Shareholder's and/or third parties' right, title and
interest in and to all Intellectual Property (as defined in Section 2.14(d)
hereinbelow) owned by any of the Shareholder and/or third parties and heretofore
licensed to or used by the Corporation; (v) Certificates of Good Standing for
the Corporation as issued by the Secretary of State of Texas; (vi) the
certificates, dated the Closing in Escrow Date, required pursuant to Sections
7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of counsel to the
Shareholder and the Corporation as to such matters as counsel to the Company may
reasonably require, including but not limited to such counsel's opinion that:
(A) the Corporation is in good standing; (B) the Corporation is authorized to
conduct its business in each jurisdiction in which it is doing business; (C) the
Shareholder and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholder, and the Related Agreements to which the Shareholder are a party,
constitute the legal, valid and binding obligations of the Shareholder, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholder are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
<PAGE>
1.3. Purchase Price. The purchase price for the Stock (the
"Purchase Price") shall be equal to $1,077,833, subject to adjustment (if any)
as provided in Section 1.1 above, and subject to further adjustment (if any) as
a result of a reduction in the Maximum Earn-Out (as defined in this Section 1.3
below).
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996; and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1,
<PAGE>
1998, the Shareholder shall deliver to the Company, within thirty days after
written request from the Company, such additional audited and/or unaudited,
reviewed financial statements of the Corporation as the Company may reasonably
request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder; further provided
that, in the event the transactions contemplated by this Agreement do not close
due to a default by the Company in the fulfillment of its obligations under this
Agreement or due to a failure of the Initial Public Offering to be consummated
as a result of a downturn in market conditions, then the cost of providing all
of the financial statements required by this Section 1.3, within prescribed time
limits, shall be the sole responsibility of the Company. In the event that the
Shareholder does not timely deliver a satisfactory shareholder representation
letter and complete the Closing in Escrow, the Shareholder shall immediately
refund to the Company any such advanced costs; in the event that such
shareholder representation letter is satisfactory and is timely received, and
the Closing in Escrow is completed, the Shareholder shall be relieved of his/her
obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in restricted stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Shareholder acknowledges that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholder shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company
<PAGE>
Stock is restricted (perhaps prohibited) for a period of two (2) years from the
date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholder ratably over
the 8 quarter annual periods beginning January 1, 1998 and ending December 31,
1999 provided that the Corporation achieves the targeted performance standards
set forth in Exhibit B attached hereto. In the event that the Corporation fails
to achieve the margin requirement set forth in Exhibit B during any calendar
quarter, then for each calendar quarter in which the Corporation fails to
achieve such margin requirement, the cash portion of the Purchase Price shall be
reduced by one eighth (1/8) of the Maximum Earn-Out. In the event that the
Corporation achieves the margin requirement during the relevant calendar
quarter, but fails to achieve the revenue requirement set forth in Exhibit B,
then for each such calendar quarter, the cash portion of the Purchase Price
shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out, multiplied
by: (ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar quarter and the revenue requirement for
such calendar quarter as set forth in Exhibit B, and the denominator of which is
the revenue required during such calendar quarter as set forth in Exhibit B. The
Maximum Earn-Out, less any reductions as set forth in this paragraph, is
hereinafter referred to as the "Earn-Out". The Earn-Out shall bear interest at
the rate of 7% per annum commencing as of the Closing Date (i.e., once the
Earn-Out is determined, the Shareholder will be due such amount plus interest at
the rate of 7% per annum on such amount, accrued from the Closing Date until the
date of payment of the Earn-Out to the Shareholder). The Earn-Out shall be paid
to the Shareholder promptly following calculation of the Corporation's
performance for the quarter ending December 31, 1999. The Company covenants and
agrees to maintain sufficient cash, or availability of cash (e.g., by way of a
line of credit) in order to fund the Earn-Out.
At the request of the Shareholder made to the Company in writing not later
than the Closing in Escrow, the Company shall (immediately after Closing) make a
loan to the Shareholder in an amount equal to up to 30% of the Purchase Price.
Said loan by the Company to the Shareholder (the "Shareholder Loan") shall bear
interest at a rate of seven percent (7%) per annum, and shall be secured by all
of the Company Stock paid as part of the Purchase Price at
<PAGE>
Closing. The collateral security agreement evidencing the collateralization of
the Shareholder Loan with the Company Stock and the Earn-Out shall be on such
terms as are reasonably acceptable to the Company, which terms shall include,
but shall not be limited to, the retention of all of the Company Stock by the
Company until full repayment of the Shareholder Loan (including accrued
interest). The Shareholder shall have the right to prepay the Shareholder Loan
(plus accrued interest) at any time without penalty and shall have the right to
direct the Company to offset the balance due under the Shareholder Loan (plus
accrued interest) against the Earn-Out as earned each quarter. The Shareholder
Loan shall mature as of the date that the Earn-Out is payable. In the event that
the Shareholder Loan (including accrued interest) is not repaid in full upon
maturity, the Company shall enjoy all rights of a secured party under the
Uniform Commercial Code then in effect in the State of New York, provided that
the Company's only recourse shall be first against the remaining Earn-Out and
then against the Company Stock it holds as collateral, and there shall not be
any recourse against the Shareholder individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W.,
Washington, D.C. 20036, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholder shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated
<PAGE>
opinion of counsel as referred to in Section 1.2(a)(vii) above; and (iii) the
Company shall deliver the Purchase Price to the Shareholder (less the Maximum
Earn-Out, which shall be payable to the Shareholder pursuant to the terms of
Section 1.3 above, and with the Company Stock collateralized against the
Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of ____ shares of ____ par value
capital stock of which ____ shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
<PAGE>
2.4. Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5. Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation, except for the transferred assets referred to in Schedule 2.6.
Immediately after the consummation of the transactions contemplated by this
Agreement to be effected at the Closing, the Corporation will (i) have all
right, title, and interest in and to, or will have a valid right to use, without
liability to third party(ies), such assets and properties; and (ii) have all
assets, rights, employees, subcontractors and other persons and items which are
reasonably necessary to carry on the business and operations of the Corporation
after the Closing Date in substantially the same manner as presently conducted
by the Corporation. The Company acknowledges that the Corporation's delivery
drivers used in its presently conducted business and operations are not
employees of the Corporation, but rather are independent contractors. As such,
their availability for use in the Corporation's business is not within the
control of the Corporation.
<PAGE>
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation; (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party; (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Shareholder is a party; or (d) violate
any law applicable to the Shareholder or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past
three years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation
<PAGE>
in connection with the consummation of the transactions contemplated hereby or
thereby or which seeks to prohibit, enjoin or otherwise challenge any of the
transactions contemplated hereby or thereby. Exhibit E sets forth an accurate
and complete list, and a brief description (setting forth the names of the
parties involved, the court or other governmental or mediating entity involved,
the relief sought and the substantive allegations and the status thereof), of
each Legal Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholder, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholder, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholder,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholder and shall be paid in full by him/her at the Closing
in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be
<PAGE>
delivered pursuant to Section 1.3 herein (the "Financial Statements") were and
will be prepared in accordance with the books and records of the Corporation,
are and will be complete and correct in all material respects, have and will
have been prepared in accordance with U.S. generally accepted accounting
principles ("GAAP"), applied consistently with the past practices of the
Corporation, except where otherwise specifically noted therein, and present and
will present fairly in all material respects the financial position, results of
operations and changes in financial position or cash flows, whichever is
applicable, of the Corporation as at the dates and for the periods indicated
(subject, in the case of the unaudited financial statements, to normal year-end
audit adjustments). Without limiting the foregoing, no undisclosed liabilities
or obligations of any nature (whether known or unknown, or absolute, accrued,
contingent or otherwise) shall exist as at Closing in Escrow or the Closing not
reflected in the most recently dated balance sheet supplied to the Company. The
Corporation has paid all federal, state and local income, profits, franchises,
sales, use, occupation, property, excise and payroll taxes, and all license fees
and other charges imposed upon it, and has timely filed all tax returns and
related documents required to be filed with any governmental authority. There
are no outstanding or proposed statements of deficiency in tax payments to any
federal, state, local or foreign government with respect to the Corporation for
any tax period. As of the dates such Financial Statements were and will be
prepared, all accounts receivable reflected on the Financial Statements (i) have
and will have arisen from bona fide transactions in the ordinary course of the
Corporation's business, consistent with its past practices, and (ii) are good
and collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for returns or doubtful accounts which are reflected in such Financial
Statements (such reserves, the "Reserves"); such Reserves are adequate and
reasonable and were established in accordance with GAAP. Notwithstanding the
preceding to the contrary, the Company acknowledges that the Corporation has
treated its delivery drivers as independent contractors and thus has not made
any federal, state or local tax withholding or other type payments, and that
neither the Shareholder nor the Corporation is making any representation or
warranty regarding whether such treatment was proper.
<PAGE>
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the
<PAGE>
Corporation's ownership or rights in such Intellectual Property or suggesting
that any other entity has any claim of legal or beneficial ownership with
respect thereto. Neither the Shareholder nor the Corporation are in default
under any license agreements pertaining to the Intellectual Property used in the
Corporation's business and licensed to the Shareholder and/or the Corporation;
all such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
<PAGE>
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
<PAGE>
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively, the
"Plans"). The Corporation is not in default under the terms of any of the Plans.
The Corporation has made all contributions to each of the Plans required by the
terms of the respective Plans, as well as all contributions required to be made
in order to satisfy all requirements of law. Each of the Plans has sufficient
assets to satisfy (under reasonable and permitted actuarial assumptions) its
obligations on a termination basis, and the level of contributions required
pursuant to the terms of each Plan is sufficient to satisfy (under reasonable
and permitted actuarial assumptions) the obligations of such Plan on a
continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the
<PAGE>
Corporation is not required, and has not been required in the past, to make any
payments or contributions under the terms of any "multi-employer plan" (as
defined in Section 3(37) of ERISA and Section 414(f) of the Code) or by any
collective bargaining agreement with respect to any employee benefit plan.
Neither the Corporation nor any of the Plans has ever incurred any withdrawal
liability (including any contingent or secondary withdrawal liability) within
the meaning of Section 4201 and Section 4204 of ERISA with respect to any
multi-employer plan. The Corporation and the trustees or the administrators of
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as
<PAGE>
"IRCA"); the Worker Adjustment and Retraining Notification Act; the Employee
Polygraph Protection Act; the Drug-Free Workplace Act of 1988; the Health
Insurance Portability and Accountability Act of 1996; the Code; the regulations
promulgated under each such act; and any and all other federal, state and local
laws, regulations and requirements of any nature applicable to the Corporation.
The Corporation further represents that it is not in arrears in the payment of
wages to any employee (except to the extent of its normal payroll practices),
and there are no claims, liabilities, demands or causes of action, realized or
unrealized, actual, potential or contingent, pursuant to statutory rights or in
tort, contract or otherwise, against the Corporation arising out of or in
connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee. Notwithstanding the preceding to the contrary, the
Company acknowledges that the Corporation has treated its delivery drivers as
independent contractors and thus has not made any federal, state or local tax
withholding or other type payments, and that neither the Shareholder nor the
Corporation is making any representation or warranty regarding whether such
treatment was proper.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
<PAGE>
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Corporation nor the Shareholder is aware
of any present intention on the part of any significant customer or supplier or
other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
<PAGE>
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. Each of the Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on April 1,
1997. The Shareholder and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency,
<PAGE>
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company; (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the
<PAGE>
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Company, threatened against or affecting the
Company. To the knowledge of the Company, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Company, threatened, judgment,
injunction, order or consent or similar decree or agreement (including, without
limitation, any consent or similar decree or agreement with any governmental
entity) against, affecting or naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. Except with
the prior consent of the Company, the Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its
<PAGE>
business and (ii) preserve the present relationship of the Corporation with
Persons having business dealings with the Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement; and
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably
<PAGE>
request, and to make extracts and copies of such books and records. Any such
investigation and examination shall be conducted during regular business hours
and under reasonable circumstances, and the Shareholder and the Corporation
shall cooperate fully therein. In order that the Company may have full
opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may reasonably request of the affairs of the
Corporation, the Corporation and the Shareholder shall use their respective best
efforts to cause the Corporation's officers, employees, consultants, agents,
accountants, attorneys and other representatives to cooperate fully with such
Company representatives in connection with such review and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements; (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements; and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations,
<PAGE>
or results of operations of the Corporation to which it is a party or is
subject; (b) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Agreement or any of the Related
Agreements; or (c) any material adverse change in the properties, business
operations, results of operations, financial condition or prospects of the
Corporation, other than changes resulting from general economic conditions. In
addition, the Corporation and the Shareholder shall be required to update the
schedules and other information supplied pursuant to this Agreement at such time
as the information contained therein changes in any material respect.
6.5. Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $134,729 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet (the "Closing Balance
Sheet") of the Corporation as of the Closing Date. The Closing Balance Sheet
shall be prepared in accordance with GAAP, and shall include full accrual of all
assets and liabilities of the Corporation as of the Closing Date (including, but
not limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the prescribed $134,729
working capital as of the Closing Date, as determined by the Closing Balance
Sheet, the Shareholder shall forthwith pay the Company an amount equal to the
difference between the actual working capital as of the Closing Date and
$134,729 working capital (the "Shortfall"). If the Shareholder does not pay the
Shortfall to the Company within five (5) days after demand, then, in addition to
all other remedies which the Company may have, the Company may deduct the amount
of the Shortfall from any of the obligations of the Company to the Shareholder
(including, but not limited to, the Earn-Out to which the Shareholder may be
entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the Closing Balance Sheet
of the Corporation, and to calculate the working capital therein in
<PAGE>
accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
In the event that the Corporation has more than the prescribed $134,729
working capital as of the Closing Date, as determined by the Closing Balance
Sheet, the Company shall forthwith pay the Shareholder an amount equal to the
difference between the actual working capital as of the Closing Date and
$134,729 working capital.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company).
<PAGE>
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
such party. In addition, the Related Agreements shall have been entered into by
the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive
<PAGE>
benefit of the Corporation and the Shareholder, any or all of which may be
waived in whole or in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1. Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i)
<PAGE>
for the obligation of the Shareholder to refund to the Company the audit
expenses as set forth in Section 1.3 of this Agreement; (ii) for any and all
obligations under the confidentiality provisions contained in Section 3.2 of
this Agreement; and (iii) to the extent that such termination results from the
willful breach by a party hereto of any of its representations or warranties, or
of any of its covenants or agreements, as set forth in this Agreement. In the
event that termination results from the willful breach by a party hereto of any
of its representations or warranties, or of any of its covenants or agreements,
as set forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Shareholder. The Shareholder hereby
agrees to jointly and severally indemnify, defend and hold harmless the Company
and its respective officers, directors, employees and agents (collectively, the
"Indemnitee") from and against and in respect of any and all Losses (as defined
below) to the extent resulting from, arising out of, relating to, imposed upon
or incurred by the Indemnitee by reason of: (i) the conduct of business by the
Corporation prior to the Closing Date (but only to the extent that the amount of
such Loss was not a stated liability on the Corporation's most recently dated
balance sheet delivered to the Company); and (ii) any inaccuracy in or breach of
any of the Shareholder's representations, warranties, covenants or agreements
contained in this Agreement, the Related Agreements or in any other agreement or
document entered into or delivered on or after the date hereof in connection
with this Agreement or any of the transactions contemplated hereby and/or
thereby. Provided, however, the indemnification by the Shareholder under this
Section 9.1.(a) shall include direct damages only (and not indirect or
consequential damages) and shall be limited to an amount equal to, but not
exceeding, the Purchase Price, and shall be limited to an amount equal to, but
not exceeding, in the aggregate, the value of the consideration received
pursuant to this Agreement. In satisfying any indemnification obligation
hereunder, the Shareholder may use the Company Stock, and such stock shall be
deemed to have a value equal to the greater of (x) the prevailing trading prices
of such stock for the five (5) trading days
<PAGE>
immediately preceding the payment date or (y) the Initial Public Offering price
per share as set forth on the cover page of the Prospectus relating to the
Initial Public Offering. For purposes of this Agreement, the term "Losses" means
any and all deficiencies, judgments, settlements, demands, claims, actions or
causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
9.3 Exclusivity. The provisions of this Section 9 shall be the
exclusive basis for the assertion of claims by or imposition of liability on the
parties hereto arising under or as a result of a breach of a representation or
warranty of such party contained in this Agreement.
<PAGE>
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive for
two years following the Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
A&W Couriers, Inc.
720 North Post Oak Road
Houston, Texas 77024
Attention: Joan Levy
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the parties
<PAGE>
dated April 24, 1997, which Agreement will be of no further force or effect upon
execution of this Agreement), both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is
<PAGE>
no adequate remedy at law and that the Company and/or the Corporation shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholder that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an
<PAGE>
appointment. If an arbitrator should die, withdraw, or otherwise become
incapable of serving, a replacement shall be selected and appointed in a like
manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
10.12 Addendum No.1. This Agreement is further subject to that
certain Addendum No.1 attached hereto and made a part hereof (the "Addendum").
In the case of any conflict between this Agreement and the Addendum, the
Addendum shall control.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
A&W COURIERS, INC.
_________________________ By: /s/ Joan Levy
------------------------------------
Name: Joan Levy
Title:
Witness: "SHAREHOLDER"
__________________________ /s/ Joan Levy
------------------------------------
Joan Levy
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 10th day of
October, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Express It, Inc., an Oregon corporation (the
"Corporation"), and Dave Clancy, (the "Shareholder"). Unless defined herein, all
capitalized terms used in this Agreement shall have the meaning given them in
the Operating Agreement of Dispatch Management Services LLC dated December 1,
1996 by and between the Members of Dispatch Management Services LLC, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares
of capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desires to sell all of his/her
right, title and interest in the Stock to the Company, and the Company desires
to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with the
Shareholder and certain employees of the Corporation in the form attached hereto
as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholder does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholder does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs
2
<PAGE>
and expenses to be incurred in connection with such terminations of employment,
and the Company will reduce the cash portion of the purchase price by the amount
of such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C. 20036
(or such other place as is mutually agreed upon by the parties) within thirty
(30) days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P, as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholder's
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
3
<PAGE>
Shareholder and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretaries of State of Oregon and Washington; (vi) the certificates, dated
the Closing in Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b)
hereinbelow; and (vii) the opinion of counsel to the Shareholder and the
Corporation as to such matters as counsel to the Company may reasonably require,
including but not limited to such counsel's opinion that: (A) the Corporation is
in good standing; (B) the Corporation is authorized to conduct its business in
each jurisdiction in which it is doing business; (C) the Shareholder and the
Corporation have the full power to enter into and perform their respective
obligations under this Agreement; (D) this Agreement constitutes the legal,
valid and binding obligations of the Corporation and the Shareholder, and the
Related Agreements to which the Shareholder are a party, constitute the legal,
valid and binding obligations of the Shareholder, each enforceable in accordance
with their respective terms (except as enforcement may be limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditor's
rights, and principles of equity); and, (E) to the best knowledge of counsel,
neither the Corporation nor the Shareholder are threatened with or affected by
any actions, proceedings or investigations wherein an unfavorable decision,
ruling or finding could have a material adverse effect on the financial
condition or operation of the Corporation, or could prevent, enjoin or otherwise
affect the transactions contemplated by this Agreement or the Related
Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
4
<PAGE>
1.3. Purchase Price. The purchase price for the Stock (the
"Purchase Price") shall be equal to $1,266,667, subject to adjustment (if any)
as provided in Section 1.1 above, and subject to further adjustment (if any) as
a result of a reduction in the Maximum Earn-Out (as defined in this Section 1.3
below).
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1,
5
<PAGE>
1998, the Shareholder shall deliver to the Company, within thirty days after
written request from the Company, such additional audited and/or unaudited,
reviewed financial statements of the Corporation as the Company may reasonably
request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder. In the event that
the Shareholder does not timely deliver a satisfactory shareholder
representation letter and complete the Closing in Escrow, the Shareholder shall
immediately refund to the Company any such advanced costs; in the event that
such shareholder representation letter is satisfactory and is timely received,
and the Closing in Escrow is completed, the Shareholder shall be relieved of
his/her obligation to refund to the Company any such advanced costs.
The Company shall pay fifty percent (50%) of the Purchase Price in
cash (the "Cash Portion"), which is subject to reduction in accordance with the
terms of the next paragraph, and fifty percent (50%) of the Purchase Price in
(restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Shareholder acknowledges that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholder shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
Sixty percent (60%) of the Cash Portion (the "Maximum Earn-Out")
shall be earned by the Shareholder ratably over the two (2) annual periods
beginning January 1, 1998 and ending December 31, 1999 provided that the
Corporation achieves the targeted performance standards set forth in Exhibit B
attached hereto. In the event that the Corporation fails to achieve
6
<PAGE>
the margin requirement set forth in Exhibit B during any calendar year, then for
each calendar year in which the Corporation fails to achieve such margin
requirement, the cash portion of the Purchase Price shall be reduced by one half
(1/2) of the Maximum Earn-Out. In the event that the Corporation achieves the
margin requirement during the relevant calendar year, but fails to achieve the
revenue requirement set forth in Exhibit B, then for each such calendar year,
the cash portion of the Purchase Price shall be reduced by: (i) one half (1/2)
of the Maximum Earn-Out, multiplied by: (ii) a fraction, the numerator of which
is the difference between the actual revenue achieved during such calendar year
and the revenue requirement for such calendar year as set forth in Exhibit B,
and the denominator of which is the revenue required during such calendar year
as set forth in Exhibit B. The Maximum Earn-Out, less any reductions as set
forth in this paragraph, is hereinafter referred to as the "Earn-Out". The
Earn-Out shall bear interest at the rate of 7% per annum commencing as of the
Closing Date (i.e., once the Earn-Out is determined, the Shareholder will be due
such amount plus interest at the rate of 7% per annum on such amount, accrued
from the Closing Date until the date of payment of the Earn-Out to the
Shareholder), provided that such interest shall not accrue during any year in
which the Corporation fails to achieve the margin requirement as set forth in
Exhibit B. The Earn-Out shall be paid to the Shareholder promptly following
calculation of the Corporation's performance for the year ending December 31,
1999. The Company covenants and agrees to maintain sufficient cash, or
availability of cash (e.g., by way of a line of credit) in order to fund the
Earn-Out.
At the request of the Shareholder made to the Company in writing not later
than the Closing in Escrow, the Company shall (immediately after Closing) make a
loan to the Shareholder in an amount equal to up to 30% of the Purchase Price.
Said loan by the Company to the Shareholder (the "Shareholder Loan") shall bear
interest at a rate of seven percent (7%) per annum, and shall be secured by all
of the Company Stock paid as part of the Purchase Price at Closing, provided
that such interest shall not accrue during any year in which the Corporation
fails to achieve the margin requirement as set forth in Exhibit B. The
collateral security agreement evidencing the collateralization of the
Shareholder Loan with the Company Stock and the Earn-Out shall be on such terms
as are reasonably acceptable to the Company, which terms shall include, but
shall not be limited to, the retention of all of the Company Stock by the
7
<PAGE>
Company until full repayment of the Shareholder Loan (including accrued
interest). The Shareholder shall have the right to prepay the Shareholder Loan
(plus accrued interest) at any time without penalty and shall have the right to
direct the Company to offset the balance due under the Shareholder Loan (plus
accrued interest) against the Earn-Out as earned each year. The Shareholder Loan
shall mature as of the date that the Earn-Out is payable. In the event that the
Shareholder Loan (including accrued interest) is not repaid in full upon
maturity, the Company shall enjoy all rights of a secured party under the
Uniform Commercial Code then in effect in the State of New York, provided that
the Company's only recourse shall be first against the remaining Earn-Out and
then against the Company Stock it holds as collateral, and there shall not be
any recourse against the Shareholder individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W.,
Washington, D.C. 20036, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholder shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated opinion of counsel as referred to in Section
1.2(a)(vii) above; and (iii) the Company shall deliver the Purchase Price to the
Shareholder (less the Maximum Earn-Out, which shall be payable to the
8
<PAGE>
Shareholder pursuant to the terms of Section 1.3 above, and with the Company
Stock collateralized against the Shareholder Loan being delivered to the Company
as appropriate).
2. Representations, Warranties and Covenants of the Corporation and
the Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is [a "C" /
an "S"] Corporation duly organized, validly existing and in good standing under
the laws of the State of Oregon, and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Corporation is duly qualified and in good standing
to conduct business in each jurisdiction in which the business it is conducting,
or the operation, ownership or leasing of its properties, makes such
qualification necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of ____ shares of ____ par value
capital stock of which ____ shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been
9
<PAGE>
duly authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will, (i)
except as set forth in the Financial Statements, have all right, title, and
interest in and to, or will have a valid right to use, without liability to
third party(ies), such assets and properties; and (ii) have all assets, rights,
employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Corporation after the
Closing Date in substantially the same manner as presently conducted by the
Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and
10
<PAGE>
thereby by the Shareholder and the Corporation will not (a) conflict with or
violate any provision of the articles or certificate of incorporation or by-laws
of the Corporation, (b) except as set forth in Exhibit D, require any consent,
waiver, approval, authorization, permission, or filing with or notification to,
any third party, (c) result in or constitute a default, or require any consent
or approval of or notice to any person or entity, or result in the creation of
an encumbrance, under or pursuant to (i) any of the contracts to which the
Corporation is a party (including but not limited to contracts of insurance and
leases as applicable), or (ii) any other material agreements to which the
Shareholder is a party, or (d) violate any law applicable to the Shareholder or
the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation in connection with
the consummation of the transactions contemplated hereby or thereby or which
seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description
11
<PAGE>
(setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Legal Proceeding pending or, to the
knowledge of the Corporation and/or the Shareholder, threatened against or
affecting the Corporation. To the knowledge of the Corporation and/or the
Shareholder, no event has occurred and no circumstance, matter or set of facts
exist which would constitute a valid basis for the assertion by any third party
of any claim or Legal Proceeding, other than those listed on Exhibit E. Except
as set forth in Exhibit E, there is no outstanding or, to the knowledge of the
Corporation and/or the Shareholder, threatened, judgment, injunction, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholder and shall be paid in full by him/her at the Closing
in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S.
12
<PAGE>
generally accepted accounting principles ("GAAP"), applied consistently with the
past practices of the Corporation, except where otherwise specifically noted
therein, and present and will present fairly in all material respects the
financial position, results of operations and changes in financial position or
cash flows, whichever is applicable, of the Corporation as at the dates and for
the periods indicated (subject, in the case of the unaudited financial
statements, to normal year-end audit adjustments). Without limiting the
foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements (such
reserves, the "Reserves"); such Reserves are adequate and reasonable and were
established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any
of its obligations, contracts, or commitments in any respect, or in breach of
any negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches, except as
set forth in Schedule 2.12 hereto.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
13
<PAGE>
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. Immediately after Closing, the Corporation will have
the right to use all of the Intellectual Property as currently used or as
necessary for the conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements,
Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Shareholder nor the Corporation are in default
under any license agreements pertaining to the Intellectual Property used in the
Corporation's business and licensed to the Shareholder and/or the Corporation;
all such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, all of the Intellectual Property is legally
valid and enforceable without any qualification, limitation or restriction on
its use, and neither the Corporation nor the
14
<PAGE>
Shareholder has received any notice or claim (whether written, oral or
otherwise) challenging the validity or enforceability of any such Intellectual
Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) Except as set forth in Exhibit H, the Corporation
has timely met all of its obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted, and such obligations have been and will
be correctly and adequately disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or the
Shareholder
15
<PAGE>
has granted to any other Person or entity any rights or permissions to use any
of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage, except as set forth in
Schedule 2.15 hereto.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus,
16
<PAGE>
thrift-savings, incentive, benefit, welfare, cafeteria, medical insurance,
dental insurance, life insurance, accidental death and dismemberment insurance,
disability insurance or other similar plan, policy or arrangement (collectively
referred to herein as the "Plans"). The Corporation is not in default under the
terms of any of the Plans. The Corporation has made all contributions to each of
the Plans required by the terms of the respective Plans, as well as all
contributions required to be made in order to satisfy all requirements of law.
Each of the Plans has sufficient assets to satisfy (under reasonable and
permitted actuarial assumptions) its obligations on a termination basis, and the
level of contributions required pursuant to the terms of each Plan is sufficient
to satisfy (under reasonable and permitted actuarial assumptions) the
obligations of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such
17
<PAGE>
continuation of coverage requirements. The execution and delivery of this
Agreement will not involve a prohibited transaction within the meaning of ERISA
or Section 4975 of the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any
18
<PAGE>
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts, except as set forth in Schedule 2.23 hereto; and (iv) neither
the Corporation nor the Shareholder is aware of any present intention on the
part of any significant customer or supplier or other business partner of the
Corporation to either (x) terminate or significantly change its existing
business relationship with the Corporation either now or in the foreseeable
future, or (y) fail to renew or extend its existing business relationship with
the Corporation at the end of the term of any existing contractual arrangement
such entity may have with the Corporation. For purposes of this Agreement, the
term "Default" means, with respect to any Contract, (x) any material breach of,
or material default under, such Contract, (y) any event, other than the normal
passage of time,
19
<PAGE>
which would (either with or without notice or lapse of time or both) give rise
to any right of termination, cancellation or acceleration of, or any obligation
to repay, with respect to such Contract, or (z) any event, other than the normal
passage of time, which would result in either a significant increase in the
obligations or liabilities of, or a loss of any significant benefit of, the
party in question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. Each of the Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on August 28,
1997. The Shareholder and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
20
<PAGE>
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
21
<PAGE>
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
22
<PAGE>
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. Except with
the prior consent of the Company, the Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock, except that
the Corporation may, subject to the requirements of Section 6.5, distribute
excess working capital to the Shareholders;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
23
<PAGE>
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours on reasonable advance notice and under reasonable
circumstances, and in a manner designed not to unduly interfere with the
operation of the business of the Corporation, and the Shareholder and the
Corporation shall cooperate fully therein. In order that the Company may have
full opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may reasonably request of the affairs of the
Corporation, the Corporation and the Shareholder shall use their respective best
efforts to cause the Corporation's officers, employees, consultants, agents,
accountants, attorneys and other representatives to cooperate fully with such
Company representatives in connection with such review and examination.
24
<PAGE>
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
25
<PAGE>
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $156,811 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets and liabilities of the
Corporation as of the Closing Date (including, but not limited to, accrued tax
liabilities as if the tax year ended on the Closing Date). In the event that the
Corporation has less than the prescribed $156,811 working capital as of the
Closing Date, as determined by such balance sheet, the Shareholder shall
forthwith pay the Company an amount equal to the difference between the actual
working capital as of the Closing Date and $156,811 working capital (the
"Shortfall"). If the Shareholder does not pay the Shortfall to the Company
within five (5) days after demand, then, in addition to all other remedies which
the Company may have, the Company may deduct the amount of the Shortfall from
any of the obligations of the Company to the Shareholder (including, but not
limited to, the Earn-Out to which the Shareholder may be entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been no greater than the amount
claimed by the Shareholder, the entire cost of such audit shall be borne by the
Company.
26
<PAGE>
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this
27
<PAGE>
Agreement at or prior to the Closing in Escrow Date and the Closing Date,
respectively, and the Company shall have received a certificate from the
Shareholder and the Corporation (signed by the Shareholder and a senior
executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
the Shareholder. In addition, the Related Agreements shall have been entered
into by the Shareholder.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
28
<PAGE>
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company or the Shareholder in the event that the
Shareholder does not timely deliver a shareholder representation letter
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholder to refund to the Company the audit expenses as
set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
29
<PAGE>
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholder.
The Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholder under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this
30
<PAGE>
Agreement or any of the transactions contemplated hereby and/or thereby.
Provided, however, the indemnification by the Company under this Section 9.1.(b)
shall include direct damages only (and not indirect or consequential damages)
and shall be limited in the aggregate to the Purchase Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive for a
period ending on the second anniversary of the consummation date of the Initial
Public Offering.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
31
<PAGE>
(b) if to the Corporation or the Shareholder, to:
Dave Clancy
6040 N. Cutter Circle #309
Portland, Oregon 97217
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
32
<PAGE>
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in Chicago,
Illinois, in accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA") and judgment on the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. It is
acknowledged by the Corporation and the Shareholder that money damages are
inadequate to compensate the Company and/or the Corporation for a breach of the
terms of this Agreement, and that the Company and/or the Corporation shall be
entitled to
33
<PAGE>
specific performance of the terms of this Agreement. The arbitrator may enter a
default decision against any party who fails to participate in the proceeding.
The decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
34
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
----------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
EXPRESS IT, INC.
By: /s/ Dave Clancy
- - - - -------------------------- ----------------------------------------
Name:
Title:
Witness: "SHAREHOLDER"
/s/ Dave Clancy
- - - - -------------------------- --------------------------------------------
Dave Clancy
35
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 18th day of
September , 1997, by and among Dispatch Management Services Corp, a Delaware
corporation and successor to Dispatch Management Services LLC by merger (the
"Company"), Deadline Acquisition Corp., an Illinois corporation (the
"Corporation"), and Edward V. Blanchard, Jr., Melba Anne Hill and Scott T.
Milakovich (collectively, the "Shareholders"). Unless defined herein, all
capitalized terms used in this Agreement shall have the meanings given them in
the Operating Agreement of Dispatch Management Services LLC, dated December 1,
1996, by and among the Members of Dispatch Management Services, LLC, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock") and the Shareholders and the
Corporation intend that prior to the Closing in Escrow Date (as defined below),
the Corporation shall acquire substantially all of the assets of R.J.K.
Enterprises, Inc., an Illinois corporation doing business as "Deadline Express"
("Deadline Express"), such transaction being referred to hereafter as the
acquisition of Deadline Express;
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain
<PAGE>
employees of the Corporation in the form attached hereto as Exhibit A (such
non-competition agreements, together with all other agreements which are entered
into by the parties hereto pursuant to this Agreement or in connection with any
of the transactions contemplated hereby, the "Related Agreements"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value) (the "Unwanted Assets"),
assume certain liabilities of the Corporation (the "Unwanted Liabilities"), and
cause certain employees of the Corporation to be terminated from employment by
the Corporation (the "Unwanted Employees"). If, prior to the Closing Date (as
defined in Section 1.4 below): (i) the Shareholders do not purchase the Unwanted
Assets specified by the Company in the Notice, then such assets will be acquired
by the Company without any adjustment to the Purchase Price (as defined in
Section 1.3 below); (ii) the Shareholders do not assume the Unwanted Liabilities
specified by the Company in the
2
<PAGE>
Notice, then the Company will reduce the cash portion of the purchase price by
the dollar amount of any such Unwanted Liabilities (including early repayment
costs, if any) of the Corporation existing as at the Closing Date; and (iii) the
Corporation has not terminated the employment of the Unwanted Employees
specified by the Company in the Notice, then the Company will make a reasonable
estimate of the costs and expenses to be incurred in connection with such
terminations of employment, and the Shareholder will pay the amount of such to
the Company in cash within 5 days after demand by the Company.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely deliver
satisfactory shareholder representation letters or the Shareholders do not close
in escrow, (as determined in the sole discretion of the Company), this Agreement
will be of no further force or effect, except for any and all obligations under
Sections 3.2 (confidentiality), 1.3 (reimbursement of audit expenses) and 8.2
(effect of termination under Section 8.1), which obligations will survive
termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no
3
<PAGE>
longer issued and outstanding) to former shareholders of the Corporation; (iii)
all consents, waivers, and authorizations necessary or appropriate for the
consummation of the transactions contemplated by this Agreement; (iv) agreements
assigning to the Corporation all of the Shareholders' and/or third parties'
right, title and interest in and to all Intellectual Property (as defined in
Section 2.14(d) hereinbelow) owned by any of the Shareholders and/or third
parties and heretofore licensed to or used by the Corporation; (v) Certificate
of Good Standing for the Corporation as issued by the Secretary of State of
Illinois; (vi) the certificates, dated the Closing in Escrow Date, required
pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of
counsel to the Shareholders and the Corporation as to such matters as counsel to
the Company may reasonably require, including but not limited to such counsel's
opinion that: (A) the Corporation is in good standing; (B) the Corporation is
authorized to conduct its business in each jurisdiction in which it is doing
business; (C) the Shareholders and the Corporation have the full power to enter
into and perform their respective obligations under this Agreement; (D) this
Agreement constitutes the legal, valid and binding obligations of the
Corporation and the Shareholders, and the Related Agreements to which the
Shareholders are a party (except the non-compete agreements in Exhibit A),
constitute the legal, valid and binding obligations of the Shareholders, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholders are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below,
4
<PAGE>
on the Closing Date specified in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to eighty percent (80%) of the product of:
(i) a fraction equal to the Net Market Capitalization of the
Company (as defined below) divided by the aggregate revenues of the
Company's subsidiaries for the Relevant Period (as defined below),
as shown in the prospectus for the Initial Public Offering,
multiplied by
(ii) the Corporation's net revenues for the Relevant Period,
determined from financial statements of the Corporation delivered to
the Company by the Shareholders pursuant to this Section 1.3 which
have been prepared or reviewed by Price Waterhouse LLP ("Price
Waterhouse"), provided that in the case of financial statements
reviewed by Price Waterhouse, Price Waterhouse shall concur that the
net revenues stated therein are accurate based upon the information
available to Price Waterhouse.
The term "Net Market Capitalization" shall mean the amount of market
capitalization of the Company resulting from the Initial Public Offering reduced
by the Company's expenses incurred in the Initial Public Offering.
The term "Relevant Period" shall mean the twelve month period ended June
30, 1997 in the event that the closing of the Initial Public Offering occurs on
or before November 12, 1997; the twelve month period ended September 30, 1997 in
the event that the closing of the Initial Public Offering occurs after November
12, 1997 and on or before December 12, 1997; and such later twelve month period
for which the Company has most recently requested financial statements of the
Corporation pursuant to this Section 1.3 in the event that the closing of the
Initial Public Offering occurs after December 12, 1997.
Unless the Company gives the Shareholders written notice to the contrary,
the Shareholders shall deliver to the Company, within thirty (30) days after
execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month
5
<PAGE>
periods ended on such dates; (ii) unaudited financial statements of the
Corporation, including a balance sheet dated as of June 30, 1996, and an income
statement and cash flow statement for the twelve month period ended on June 30,
1996: and (iii) unaudited, reviewed financial statements of the Corporation,
including a balance sheet dated as of June 30, 1997 and an income statement and
a cash flow statement for the six month period ended June 30, 1997. The intent
of providing the audited financial statements referred to in the foregoing
sentence is to resolve any auditing issues prior to calculation of the Purchase
Price, so that the Purchase Price may be quickly and efficiently calculated. In
the event that the closing of the Initial Public Offering has not occurred on or
before November 12, 1997, but does occur on or before December 12, 1997, then in
that event, in lieu of the unaudited, reviewed financial statements of the
Corporation for the six month period ended June 30, 1997, the Shareholders shall
deliver to the Company, within thirty days after written request from the
Company: (i) an updated set of audited financial statements of the Corporation,
including a balance sheet dated as of June 30, 1997, and income statements and
cash flow statements for the six month period ended June 30, 1997; (ii)
unaudited financial statements for the Corporation, including a balance sheet
dated as of September 30, 1996, and an income statement and cash flow statement
for the twelve month period ended on September 30, 1996; and (iii) unaudited,
reviewed financial statements of the Corporation, including a balance sheet
dated as of September 30, 1997 and income statements and cash flow statements
for the three month period ended September 30, 1997. In the event that the
closing of the Initial Public Offering has not occurred on or before December
12, 1997, then upon written request from the Company given on or before March 1,
1998, the Shareholders shall deliver to the Company, within thirty days after
written request from the Company, such additional audited and/or unaudited,
reviewed financial statements of the Corporation as the Company may reasonably
request. All audited and unaudited financial statements of the Company to be
delivered to the Company by the Shareholders pursuant to this Agreement shall
reflect the Company's acquisition of Deadline Express.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholders, provided that the Company will, upon the request of the
6
<PAGE>
Shareholders, advance such costs on behalf of the Shareholders. In the event
that all of the Shareholders do not timely deliver satisfactory shareholder
representation letters by the deadline specified in the Notice and complete the
Closing in Escrow, the Shareholders shall immediately refund to the Company any
such advanced costs; in the event that all such shareholder representation
letters are satisfactory and are timely received, and the Closing in Escrow is
completed, the Shareholders shall be relieved of their obligation to refund to
the Company any such advanced costs. The Company shall pay one hundred percent
(100%) of the Purchase Price in shares of (restricted) stock of the Company (the
"Company Stock"), at the Closing, the number of such shares to be determined by
dividing the Purchase Price by the price per share of the Company Stock as set
forth in the prospectus for the Initial Public Offering (the "IPO Price"),
provided that the value of any fractional shares shall be paid in cash at the
IPO Price. The Purchase Price payable to the Shareholders shall be allocated
among them in accordance with written direction to the Company signed by all of
the Shareholders. The Shareholders acknowledge that the sale of their shares of
Company Stock will be restricted for a period of time by virtue of a "lock-up"
agreement which may be imposed by the Company, and the Shareholders shall if
requested by the Company execute such a "lock-up" agreement, as may be required
by the Company, by which the sale of their Shares of Company Stock is restricted
(perhaps prohibited) for a period of up to and including two (2) years from the
date of the closing of the Initial Public Offering.
At the request of the Corporation delivered in writing to the Company
within 15 days after execution of this Agreement, the Company's purchase of the
Stock contemplated by this Agreement will be restructured as a reverse
subsidiary merger pursuant to which a newly formed first tier subsidiary of the
Company shall be merged with and into the Corporation and the Shareholders shall
receive as the merger consideration solely the shares of the Company Stock (and
cash for any fractional shares) to be paid to them pursuant to this Section 1.3.
Promptly following such request, and the Shareholders and the Corporation shall
execute and deliver to the Company all documents that are usual and customary in
such a merger.
7
<PAGE>
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the closing of the Initial Public Offering does not occur by
March 31, 1998, in which case this Agreement shall be rendered null and void, or
unless another date, time or place is agreed to in writing by the parties hereto
(the day on which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholders as
provided in Section 1.3 above.
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Illinois, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is (and, prior to the Corporation's acquisition of
Deadline Express, Deadline Express was) duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is (or was, in
the case of Deadline Express prior to the Corporation's acquisition of Deadline
Express) conducting, or the operation, ownership or leasing of its properties,
makes (or made, in the case of Deadline Express prior to the Corporation's
8
<PAGE>
acquisition of Deadline Express) such qualification necessary.
2.2. Authority and Enforceability. Each of the Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 15,000 shares of $.01 par value
capital stock of which 9,100 shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation, except as set forth in the Buy-Sell Agreement (as
defined below).
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has (and, prior to the Corporation's acquisition of Deadline
Express, Deadline Express had) good, insurable and marketable title to all of
the assets set forth in the Financial Statements (as defined in Section 2.11
hereinbelow). Except as disclosed on Exhibit C, none of the Corporation's assets
is subject to any
9
<PAGE>
restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business conducted by the Corporation and the
business conducted by Deadline Express prior to the Corporation's acquisition of
Deadline Express). Immediately after the consummation of the transactions
contemplated by this Agreement to be effected at the Closing, the Corporation
will (i) have all right, title, and interest in and to, or will have a valid
right to use, without liability to third party(ies), such assets and properties;
and (ii) have all assets, rights, employees, subcontractors and other persons
and items which are reasonably necessary to carry on the business and operations
of the Corporation after the Closing Date in substantially the same manner as
conducted by Deadline Express prior to the Corporation's acquisition of Deadline
Express.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times since its formation
has been, in material compliance with all applicable laws, and prior the
Corporation's acquisition of Deadline Express, Deadline Express at all times
since its formation and, to the knowledge of the Shareholders, any predecessor
of Deadline Express during the past three years, has been in material compliance
with
10
<PAGE>
all applicable laws; and
(b) The Corporation and the Shareholders have not received,
and do not know of the issuance or threatened issuance by any governmental
entity of, any notices of violation or alleged violation of any applicable law
by the Corporation or by Deadline Express. The Company has been provided with
true and complete copies of (i) all injunctions, judgments, orders or consent or
similar decrees or agreements of any governmental entity to which the
Corporation or Deadline Express is currently subject (or which the Corporation
or Deadline Express was subject to during the previous three years), and (ii)
all correspondence through the date hereof with respect to any of the matters
referred to in clause (b) or clause (i) of this Section 2.8. None of the
Shareholders nor the Corporation is aware of any proposed legislation or law
which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Corporation or
Deadline Express (prior to its acquisition by the Corporation).
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or the
acquisition of Deadline Express by the Corporation or any action taken or to be
taken by the Shareholders or the Corporation in connection with the consummation
of the transactions contemplated hereby or thereby or which seeks to prohibit,
enjoin or otherwise challenge any of the transactions contemplated hereby or
thereby. Exhibit E sets forth an accurate and complete list, and a brief
description (setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Legal Proceeding pending or, to the
knowledge of the Corporation and/or the Shareholders, threatened against or
affecting the Corporation (or Deadline Express, prior to the Corporation's
acquisition of Deadline Express). To the knowledge of the Corporation and/or the
Shareholders, no event has occurred and no circumstance, matter or set of facts
exist which would constitute a valid basis for the assertion by any third party
of any claim or Legal Proceeding, other than those listed on Exhibit E. Except
as set forth in Exhibit E, there is no outstanding or, to the knowledge of the
Corporation and/or the Shareholders, threatened, judgment, injunction, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree
11
<PAGE>
or agreement with any governmental entity) against, affecting or naming the
Corporation (or Deadline Express, prior to the Corporation's acquisition of
Deadline Express).
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor (not including attorneys and accountants providing legal and
accounting services and not acting as a broker or finder) for or to any of the
Shareholders and/or the Corporation or (to the knowledge of the Shareholders)
Deadline Express in connection with the negotiations relating to or the
transactions contemplated by this Agreement or the Related Agreements or the
Corporation's acquisition of Deadline Express; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity (other than attorneys and accountants excluded from Section
2.10(a) above) is entitled to any fee or commission or like payment, or expense
reimbursement, in respect thereof based in any way on agreements, arrangements
or understandings made by or on behalf of the Corporation or Deadline Express
and/or the Shareholders hereunder or thereunder. The Shareholders hereby agree
that all such fees, commissions or like payments, or expense reimbursement as
shall appear on Exhibit F attached hereto shall be for the sole joint and
several account of the Shareholders and shall be paid in full by them at the
Closing in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the most recent unaudited financial
statements which, together with the financial statements (including the notes
and exhibits thereto) of the Corporation (and, prior to the Corporation's
acquisition of Deadline Express, of Deadline Express) to be delivered pursuant
to Section 1.3 herein (the "Financial Statements") were and will be prepared in
accordance with the books and records of the Corporation (and, prior to the
Corporation's acquisition of Deadline Express, the books and records of Deadline
Express), are and will be complete and correct in all material respects, have
and will have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP"), applied consistently with the past practices of
the Corporation (and, prior to the Corporation's acquisition of Deadline
Express, the past practices of Deadline Express), except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows,
12
<PAGE>
whichever is applicable, of the Corporation (and, prior to the Corporation's
acquisition of Deadline Express, of Deadline Express) as at the dates and for
the periods indicated (subject, in the case of the unaudited financial
statements, to normal year-end audit adjustments). Without limiting the
foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation (and, prior to the
Corporation's acquisition of Deadline Express, Deadline Express) has paid all
federal, state and local income, profits, franchises, sales, use, occupation,
property, excise and payroll taxes, and all license fees and other charges
imposed upon it, and has timely filed all tax returns and related documents
required to be filed with any governmental authority. There are no outstanding
or proposed statements of deficiency in tax payments to any federal, state,
local or foreign government with respect to the Corporation (and, prior to the
Corporation's acquisition of Deadline Express, with respect to Deadline Express)
for any tax period. Except as set forth on Exhibit G-1, as of the dates such
Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's and Deadline
Express's business (or, prior to the Corporation's acquisition of Deadline
Express, Deadline Express's business), consistent with its past practices, and
(ii) are good and collectible at the aggregate recorded amounts thereof, net of
any applicable reserves for returns or doubtful accounts which are reflected in
such Financial Statements (such reserves, the "Reserves"); such Reserves are
adequate and reasonable and were established in accordance with GAAP.
2.12. Default. The Corporation (and, prior to the Corporation's
acquisition of Deadline Express, Deadline Express) is not in material default of
any of its obligations, contracts, or commitments in any respect, or in breach
of any negative or affirmative covenants placed on it by its creditors, and none
of the Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation (or Deadline Express prior to the Corporation's
acquisition of Deadline Express).
(b) The Corporation and, prior to its acquisition by the
Corporation,
13
<PAGE>
Deadline Express has not entered into any transaction or contract, or conducted
its business, other than in the ordinary course consistent with past practice
and the Corporation has not entered into any transaction or contract, or
conducted its business, other than in the ordinary course consistent with past
practice of Deadline Express.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation (and,
prior to the Corporation's acquisition of Deadline Express, by Deadline
Express's shareholders and/or Deadline Express), licensed by the Shareholders
and/or the Corporation, licensed to the Shareholders and/or the Corporation
(and, prior to the Corporation's acquisition of Deadline Express, by Deadline
Express's shareholders and/or Deadline Express), or otherwise used or able to be
used in the business conducted by the Corporation, and, prior to the
Corporation's acquisition of Deadline Express, by Deadline Express (other than
commonly-used computer software which is generally available to the public and
the use rights to which were legally acquired by the Corporation or Deadline
Express either for free or through established retail facilities) and indicates,
with respect to each item of Intellectual Property listed thereon, the owner
thereof and, if applicable, the name of the licensor and licensee thereof and
the terms of such license or other contract relating thereto. The Corporation
and, prior to the Corporation's acquisition of Deadline Express, Deadline
Express owns or has the lawful right to use all of the Intellectual Property as
currently used or as necessary for the conduct of its business as now conducted
and for the conduct of Deadline Express's business as conducted prior to the
acquisition of Deadline Express by the Corporation, and after Closing, the
Corporation will have the right to use all such Intellectual Property.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation (and, prior to the Corporation's acquisition
of Deadline Express, to the shareholders of Deadline Express and/or Deadline
Express), the Corporation (and, prior to the Corporation's acquisition of
Deadline Express, Deadline Express) has full legal and beneficial ownership
(free and clear of any and all encumbrances) of all of the Intellectual
Property, and neither
14
<PAGE>
the Corporation (nor, prior to the Corporation's acquisition of Deadline
Express, Deadline Express) nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the Corporation's
ownership or rights (nor, prior to the Corporation's acquisition of Deadline
Express, Deadline Express's ownership or rights) in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation
(nor, prior to the Corporation's acquisition of Deadline Express, Deadline
Express) are in default under any license agreements pertaining to the
Intellectual Property used in the Corporation's business (and, prior to the
Corporation's acquisition of Deadline Express, Deadline Express's business) and
licensed to the Shareholders and/or the Corporation (and, prior to the
Corporation's acquisition of Deadline Express, to the shareholders of Deadline
Express or Deadline Express); all such license agreements are valid and in full
force and effect, and shall continue in full force and effect as to the
Corporation after Closing.
(ii) All of the Intellectual Property is legally valid and
enforceable without any qualification, limitation or restriction on its use, and
neither the Corporation (nor, prior to the Corporation's acquisition of Deadline
Express, Deadline Express) nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual Property nor
any other Intellectual Property used by the Corporation (nor, prior to the
Corporation's acquisition of Deadline Express, by Deadline Express) will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any respect on
any part of the Intellectual Property. The Corporation (and, prior to the
Corporation's acquisition of Deadline Express, Deadline Express) has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation (and, prior to the Corporation's acquisition of
Deadline Express, Deadline Express) has not taken or failed to take any action
that would result in the forfeiture or relinquishment of any Intellectual
Property used
15
<PAGE>
in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation (and,
prior to the Corporation's acquisition of Deadline Express, Deadline Express)
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation (and, prior to
the Corporation's acquisition of Deadline Express, Deadline Express) in the
conduct of its business or Deadline Express's as heretofore conducted; and
(vi) The Corporation (and, prior to the Corporation's
acquisition of Deadline Express, Deadline Express) has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by it in the conduct of its business and Deadline Express's
business as heretofore conducted, and such obligations have been and will be
correctly and adequately disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation (and, prior to the Corporation's
acquisition of Deadline Express, Deadline Express) has taken all reasonable
steps to (x) protect its rights to the Intellectual Property, and (y) to prevent
the unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation (nor, prior
to the Corporation's acquisition of Deadline Express, Deadline Express) nor any
of the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other
16
<PAGE>
contract (including without limitation license(s) to use specific telephone
numbers and/or radio channels/frequencies) relating to any of the foregoing, and
any goodwill associated with any business owning, holding or using any of the
foregoing.
2.15. Insurance. Each of Deadline Express and the Corporation
currently maintains (and, prior to the Corporation's acquisition of Deadline
Express, Deadline Express maintained) and the Corporation as of the Closing in
Escrow and the Closing Date will maintain, valid insurance policies, which
polices provide adequate coverage, within terms of scope and amount of coverage,
for its assets, properties and operations. There are no pending material
insurance claims by the Corporation (and, prior to the Corporation's acquisition
of Deadline Express, by Deadline Express) as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation (and, prior to the Corporation's acquisition of
Deadline Express, Deadline Express) has not been refused any insurance coverage
by any insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation
(and, prior to the Corporation's acquisition of Deadline Express, Deadline
Express) is not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation (and, prior to the
Corporation's acquisition of Deadline Express, Deadline Express) is not a party
to any collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation (and, prior to the Corporation's acquisition of Deadline Express,
Deadline Express) is not bound by any severance pay requirements or agreements,
or any other agreement, handbook, manual, or benefit book referring to, relating
to, or involving its employees. Exhibit J shall include a copy of any employment
agreement between the Corporation and an employee of the Corporation.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation (and, prior to the Corporation's acquisition of Deadline
Express, Deadline Express) does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental
17
<PAGE>
death and dismemberment insurance, disability insurance or other similar plan,
policy or arrangement (collectively referred to herein as the "Plans"). The
Corporation (and, prior to the Corporation's acquisition of Deadline Express,
Deadline Express) is not in default under the terms of any of the Plans. The
Corporation (and, prior to the Corporation's acquisition of Deadline Express,
Deadline Express) has made all contributions to each of the Plans required by
the terms of the respective Plans, as well as all contributions required to be
made in order to satisfy all requirements of law. Each of the Plans has
sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans (and, prior to
the Corporation's acquisition of Deadline Express, Deadline Express's Plans), if
any, are currently in compliance in all respects with the Employee Retirement
Income Security Act of 1974 and the regulations promulgated thereunder
(collectively, "ERISA"). Except as set forth on Exhibit L hereto, no employee
benefit plan and no trust created thereunder has ever been terminated by the
Corporation (or, prior to the Corporation's acquisition of Deadline Express, by
Deadline Express). No liability to the Pension Benefit Guaranty Corporation
("PBGC") has been or is expected to be incurred by the Corporation (or, prior to
the Corporation's acquisition of Deadline Express, by Deadline Express) with
respect to the Plans. Neither the Corporation (nor, prior to the Corporation's
acquisition of Deadline Express, Deadline Express) nor any of the Plans has ever
experienced an accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Internal Revenue Code of 1986, as amended (the
"Code")), whether or not waived, with respect to any employee benefit plan and
no such accumulated funding deficiency currently exists. Except as set forth on
Exhibit L hereto. Neither the Corporation (nor, prior to the Corporation's
acquisition of Deadline Express, Deadline Express) is not required, and has not
been required in the past, to make any payments or contributions under the terms
of any "multi-employer plan" (as defined in Section 3(37) of ERISA and Section
414(f) of the Code) or by any collective bargaining agreement with respect to
any employee benefit plan. Neither the Corporation (nor, prior to the
Corporation's acquisition of Deadline Express, Deadline Express) nor any of the
Plans has ever incurred any withdrawal liability
18
<PAGE>
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation (and, prior to the Corporation's acquisition of Deadline
Express, Deadline Express) and the trustees or the administrators of the Plans
have provided continuation of coverage notices to employees and their dependents
as required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
2.20. Employee Relations. The Corporation (and, prior to the
Corporation's acquisition of Deadline Express, Deadline Express) is in
substantial compliance with all applicable federal, state and local laws,
statutes, regulations, orders, codes, ordinances, guidelines, executive orders,
contractor requirements, judicial and administrative judgments and
determinations to which the Corporation is or was a party, and any other
authority governing the Corporation (or, prior to the Corporation's acquisition
of Deadline Express, Deadline Express) with respect to its employees and
workplaces (hereinafter collectively referred to as the "Applicable Employment
Standards"), including, but not limited to, employment, employment practices,
fringe benefits, terms and conditions of employment, termination of employment,
severance or separation pay, workers' compensation, disability, entitlements,
unemployment insurance, employment screening, wage-hour, employment
discrimination on any basis, equal employment opportunity, individual employee
rights, affirmative action, occupational health and safety, and immigration and
right to work requirements. Such compliance by the Corporation (and, prior to
the Corporation's acquisition of Deadline Express, by Deadline Express)
includes, but is not limited to, Title VII of the Civil Rights Act of 1964, as
amended, including the Civil Rights Act of 1991; the National Labor Relations
Act of 1935, as amended; the Fair Labor Standards Act of 1938, as amended; the
Occupational Safety and Health Act of 1970, as amended; the Equal Pay Act of
1963, as amended; the Age Discrimination in Employment Act of 1967, as amended;
the Americans with Disabilities Act of 1990; the Family Medical Leave Act of
1993; the Immigration Reform and Control Act of 1986 (together with the
regulations promulgated thereunder, hereinafter collectively referred to as
"IRCA"); the Worker Adjustment and Retraining Notification Act; the Employee
Polygraph Protection Act; the Drug-Free Workplace Act
19
<PAGE>
of 1988; the Health Insurance Portability and Accountability Act of 1996; the
Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation (and, prior to the Corporation's acquisition of
Deadline Express, to Deadline Express). The Corporation further represents that
it is (and, prior to the Corporation's acquisition of Deadline Express, Deadline
Express was) not in arrears in the payment of wages to any employee (except to
the extent of its normal payroll practices), and there are no claims,
liabilities, demands or causes of action, realized or unrealized, actual,
potential or contingent, pursuant to statutory rights or in tort, contract or
otherwise, against the Corporation arising out of or in connection with any
event, fact, circumstance or occasion relating to any applicant for employment,
the employment of any employee or the separation from employment of any
employee.
2.21. Licenses. Each of Deadline Express and the Corporation (and,
prior to the Corporation's acquisition of Deadline Express, Deadline Express)
and its employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the conduct of its business, except as disclosed on
Exhibit L-1. The Corporation and its employees and agents have (and, prior to
the Corporation's acquisition of Deadline Express, Deadline Express and its
employees and agents had) all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
leased to, owned or operated by the Corporation presently (or, prior to the
Corporation's acquisition of Deadline Express, by Deadline Express), except as
disclosed on Exhibit L-1. None of the permits issued to the Corporation will be
adversely affected by the consummation of the transactions contemplated by this
Agreement. No suspension or cancellation of any such licenses, permits, orders,
approvals or authorizations is pending or, to the best knowledge of the
Corporation (and, prior to the Corporation's acquisition of Deadline Express, of
Deadline Express) and/or the Shareholders, threatened.
2.22. Criminal Practices. The Corporation (and, prior to the
Corporation's acquisition of Deadline Express, Deadline Express) is not engaged
and has not been engaged in any criminal practices, including, but not limited
to, payoffs, kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is
(and, as of the
20
<PAGE>
date of the Corporation's acquisition of Deadline Express, Deadline Express is)
a party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation by Deadline
Express or by any other party thereto; (iii) neither the Corporation nor any of
the Shareholders is aware of the assertion by any third party of any claim of
Default or breach under any of the Contracts by either the Corporation or
Deadline Express; and (iv) neither the Corporation nor any of the Shareholders
is aware of any present intention on the part of any significant customer or
supplier or other business partner of the Corporation (or, prior to the
Corporation's acquisition of Deadline Express, of Deadline Express) to either
(x) terminate or significantly change its existing business relationship with
the Corporation (or, prior to the Corporation's acquisition of Deadline Express,
with Deadline Express) either now or in the foreseeable future, or (y) fail to
renew or extend its existing business relationship with the Corporation (or,
prior to the Corporation's acquisition of Deadline Express, with Deadline
Express) at the end of the term of any existing contractual arrangement such
entity may have with the Corporation (or, with Deadline Express). For purposes
of this Agreement, the term "Default" means, with respect to any Contract, (x)
any material breach of, or material default under, such Contract, (y) any event,
other than the normal passage of time, which would (either with or without
notice or lapse of time or both) give rise to any right of termination,
cancellation or acceleration of, or any obligation to repay, with respect to
such Contract, or (z) any event, other than the normal passage of time, which
would result in either a significant increase in the obligations or liabilities
of, or a loss of any significant benefit of, the party in question under such
Contract.
Copies of all written contracts, and a description of all material oral
contracts, to which the Corporation is a party, are attached hereto as Exhibit
M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained
21
<PAGE>
herein or therein, in light of the circumstances under which they were made, not
misleading.
2.25 Delivery of Certain Exhibits. Not later than three business
days after the date of execution of this Agreement, the Corporation shall
deliver to the Company Exhibits C through N of this Agreement.
2.26 Certain Representations As If Made by Deadline Express. To the
knowledge of the Shareholders and the Corporation, each of the representations
made with respect to the Corporation above in Sections 2.1, 2.5, 2.6, 2.7, 2.8,
2.9, 2.10, 2.11, 2.12, 2.13, 2.14, 2.15, 2.16, 2.17, 2.18, 2.19, 2.20, 2.21,
2.22, 2.23, and 2.24 of this Agreement, if made by Deadline Express as of the
date of execution of this Agreement and as a party to this Agreement, with
respect to itself, prior to its acquisition by the Corporation, would be true
and correct.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Simultaneously with the execution of this
Agreement, each of the Shareholders shall have entered into a non-competition
agreement, the form of which is attached to this Agreement in Exhibit A.
3.2. Confidentiality. The Corporation and each of the Shareholders
shall abide by the terms of the Confidentiality Agreement between the
Corporation or the Shareholders (or some of them) and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on August 30,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
22
<PAGE>
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-Laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
23
<PAGE>
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
24
<PAGE>
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities except as set forth
in Exhibit N hereto;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock except as set
forth in the buy-sell agreement among the Shareholders a copy of which is
included in Exhibit N hereto (the "Buy-Sell Agreement");
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
25
<PAGE>
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
(l) not agree, in the Buy-Sell Agreement or otherwise, to any
agreement which would prevent the fulfillment of the obligations of the
Shareholders and/or the Corporation (i) with respect to the Closing in Escrow or
the Closing and sale of the Stock as contemplated by this Agreement.
(m) not be a party to or enter into any employment agreement
with any employee of Deadline Express or the Corporation except an agreement
which by its terms terminates upon the Closing in a manner which will not
obligate the Corporation in any respect to such employee after the Closing.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records and the Shareholders and the Corporation shall cause the Company to
be able to make the same investigation and examination of Deadline express prior
to the Corporation's acquisition of Deadline Express. Any such investigation and
26
<PAGE>
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Shareholders and the Corporation shall
cooperate fully therein. In order that the Company may have full opportunity to
make such physical, business, accounting and legal review, examination or
investigation as it may reasonably request of the affairs of the Corporation,
the Corporation and the Shareholders shall use their respective best efforts to
cause the Corporation's officers, employees, consultants, agents, accountants,
attorneys and other representatives to cooperate fully with such Company
representatives in connection with such review and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required
27
<PAGE>
in connection with the transactions contemplated by this Agreement or any of the
Related Agreements, or (c) any material adverse change in the properties,
business operations, results of operations, financial condition or prospects of
the Corporation, other than changes resulting from general economic conditions.
In addition, the Corporation and the Shareholders shall be required to update
the schedules and other information supplied pursuant to this Agreement at such
time as the information contained therein changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least One Hundred Eighteen Thousand Nine
Hundred Seventeen Dollars ($118,917) working capital (defined as the excess of
current (liquid) assets over current liabilities) as of the Closing Date (the
"Required Working Capital"). For purposes of determining whether the Corporation
had the required working capital as of the Closing Date, the Company will cause
to be prepared, promptly following the Closing, a balance sheet of the
Corporation as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, and shall include full accrual of all assets and
liabilities of the Corporation as of the Closing Date (including, but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the Required Working
Capital as of the Closing Date, as determined by such balance sheet, the
Shareholders shall forthwith pay the Company an amount equal to the difference
between the actual working capital as of the Closing Date and the Required
Working Capital (the "Shortfall"). The Shareholders shall pay the Shortfall to
the Company within five (5) days after demand, either in cash or, at the option
of the Shareholders, by releasing to the Corporation the number of shares of
Company Stock previously issued to them which is equal to the Shortfall divided
by the per share market value of the Company Stock determined as follows (the
"Market Value"). The term "Market Value" shall mean the closing price of the
Company Stock as reported in the Wall Street Journal for the last business day
prior to the date of such demand. Provided, that the Market Value of any
fractional share shall be paid to the Company by the Shareholders in cash.
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance
28
<PAGE>
with GAAP. Price Waterhouse shall then determine the amount of the Shortfall as
set out in this paragraph 6.5, whose decision shall be final and binding on the
parties hereto. The Shareholders shall forthwith pay to the Company the amount
of such Shortfall, together with fifty percent (50%) of the cost of the audit
conducted by Price Waterhouse. In the event Price Waterhouse determines the
Shortfall to have been zero, the entire cost of such audit shall be borne by the
Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions except as provided above:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing or
challenging the consummation of the transactions contemplated by this Agreement
(including but not limited to the Corporation's acquisition of Deadline Express)
shall be in effect; provided that prior to invoking this condition, each party
shall use their best efforts to have any such order, injunction, legal restraint
or prohibition vacated.
(c) Acquisition of Deadline Express. Prior to the date of the
Closing in Escrow, the Corporation shall have acquired either (i) all of the
outstanding shares of Deadline Express free and clear of any and all claims,
liens, restrictions, pledges, charges, options, security interests, encumbrances
or other rights of third parties, including any imposed by law; or (ii)
substantially all of the assets and goodwill of Deadline Express; and the
Corporation shall have changed its name to "Deadline Express, Inc."
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the
29
<PAGE>
following conditions (which are for the exclusive benefit of the Company, any or
all of which may be waived in whole or in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect and to the effect that the condition set forth in Section 7.1(c) has
been met.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, or Deadline Express or
their respective assets or business.
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
30
<PAGE>
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement
31
<PAGE>
shall forthwith become void and there shall be no liability or obligation on the
part of any party hereto or any of its respective Affiliates, officers,
directors or shareholders except (i) for the obligation of the Shareholders to
refund to the Company the audit expenses as set forth in Section 1.3 of this
Agreement; (ii) for any and all obligations under the confidentiality provisions
contained in Section 3.2 of this Agreement; and (iii) to the extent that such
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement. In the event that termination results from the willful
breach by a party hereto of any of its representations or warranties, or of any
of its covenants or agreements, as set forth in this Agreement, the breaching
party shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation (or by
Deadline Express) prior to the Closing Date (but only to the extent that any
such Loss was not a stated liability on the Corporation's most recently dated
balance sheet delivered to the Company); or (ii) any inaccuracy in or breach of
any of the Corporation's or the Shareholders' representations, warranties,
covenants or agreements contained in this Agreement, the Related Agreements or
in any other agreement or document entered into or delivered on or after the
date hereof in connection with this Agreement or any of the transactions
contemplated hereby and/or thereby. Provided, however, the indemnification by
the Corporation and the Shareholders under this Section 9.1(a) shall include
direct damages only (and not indirect or consequential damages). For purposes of
this Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines,
32
<PAGE>
penalties, costs and expenses (including, without limitation, reasonable legal,
accounting and other costs and expenses incurred in connection with
investigating, defending, settling or satisfying any and all demands, claims
actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such
33
<PAGE>
Person may subsequently designate by written notice given hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
Edward V. Blanchard, Jr.
1158 Fifth Avenue, Apt. 11C
New York, New York 10029
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
34
<PAGE>
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a
35
<PAGE>
breach of the confidentiality, non-competition and non-solicitation covenants
set forth in Sections 3.1, 3.2 and 6.2 hereinabove, any issue, controversy,
dispute or claim arising out of or relating to this Agreement or its alleged
breach that cannot be resolved by mutual agreement shall be resolved exclusively
by arbitration by a single arbitrator in either the District of Columbia or New
York City, at the option of the Company, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA") and judgment
on the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. It is acknowledged by the Corporation and the Shareholders
that money damages are inadequate to compensate the Company and/or the
Corporation for a breach of the terms of this Agreement, and that the Company
and/or the Corporation shall be entitled to specific performance of the terms of
this Agreement. The arbitrator may enter a default decision against any party
who fails to participate in the proceeding. The decision of the arbitrator shall
be final, conclusive, binding and non-appealable. The losing party shall pay all
costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
36
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
----------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
DEADLINE ACQUISITION CORP.
- - - - ---------------------------- By: /s/ Edward V. Blanchard
----------------------------------------
Edward V. Blanchard, President
"SHAREHOLDERS"
/s/ Edward V. Blanchard
- - - - ---------------------------- --------------------------------------------
Witness Edward V. Blanchard, Jr.
/s/ Melba Anne Hill
- - - - ---------------------------- --------------------------------------------
Witness Melba Anne Hill
/s/ Scott T. Milakovich
- - - - ---------------------------- --------------------------------------------
Witness Scott T. Milakovich
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Kiwicorp Limited, a New Zealand corporation (the
"Business Contribution Member"), Lynette Williams and Tom Finlay, (collectively,
the "Shareholders") and [DMS Subsidiary Number ___] a Delaware corporation (the
"Specific Company Subsidiary"). Unless defined herein, all capitalized terms
used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996 by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member is in the business of providing
dispatch and courier services (such business, and any other lines of business
related thereto, the "Business");
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of the Business Contribution Member;
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below, and
<PAGE>
have the Company assume the Assumed Liabilities (as defined in Section 1.2(b)
below) for the Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into employment
agreements with [set forth names of back-office personnel being retained] (the
"Back-Office Employees"), in the form attached hereto as Exhibit A, as well as
non-competition agreements with each of the Shareholders of the Business
Contribution Member and certain employees of the Business Contribution Member
and the Specific Company Subsidiary in the form attached hereto as Exhibit B
(such employment agreements and non-competition agreements, together with all
<PAGE>
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements");
WHEREAS, the parties intend that at the Closing the Specific Company
Subsidiary may trade under the trade name previously used for the Business
(which trade name is specifically acquired by the Specific Company Subsidiary
hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member and each Shareholder,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Closing in Escrow
1.1. Overview.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Business Contribution Member and the Shareholders a disclosure document,
together with a notice (the "Notice") specifying the date by which the Business
Contribution Member and the Shareholders must execute and deliver satisfactory
representation
<PAGE>
letters in order to consummate the sale of the Assets and assumption of the
Assumed Liabilities pursuant to the terms of this Agreement.
Upon timely delivery from the Business Contribution Member and all
of the Shareholders of representation letters satisfactory to the Company, the
parties will close in escrow (the "Closing in Escrow") pursuant to the terms and
conditions of this Agreement. Such Closing in Escrow shall take place at the
offices of Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th
Floor, Washington, D.C. 20005 (or such other place as is mutually agreed upon by
the parties) within thirty (30) days (or such shorter period as is specified in
the Notice) after timely delivery of satisfactory representation letters from
the Business Contribution Member and the Shareholders.
In the event that the Business Contribution Member and/or one or
more of the Shareholders do not timely deliver satisfactory representation
letters (as determined in the sole discretion of the Company), this Agreement
will be of no further force or effect, except for any and all obligations under
Sections 3.2 (confidentiality), 1.4 (reimbursement of audit expenses) and 8.2
(effect of termination under Section 8.1), which obligations will survive
termination of this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
<PAGE>
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
(ii) All rights to the trade names and the brand names
"Office Express, 60/30 Couriers and Sprincycle," logos, and other Intellectual
Property as defined in Section 2.11.(d) hereinbelow, customer lists, goodwill
and other intangible assets; and
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (the "Contracts"), as set forth on Exhibit D attached hereto.
To the extent that the assignment of the rights, claims and
interests of the Business Contribution Member under any of the Contracts
requires the consent of a third party (as set forth in Exhibit E hereto), and
such third party's consent to assignment is not secured prior to Closing
hereunder, the parties hereto shall use their best efforts to place the Specific
Company Subsidiary in a position to receive the benefits of the Business
Contribution Member's rights, claims and interest in such Contracts during the
term of such Contracts. The parties' efforts to this end shall be made in a
lawful and commercially reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member, and only those liabilities and obligations, which
are set forth on Exhibit F attached hereto; and
<PAGE>
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member and/or the Shareholders shall, as appropriate, enter into,
execute and deliver to the law firm of Silver, Freedman & Taff, LLP, as escrow
agent: (i) a bill of sale, (ii) an instrument of assignment and assumption (the
form and substance of which shall be reasonably acceptable to the Company), and
(iii) any other instruments of conveyance or transfer which may be necessary in
the sole discretion of the Company, including, without limitation, any
instruments of assignment in connection with the Intellectual Property and the
Contracts, each in form and substance reasonably acceptable to the Company,
pursuant to which the Business Contribution Member and/or the Shareholders shall
convey, assign, transfer and deliver to the Company all right, title and
interest in, to and under the Assets, free and clear of any and all Encumbrances
(as defined in Section 2.3(a) below), and the Company shall assume the Assumed
Liabilities from the Business Contribution Member. At
<PAGE>
the Closing in Escrow, the Business Contribution Member shall also cause to be
delivered the opinion of its counsel as to such matters as counsel to the
Company may reasonably require, including but not limited to such counsel's
opinion that: the Business Contribution Member is in good standing; the Business
Contribution Member is authorized to conduct its business in each jurisdiction
in which it is doing business; the Business Contribution Member and the
Shareholders have full power to enter into and perform their respective
obligations under this Agreement, as well the Related Agreements to which they
are a party; this Agreement, and the Related Agreements to which the Business
Contribution Member and/or the Shareholders are a party, constitute legal, valid
and binding obligations of the Business Contribution Member and the
Shareholders, respectively, enforceable in accordance with their respective
terms (except as enforcement may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditor's rights, and principles of
equity); and neither the Business Contribution Member nor any of the
Shareholders is threatened with or affected by any actions, proceedings or
investigations wherein an unfavorable decision, ruling or finding could have a
materially adverse effect on the financial condition or operation of the
Business and/or the Assets, or could prevent, enjoin or otherwise affect the
transactions contemplated by this Agreement.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
Without limiting the foregoing, the Business
<PAGE>
Contribution Member and/or the Shareholders shall take whatever steps are
necessary (such as filings with the United States Patent and Trademark Office)
to transfer the Intellectual Property to the Specific Company Subsidiary.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets, subject to
downward adjustment for the full amount of the Assumed Liabilities as listed on
Exhibit F attached hereto (the "Purchase Price"), shall be equal to $1,521,208,
and subject to further adjustment (if any) as a result of a reduction in the
Maximum Earn-Out (as defined in this Section 1.4 below).
The parties hereto agree to allocate the Purchase Price to the
Assets in accordance with the manner set forth on Schedule 1.4 attached hereto
and in accordance with the applicable provisions of Section 1060 of the Code
(the "Price Allocation"). Accordingly, each party to this Agreement shall adopt
and utilize such Price Allocation for purposes of all tax returns filed by them
and shall not voluntarily take any position inconsistent therewith in connection
with any examination of any tax return, any refund claim, any litigation
proceeding or otherwise. The Company shall file on a timely basis a Form 8594 in
accordance with the requirements of Section 1060 of the Code and the provisions
of this Section 1.4. In the event that the Price
<PAGE>
Allocation is disputed by an taxing authority, the party receiving notice of the
dispute shall promptly notify the other parties hereto of such dispute and the
parties hereto shall consult with each other concerning resolution of the
dispute.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Business Contribution Member and the Shareholders acknowledge that the sale of
the Company Stock will be restricted for a period of time by virtue of a
"lock-up" agreement which may be imposed by the Company, and the Business
Contribution Member and the Shareholders shall execute such a "lock-up"
agreement, as may be required by the Company, by which the sale of the Company
Stock is restricted (perhaps prohibited) for a period of two (2) years from the
date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Business Contribution
Member ratably over the 8 quarter annual periods beginning January 1, 1998 and
ending December 31, 1999 provided that the Specific Company Subsidiary achieves
the targeted performance standards set forth in Exhibit G attached hereto. In
the event that the Specific Company
<PAGE>
Subsidiary fails to achieve the margin requirement set forth in Exhibit G during
any calendar quarter, then for each calendar quarter in which the Specific
Company Subsidiary fails to achieve such margin requirement, the cash portion of
the Purchase Price shall be reduced by one-eighth (1/8) of the Maximum Earn-Out.
In the event that the Specific Company Subsidiary achieves the margin
requirement during the relevant calendar quarter, but fails to achieve the
revenue requirement set forth in Exhibit G, then for each such calendar quarter,
the cash portion of the Purchase Price shall be reduced by: (i) one eighth (1/8)
of the Maximum Earn-Out, multiplied by: (ii) a fraction, the numerator of which
is the difference between the actual revenue achieved during such calendar
quarter and the revenue requirement for such calendar quarter as set forth in
Exhibit G, and the denominator of which is the revenue required during such
calendar quarter as set forth in Exhibit G. The Maximum Earn-Out, less any
reductions as set forth in this paragraph, is hereinafter referred to as the
"Earn-Out". The Earn-Out shall bear interest at the rate of 7% per annum
commencing as of the Closing Date (i.e., once the Earn-Out is determined, the
Shareholders will be due such amount plus interest at the rate of 7% per annum
on such amount, accrued from the Closing Date until the date of payment of the
Earn-Out to the Shareholders). The Earn-Out shall be paid to the Business
Contribution Member promptly following calculation of the Specific Company
Subsidiary's performance for the quarter ending December 31, 1999. The Company
covenants and agrees to maintain sufficient cash, or availability of cash (e.g.,
by way of a line of credit) in order to fund the Earn-Out.
<PAGE>
At the request of the Business Contribution Member made to the
Company in writing not later than the Closing in Escrow, the Company shall
(immediately after Closing) make a loan to the Business Contribution Member in
an amount equal to up to 30% of the Purchase Price. Said loan by the Company to
the Business Contribution Member (the "Business Contribution Member Loan") shall
bear interest at a rate of seven percent (7%) per annum, and shall be secured by
all of the Company Stock paid as part of the Purchase Price at Closing. The
Business Contribution Member shall have the right to prepay the Business
Contribution Member Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Business Contribution Member Loan (plus accrued interest) against the Earn-Out
as earned each quarter. The Business Contribution Member Loan shall mature as of
the date that the Earn-Out is payable. In the event that the Business
Contribution Member Loan is not repaid in full upon maturity, the Company shall
enjoy all rights of a secured party under the Uniform Commercial Code then in
effect in the State of Maryland, provided that the Company's only recourse shall
be first against the remaining Earn-Out and then against the Company Stock it
holds as collateral, and there shall not be any recourse against the Business
Contribution Member or the Shareholders individually.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement
<PAGE>
(the "Closing") shall take place at the offices of Silver, Freedman & Taff,
L.L.P., 1100 New York Avenue, N.W., Suite 700E, Washington, D.C. 20005,
contemporaneously with the closing of the Reorganization Event unless the
Initial Public Offering does not occur by March 31, 1998, in which case this
Agreement shall be rendered null and void, or unless another date, time or place
is agreed to in writing by the parties hereto (the day on which the Closing
takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the bill of sale, instruments of assignment and assumption,
transfer documents, and other documents and materials theretofore held in escrow
from the Closing in Escrow; (ii) the Business Contribution Member and the
Shareholders shall deliver to the Company updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.3(a) above; and (iii) the
Company shall deliver the Purchase Price to the Business Contribution Member
(less the Maximum Earn-Out, which shall be payable to the Business Contribution
Member pursuant to the terms of Section 1.4 above, and with the Company Stock
collateralized against the Business Contribution Member Loan being delivered to
the Company as appropriate). At Closing, Company, Business Contribution Member,
Shareholders and Specific Company Subsidiary shall also take all additional
steps as may be necessary or appropriate to deliver the Assets to the Specific
Company Subsidiary, have the Specific Company Subsidiary assume the Assumed
Liabilities,
<PAGE>
and put the Specific Company Subsidiary in physical possession and operating
control of the Business and all of the Assets.
2. Representations, Warranties and Covenants of the Business
Contribution Member and the Shareholders.
The Business Contribution Member and the Shareholders hereby jointly
and severally represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Business Contribution
Member is a Limited Liability Company duly organized, validly existing and in
good standing under the laws of New Zealand, and has all requisite corporate
power and authority to own, lease and operate its properties (including, without
limitation, the Assets) and to carry on its business as now being conducted
(including, without limitation, the Business). The Business Contribution Member
is duly qualified and in good standing to conduct business in each jurisdiction
in which the business it is conducting (including, without limitation, the
Business), or the operation, ownership or leasing of its properties (including,
without limitation, the Assets), makes such qualification necessary.
2.2. Authority and Enforceability.
(a) Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite corporate power and authority to
execute and deliver this Agreement and each of the Related Agreements to which
it is a party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and
<PAGE>
thereby have been duly authorized by all necessary corporate action on the part
of the Business Contribution Member. This Agreement and each of the Related
Agreements to which the Business Contribution Member is a party has been duly
executed and delivered by the Business Contribution Member, and this Agreement
and each of the Related Agreements to which the Business Contribution Member is
a party constitute the legal, valid and binding obligations of the Business
Contribution Member, enforceable against the Business Contribution Member in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
(b) Matters Relating to the Shareholders. The Shareholders
have all requisite legal right, power and authority to enter into this Agreement
and each of the Related Agreements to which they are a party and to agree to the
transactions contemplated hereby and thereby and to perform all of their
respective obligations hereunder and thereunder. This Agreement and each of the
Related Agreements to which any of the Shareholders are a party constitute the
legal, valid and binding obligations of the Shareholders, enforceable against
the Shareholders in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
<PAGE>
2.3. Title to Assets; Condition.
(a) The Business Contribution Member owns beneficially and of
record, and has good and marketable title to, the Assets, free and clear of any
Encumbrances. For purposes of this Agreement, the term "Encumbrances" shall mean
restrictions, conditions, covenants, liens, easements, charges, encroachments or
any other matter affecting fee simple title (other than the Assumed
Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this Agreement
to be effected at the Closing, the Company will (i) have all right, title, and
interest in and to, or will have a valid right to use, without liability to
third party(ies), the Assets; and (ii) have all assets, rights, Back-Office
Employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Business after the
Closing Date in substantially the same manner as presently conducted by the
Business Contribution Member.
<PAGE>
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member and the Shareholders of this
Agreement and each of the Related Agreements to which they are, respectively, a
party, and the consummation of the transactions contemplated hereby and thereby
by each of the Business Contribution Member and the Shareholders will not (a)
conflict with or violate any provision of the articles or certificate of
incorporation or by-laws of the Business Contribution Member, (b) except as set
forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an Encumbrance, under or pursuant
to (i) any of the Contracts, or (ii) any other material agreements to which the
Business Contribution Member and/or any of the Shareholders are a party, or (d)
violate any law applicable to the Business Contribution Member or any of the
Shareholders or by which any of the Assets is bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
<PAGE>
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Business Contribution Member or the Business is
currently subject (or which the Business Contribution Member or the Business was
subject to during the previous three years) or which are otherwise applicable to
the Business Contribution Member or the Assets or to the conduct of the
Business, and (ii) all correspondence from the date hereof with respect to any
of the matters referred to in clause (b) or clause (i) of this Section 2.6.
Neither the Business Contribution Member nor any of the Shareholders is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on either the Business or the Business Contribution Member.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member and/or any of the
Shareholders, threatened that questions the validity of this Agreement or the
Related Agreements or any action taken or to be taken by the Business
Contribution Member or any of the Shareholders in connection with the
consummation of the transactions contemplated hereby or thereby or which seeks
to prohibit, enjoin or
<PAGE>
otherwise challenge any of the transactions contemplated hereby or thereby.
Exhibit H sets forth an accurate and complete list, and a brief description
(setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Legal Proceeding pending or, to the
knowledge of the Business Contribution Member and/or any of the Shareholders,
threatened against or affecting the Business Contribution Member, the Business
or any of the Assets. To the knowledge of the Business Contribution Member
and/or any of the Shareholders, no event has occurred and no circumstance,
matter or set of facts exist which would constitute a valid basis for the
assertion by any third party of any claim or Legal Proceeding, other than those
listed on Exhibit H. Except as set forth in Exhibit H, there is no outstanding
or, to the knowledge of the Business Contribution Member and/or any of the
Shareholders, threatened judgment, injunction, order or consent or similar
decree or agreement (including, without limitation, any consent or similar
decree or agreement with any governmental entity) against, affecting or naming
the Business Contribution Member, the Business or any of the Assets.
2.8. Financial Advisors.
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business Contribution Member and/or any of the
Shareholders in connection with the negotiations relating to or the transactions
contemplated by this Agreement or the Related Agreements; and
<PAGE>
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member and/or any of the Shareholders. Such fees, commissions, like payments or
expense reimbursements as are described on Exhibit I attached hereto shall
remain liabilities and expenses of the Business Contribution Member and/or the
Shareholders exclusively, and are specifically excluded from the Assumed
Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which, together with the financial statements
(including the notes and exhibits thereto), to be delivered to the Company
pursuant to Section 1.4 herein (the "Financial Statements") were and will be
prepared in accordance with the books and records of the Business, are and will
be complete and correct in all material respects, have and will have been
prepared in accordance with New Zealand Society of Accountants principles and
practices applied consistently with the past practices of the Business, except
where otherwise specifically noted therein, and present and will present fairly
in all material respects the financial position, results of operations and
changes in financial position or cash flows, whichever is applicable, of the
Business as at the dates and for the periods indicated (subject, in the case of
the unaudited financial statements, to normal year-end audit adjustments).
Without limiting the foregoing, no undisclosed liabilities or
<PAGE>
obligations of any nature (whether known or unknown, or absolute, accrued,
contingent or otherwise) shall exist as at Closing in Escrow or the Closing not
reflected in the Business's most recently dated balance sheet supplied to the
Company. The Business Contribution Member has paid all federal, state and local
income, profits, franchises, sales, use, occupation, property, excise and
payroll taxes, and all license fees and other charges imposed upon it, and has
timely filed all tax returns and related documents required to be filed with any
governmental authority. There are no outstanding or proposed statements of
deficiency in tax payments to any federal, state, local or foreign government
with respect to the Business Contribution Member for any tax period, except as
set forth in Schedule 2.9 hereto. As of the dates such Financial Statements were
and will be prepared, all accounts receivable reflected on the Financial
Statements (i) have and will have arisen from bona fide transactions in the
ordinary course of the Business Contribution Member's business, consistent with
its past practices, and (ii) are good and collectible at the aggregate recorded
amounts thereof, net of any applicable reserves for returns or doubtful accounts
which are reflected in such Financial Statements (such reserves, the
"Reserves"); such Reserves are adequate and reasonable and were established in
accordance with New Zealand Society of Accountants principles and practices.
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
<PAGE>
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d)
hereinbelow) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly-used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for the conduct of the Business as now conducted. After Closing,
the Specific Company Subsidiary will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership
<PAGE>
(free and clear of any and all Encumbrances) of all of the Intellectual
Property, and neither the Business Contribution Member nor any of the
Shareholders have received any notice or claim (whether written, oral or
otherwise) challenging the Business Contribution Member's ownership or rights in
such Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto; the Business Contribution
Member has all legal and other rights required to transfer the ownership of the
Intellectual Property to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Business Contribution Member nor any of the Shareholders has
received any notice or claim (whether written oral or otherwise) challenging the
validity or enforceability of any such Intellectual Property, except as set
forth in Schedule 2.11 hereto;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Business Contribution
Member will conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title or interest held by any other
person or entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
<PAGE>
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property used or able to be used by the Business
Contribution Member in the conduct of its business (including, without
limitation, the Business) as heretofore conducted; and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any
<PAGE>
applicable renewal period ending on or prior to the Closing Date, application to
renew all of the Intellectual Property subject to expiration on or prior to the
Closing Date. Neither the Business Contribution Member nor any of the
Shareholders has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be
<PAGE>
assumed by the Specific Company Subsidiary directly from and after Closing, the
Business Contribution Member hereby agrees to keep such insurance policy(ies) as
are reflected by such Assumed Liabilities in full force and effect for 60 days
after Closing, at the Specific Company Subsidiary's expense, to allow the
Specific Company Subsidiary to arrange its own such insurance policy(ies). There
are no pending material claims against such insurance by the Business
Contribution Member as to which the applicable insurers have denied coverage. In
addition, there exist no material claims under such insurance that have not been
properly filed by the Business Contribution Member. During the past two years,
the Business Contribution Member has not been refused any insurance coverage by
any insurer from which the Business Contribution Member has sought coverage.
2.13. Contracts. Each of the Contracts (i) is valid and enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity); (ii) no Default (as defined below) exists under any Contract either by
the Business Contribution Member or by any other party thereto; (iii) neither
the Business Contribution Member nor any of the Shareholders is aware of the
assertion by any third party of any claim of Default or breach under any of the
Contracts; and (iv) neither the Business Contribution Member nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Business Contribution
Member to either (x)
<PAGE>
terminate or significantly change its existing business relationship with the
Business Contribution Member either now or in the foreseeable future, or (y)
fail to renew or extend its existing business relationship with the Business
Contribution Member at the end of the term of any existing contractual
arrangement such entity may have with the Business Contribution Member. For
purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any breach of or default under such Contract, (y) any event, other
than the normal passage of time, which would (either with or without notice or
lapse of time or both) give rise to any right of termination, cancellation or
acceleration or any obligation to repay with respect to such Contract, or (z)
any event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member or any of the
Shareholders in connection with this Agreement, the Related Agreements or the
transactions contemplated hereby or thereby 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 statement contained herein or therein, in light of the
circumstances under which they were made, not misleading. Neither the Business
Contribution Member nor any of the Shareholders knows of any facts which are
reasonably likely to cause a material adverse effect on the Assets or the
Business.
<PAGE>
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
3.1. Confidentiality. The Business Contribution Member and the
Shareholders shall abide by the terms of the Confidentiality Agreement between
the Business Contribution Member and the Company (or the Company's predecessor,
Dispatch Management Services LLC) executed on September 14, 1997. The Business
Contribution Member, the Shareholders, and the Specific Company Subsidiary each
acknowledge and agree that the Company shall have the right to disclose certain
information concerning the Specific Company Subsidiary, the Assets and/or the
Business to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member and the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
<PAGE>
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under
<PAGE>
or pursuant to any of the contracts to which the Company is a party; or (d)
violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the
<PAGE>
knowledge of the Company, threatened against or affecting the Company. To the
knowledge of the Company, no event has occurred and no circumstance, matter or
set of facts exist which would constitute a valid basis for the assertion by any
third party of any claim or Legal Proceeding, other than those listed on Exhibit
H. Except as set forth in Exhibit H, there is no outstanding or, to the
knowledge of the Company, threatened, judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
<PAGE>
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member and the Shareholders,
jointly and severally, covenant and agree that (except as expressly contemplated
or permitted by this Agreement, or to the extent that the Company shall
otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (ii) preserve the present
relationship of the Business Contribution Member with Persons having business
dealings with the Business Contribution Member;
(c) comply with all laws and with all contractual and other
obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any Encumbrance;
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on the Business or the Assets,
and (ii) any Legal
<PAGE>
Proceeding commenced by or against the Business Contribution Member or any Legal
Proceeding commenced or threatened relating to the transactions contemplated by
this Agreement.
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member or the Shareholders in this Agreement or the
Related Agreements untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Business Contribution Member shall cooperate
fully therein. In order that the Company may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation as
it may reasonably request of the affairs of the Business and the Business
Contribution Member, each of the Business Contribution Member and the
Shareholders shall use their respective best efforts to
<PAGE>
cause the Business Contribution Member's officers, employees, consultants,
agents, accountants, attorneys and other representatives to cooperate fully with
such Company representatives in connection with such review and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Business Contribution
Member nor any of the Shareholders shall pursue, initiate, encourage or engage
in any negotiations or discussions with any third parties concerning the sale of
the Business, the Assets, or any part thereof or concerning the terms and
conditions of this Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
<PAGE>
6.4. Notification of Certain Matters. The Business Contribution
Member and the Shareholders shall give prompt notice to the Company of (a) any
notice of, or other communication relating to, a default under any contract
material to the financial condition, properties, business operations, or results
of operations of the Business and/or the Business Contribution Member to which
it is a party or is subject, (b) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement or any of the
Related Agreements, or (c) any material adverse change in the properties
(including but not limited to the Assets), business operations, results of
operations, financial condition or prospects of the Business, other than changes
resulting from general economic conditions. In addition, the Business
Contribution Member and the Shareholders shall be required to update the
schedules and other information supplied pursuant to this Agreement at such time
as the information contained therein changes in any material respect.
6.5. Working Capital as of the Closing Date. The Shareholders and
the Business Contribution Member shall ensure that the Assets, less the Assumed
Liabilities, includes at least $190,151 working capital (defined as the excess
of current (liquid) assets over current liabilities) as of the Closing Date, as
set forth in Schedule 6.5 hereto.
In the event that less than the prescribed $190,151 working capital
existed as of the Closing Date, as determined by such balance sheet, the
Shareholders and/or the Business Contribution Member shall forthwith pay the
Company an amount equal to the difference
<PAGE>
between the actual working capital as of the Closing Date and $190,151 working
capital (the "Shortfall"). If the Shareholders and/or the Business Contribution
Member do not pay the Shortfall to the Company within five (5) days after
demand, then the Company may deduct the amount of the Shortfall from any of the
obligations of the Company to the Shareholders or the Business Contribution
Member (including, but not limited to, the Earn-Out to which the Business
Contribution Member may be entitled thereafter).
In the event that the Business Contribution Member shall
notify the Company in writing within five days after demand is made by the
Company for payment of the Shortfall of its decision to dispute the amount of
the Shortfall, the Company shall forthwith instruct Price Waterhouse LLP to
audit the balance sheet of the Business as of the Closing Date, and to calculate
the working capital therein in accordance with GAAP. Price Waterhouse LLP shall
then determine the amount of the Shortfall as set out in this paragraph 6.5,
whose decision shall be final and binding on the parties hereto. The Business
Contribution Member shall forthwith pay to the Company the amount of such
Shortfall, together with fifty percent (50%) of the cost of the audit conducted
by Price Waterhouse LLP. In the event Price Waterhouse LLP determines the
Shortfall to have been zero, the entire cost of such audit shall be borne by the
Company.
7. Conditions Precedent.
<PAGE>
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member and the Shareholders set forth in
this Agreement (with regard to any supplements or updates thereto) shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of the Closing in Escrow Date and the Closing Date as though made on
and as of the Closing in Escrow Date and the Closing Date, respectively, except
as otherwise contemplated by this Agreement, and the Company shall have received
a
<PAGE>
certificate from the Shareholders and the Business Contribution Member (signed
by a senior executive officer of the Business Contribution Member) certifying to
such effect.
(b) Performance of Obligations. The Business Contribution
Member and the Shareholders shall each have performed all obligations required
to be performed by each such party under this Agreement at or prior to the
Closing in Escrow Date and the Closing Date, respectively, and the Company shall
have received a certificate from the Shareholders and the Business Contribution
Member (signed by a senior executive officer of the Business Contribution
Member) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Assets or the Business.
(d) Contractual Consents. The Business Contribution Member
and/or the Shareholders shall have given all notices to, and obtained all
consents, approvals or authorizations of or from, any individual, corporation or
other party which may be necessary to permit the consummation of the
transactions contemplated hereby (including, without limitation, any consents
required under the Contracts, or which may be required to permit the change of
ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member and/or the Shareholders are a party shall
have been duly executed
<PAGE>
and delivered by such party. In addition, the Related Agreements shall have been
entered into by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member
and the Shareholders. The obligations of the Business Contribution Member and
the Shareholders to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Business Contribution Member and the Shareholders), any
or all of which may be waived in whole or in part by the Business Contribution
Member or the Shareholders.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
<PAGE>
8.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that the Business Contribution
Member and/or any of the Shareholders do not timely deliver representation
letters satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or shareholders except (i)
for the obligation of the Business Contribution Member and the Shareholders to
refund to the Company the audit expenses as set forth in Section 1.4 of this
Agreement; (ii) for any and all obligations under the confidentiality provisions
contained in
<PAGE>
Section 3.2 of this Agreement; and (iii) to the extent that such termination
results from the willful breach by a party hereto of any of its representations
or warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member and
the Shareholders. The Business Contribution Member and the Shareholders each
hereby agrees to jointly and severally indemnify, defend and hold harmless the
Company, the Specific Company Subsidiary, and their respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business Contribution Member's most recently dated balance
sheet delivered to the Company, (ii) any inaccuracy in or breach of any of the
Business Contribution Member's and/or any of the Shareholders' representations,
warranties, covenants or agreements contained in this Agreement, the Related
Agreements or in any other
<PAGE>
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and thereby, (ii) any liability or obligation of the Business Contribution
Member and/or any of the Shareholders other than an Assumed Liability, and (iii)
any non-compliance with any notice requirement, if any, which may be contained
in New Zealand law, relating to bulk sales. Provided, however, the
indemnification by the Business Contribution Member and/or the Shareholders
under this Section 9.1.(a) shall include direct damages only (and not indirect
or consequential damages). For purposes of this Agreement, the term "Losses"
means any and all deficiencies, judgments, settlements, demands, claims, actions
or causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member and/or
the Shareholders from and against and in respect of any and all Losses resulting
from, arising out of, relating to, imposed upon or incurred by the Business
Contribution Member and/or the Shareholders by reason of (i) any inaccuracy in
or breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
<PAGE>
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby; or (ii) any failure to discharge the Assumed Liabilities as
required by their terms. Provided, however, the indemnification by the Company
under this Section 9.1.(b) shall include direct damages only (and not indirect
or consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business
<PAGE>
days after the date of mailing to the following address or telecopy number, or
to such other address or addresses as such Person may subsequently designate by
written notice given hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Business Contribution Member or the
Shareholders, to:
-----------------------------
-----------------------------
-----------------------------
-----------------------------
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies
<PAGE>
hereunder. Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto with respect to any
of the terms contained herein, and each party hereto agrees to be bound by any
such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of New Zealand, without giving effect to the
principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced,
<PAGE>
and they therefore consent that the rights and obligations of the parties under
this Agreement may be enforced by a decree of specific performance issued by a
court of competent jurisdiction. Such remedy shall, however, not be exclusive
and shall be in addition to any other remedies which any party may have under
this Agreement or otherwise. Without limiting the foregoing, the Business
Contribution Member and the Shareholders acknowledge that the failure to comply
with any of the provisions of Sections 3.2 and 6.3 hereof will result in
irreparable harm for which there is no adequate remedy at law and that the
Company and/or the Specific Company Subsidiary shall be entitled, without the
necessity of proving actual damages, to injunctive relief in addition to damages
and all other remedies which may otherwise be available to the Company and/or
the Specific Company Subsidiary.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of
<PAGE>
Columbia or New York City, at the option of the Company, in accordance with the
commercial arbitration rules of the American Arbitration Association ("AAA") and
judgment on the award rendered by the arbitrator may be entered by any court
having jurisdiction thereof. It is acknowledged by the Business Contribution
Member and the Shareholders that money damages are inadequate to compensate the
Company and/or the Specific Company Subsidiary for a breach of the terms of this
Agreement, and that the Company and/or the Specific Company Subsidiary shall be
entitled to specific performance of the terms of this Agreement. The arbitrator
may enter a default decision against any party who fails to participate in the
proceeding. The decision of the arbitrator shall be final, conclusive, binding
and non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
<PAGE>
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by or on behalf of each of the parties hereto as of the date first
above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
- - - - ------------------------- ----------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest: Defined as Office Express, 60/30 Couriers
and Sprincycle
By: /s/ Lynette Williams
- - - - ------------------------- ----------------------------------------
Name: Lynette Williams
Title: Director
<PAGE>
"SPECIFIC COMPANY SUBSIDIARY"
Attest:
--------------------------------------------
By: /s/ Linda Jenkinson
- - - - ------------------------- ----------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Witness: "SHAREHOLDERS"
/s/ Lynette Williams
- - - - ------------------------- --------------------------------------------
Witness: Lynette Williams
/s/ Tom Finlay
- - - - ------------------------- --------------------------------------------
Tom Finlay
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 10th day of
September 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Transpeed Courier Services Inc., a Colorado
(the"Corporation"), and Richard A. Folkman, Stacey J. Folkman, Trey Lewis and
Evelyn R. Folkman (collectively, the "Shareholders"). Unless defined herein, all
capitalized terms used in this Agreement shall have the meaning given them in
the Operating Agreement of Dispatch Management Services LLC dated December 1,
1996 by and between the Members of Dispatch Management Services LLC, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders do not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such terminations of
2
<PAGE>
employment, and the Company will reduce the cash portion of the purchase price
by the amount of such reasonable estimate.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholders and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretary
3
<PAGE>
of State of the State of Colorado; (vi) the certificates, dated the Closing in
Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and
(vii) the opinion of counsel to the Shareholders and the Corporation as to such
matters as counsel to the Company may reasonably require, including but not
limited to such counsel's opinion that: (A) the Corporation is in good standing;
(B) the Corporation is authorized to conduct its business in each jurisdiction
in which it is doing business; (C) the Shareholders and the Corporation have the
full power to enter into and perform their respective obligations under this
Agreement; (D) this Agreement constitutes the legal, valid and binding
obligations of the Corporation and the Shareholders, and the Related Agreements
to which the Shareholders are a party, constitute the legal, valid and binding
obligations of the Shareholders, each enforceable in accordance with their
respective terms (except as enforcement may be limited by bankruptcy, insolvency
and other similar laws affecting the enforcement of creditor's rights, and
principles of equity); and (E) neither the Corporation nor the Shareholders are
threatened with or affected by any actions, proceedings or investigations
wherein an unfavorable decision, ruling or finding could have a material adverse
effect on the financial condition or operation of the Corporation, or could
prevent, enjoin or otherwise affect the transactions contemplated by this
Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the
"Purchase Price") shall be equal to $1,040,000, subject to adjustment (if any)
as provided in Section 1.1 above, and subject to further adjustment (if any) as
a result of a reduction in the Maximum Earn-Out (as defined in this Section 1.3
below).
4
<PAGE>
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholders shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders shall deliver to the Company, within thirty days
after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
5
<PAGE>
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholders, provided that the Company will, upon the request of the
Shareholders, advance such costs on behalf of the Shareholders. In the event
that all of the Shareholders do not timely deliver satisfactory shareholder
representation letters and complete the Closing in Escrow, the Shareholders
shall immediately refund to the Company any such advanced costs; in the event
that all such shareholder representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Shareholders shall be
relieved of their obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
Shareholders acknowledge that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholders shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation fails to achieve such margin requirement, the cash portion of the
Purchase Price shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In
the event that the Corporation achieves the margin requirement during the
relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue
6
<PAGE>
requirement for such calendar quarter as set forth in Exhibit B, and the
denominator of which is the revenue required during such calendar quarter as set
forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth in
this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out shall
bear interest at the rate of 7% per annum commencing as of the Closing Date
(i.e., once the Earn-Out is determined, the Shareholders will be due such amount
plus interest at the rate of 7% per annum on such amount, accrued from the
Closing Date until the date of payment of the Earn-Out to the Shareholders). The
Earn-Out shall be paid to the Shareholders promptly following calculation of the
Corporation's performance for the quarter ending December 31, 1999. The Company
covenants and agrees to maintain sufficient cash, or availability of cash (e.g.,
by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders, collectively, in an amount equal to up to 30%
of the Purchase Price. Said loan by the Company to the Shareholders (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Shareholders shall have the right to prepay
the Shareholder Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Shareholder Loan (plus accrued interest) against the Earn-Out as earned each
quarter. The Shareholder Loan shall mature as of the date that the Earn-Out is
payable. In the event that the Shareholder Loan (including accrued interest) is
not repaid in full upon maturity, the Company shall enjoy all rights of a
secured party under the Uniform Commercial Code then in effect in the State of
Maryland, provided that the Company's only recourse shall be first against the
remaining Earn-Out and then against the Company Stock it holds as collateral,
and there shall not be any recourse against the Shareholders individually.
7
<PAGE>
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholders (less the
Maximum Earn-Out, which shall be payable to the Shareholders pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is an "S"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
8
<PAGE>
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of ___ shares of ___ par value
capital stock of which ____ shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due
9
<PAGE>
and payable. The Corporation's assets are in good operating condition and
repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity
10
<PAGE>
to which the Corporation is currently subject (or which the Corporation was
subject to during the previous three years), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 2.8. None of the Shareholders nor the Corporation is
aware of any proposed legislation or law which is reasonably expected to be
enacted and which, if so enacted, could reasonably be expected to have a
material adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders and/or the Corporation in
connection with the negotiations relating to or the transactions contemplated by
this Agreement or the Related Agreements; and
11
<PAGE>
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded
12
<PAGE>
amounts thereof, net of any applicable reserves for returns or doubtful accounts
which are reflected in such Financial Statements (such reserves, the
"Reserves"); such Reserves are adequate and reasonable and were established in
accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any
13
<PAGE>
and all encumbrances) of all of the Intellectual Property, and neither the
Corporation nor any of the Shareholders has received any notice or claim
(whether written, oral or otherwise) challenging the Corporation's ownership or
rights in such Intellectual Property or suggesting that any other entity has any
claim of legal or beneficial ownership with respect thereto. Neither the
Shareholders nor the Corporation are in default under any license agreements
pertaining to the Intellectual Property used in the Corporation's business and
licensed to the Shareholders and/or the Corporation; all such license agreements
are valid and in full force and effect, and shall continue in full force and
effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
14
<PAGE>
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
15
<PAGE>
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by
16
<PAGE>
any collective bargaining agreement with respect to any employee benefit plan.
Neither the Corporation nor any of the Plans has ever incurred any withdrawal
liability (including any contingent or secondary withdrawal liability) within
the meaning of Section 4201 and Section 4204 of ERISA with respect to any
multi-employer plan. The Corporation and the trustees or the administrators of
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and
17
<PAGE>
all other federal, state and local laws, regulations and requirements of any
nature applicable to the Corporation. The Corporation further represents that it
is not in arrears in the payment of wages to any employee (except to the extent
of its normal payroll practices), and there are no claims, liabilities, demands
or causes of action, realized or unrealized, actual, potential or contingent,
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation. For purposes of
18
<PAGE>
this Agreement, the term "Default" means, with respect to any Contract, (x) any
material breach of, or material default under, such Contract, (y) any event,
other than the normal passage of time, which would (either with or without
notice or lapse of time or both) give rise to any right of termination,
cancellation or acceleration of, or any obligation to repay, with respect to
such Contract, or (z) any event, other than the normal passage of time, which
would result in either a significant increase in the obligations or liabilities
of, or a loss of any significant benefit of, the party in question under such
Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 18,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
19
<PAGE>
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
20
<PAGE>
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
21
<PAGE>
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
22
<PAGE>
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
23
<PAGE>
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $130,000 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets
24
<PAGE>
and liabilities of the Corporation as of the Closing Date (including, but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the prescribed $130,000
working capital as of the Closing Date, as determined by such balance sheet, the
Shareholders shall forthwith pay the Company an amount equal to the difference
between the actual working capital as of the Closing Date and $130,000 working
capital (the "Shortfall"). If the Shareholders do not pay the Shortfall to the
Company within five (5) days after demand, then, in addition to all other
remedies which the Company may have, the Company may deduct the amount of the
Shortfall from any of the obligations of the Company to the Shareholders
(including, but not limited to, the Earn-Out to which the Shareholders may be
entitled thereafter).
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or
25
<PAGE>
other legal restraint or prohibition preventing the consummation of the
transactions contemplated by this Agreement shall be in effect; provided that
prior to invoking this condition, each party shall use their best efforts to
have any such order, injunction, legal restraint or prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the
26
<PAGE>
transactions contemplated hereby (including, without limitation, any consents
required under the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
27
<PAGE>
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholders under this Section 9.1.(a) shall include direct damages only
(and not indirect or
28
<PAGE>
consequential damages). For purposes of this Agreement, the term "Losses" means
any and all deficiencies, judgments, settlements, demands, claims, actions or
causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so
29
<PAGE>
delivered personally or by courier or telecopied, or, if mailed, five business
days after the date of mailing to the following address or telecopy number, or
to such other address or addresses as such Person may subsequently designate by
written notice given hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
Transpeed Courier Services Inc.
700 West Mississippi Avenue, Suite C-1
Denver, Colorado 80223
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the parties dated _________, which Agreement
will be of no further force or effect upon execution of this Agreement), both
written and oral, among the parties with respect to the subject matter hereto
and is not intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement
30
<PAGE>
of all parties hereto with respect to any of the terms contained herein, and
each party hereto agrees to be bound by any such amendment, modification or
supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the
31
<PAGE>
negotiation, execution and delivery of this Agreement, the Related Agreements
and the consummation of the transactions contemplated hereby and thereby, shall
be paid by the party incurring such costs and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholders that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
32
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
_________________________ By: /s/ Richard A. Folkman
-----------------------------------
Name: Richard A. Folkman
Title: President
Witness: "SHAREHOLDERS"
__________________________ /s/ Richard A. Folkman
-----------------------------------
Richard A. Folkman
Witness:
__________________________ /s/ Stacey J. Folkman
-----------------------------------
Stacey J. Folkman
Witness:
__________________________ /s/ Trey Lewis
-----------------------------------
Trey Lewis
Witness:
__________________________ /s/ Evelyn R. Folkman
-----------------------------------
Evelyn R. Folkman
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 15th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Clover Supply, Inc., a Texas corporation (the
"Corporation"), and John J. Walker (the "Shareholder"). Unless defined herein,
all capitalized terms used in this Agreement shall have the meaning given them
in the Operating Agreement of Dispatch Management Services LLC dated December 1,
1996 by and between the Members of Dispatch Management Services LLC, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation, and the Corporation owns all of the issued and
outstanding shares of capital stock of each of Flash Transportation, Inc., and
Houston Flash Delivery, Inc. (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with the
Shareholder and certain employees of the Corporation in the form attached hereto
as Exhibit A (such non-
<PAGE>
competition agreements, together with all other agreements which are entered
into by the parties hereto pursuant to this Agreement or in connection with any
of the transactions contemplated hereby, the "Related Agreements"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholder does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholder does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early
<PAGE>
repayment costs, if any) of the Corporation existing as at the Closing Date; and
(iii) the Corporation has not terminated the employment of the (unwanted)
employees specified by the Company in the Notice, then the Company will make a
reasonable estimate of the costs and expenses to be incurred in connection with
such terminations of employment, and the Company will reduce the cash portion of
the purchase price by the amount of such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder
representation letter satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C.
20036 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P, as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of
<PAGE>
the Shareholder's and/or third parties' right, title and interest in and to all
Intellectual Property (as defined in Section 2.14(d) hereinbelow) owned by any
of the Shareholder and/or third parties and heretofore licensed to or used by
the Corporation; (v) Certificates of Good Standing for the Corporation as issued
by the Secretaries of State of Texas; (vi) the certificates, dated the Closing
in Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and
(vii) the opinion of counsel to the Shareholder and the Corporation as to such
matters as counsel to the Company may reasonably require, including but not
limited to such counsel's opinion that: (A) the Corporation is in good standing;
(B) the Corporation is authorized to conduct its business in each jurisdiction
in which it is doing business; (C) the Shareholder and the Corporation have the
full power to enter into and perform their respective obligations under this
Agreement; (D) this Agreement constitutes the legal, valid and binding
obligations of the Corporation and the Shareholder, and the Related Agreements
to which the Shareholder are a party, constitute the legal, valid and binding
obligations of the Shareholder, each enforceable in accordance with their
respective terms (except as enforcement may be limited by bankruptcy, insolvency
and other similar laws affecting the enforcement of creditor's rights, and
principles of equity); and (E) neither the Corporation nor the Shareholder are
threatened with or affected by any actions, proceedings or investigations
wherein an unfavorable decision, ruling or finding could have a material adverse
effect on the financial condition or operation of the Corporation, or could
prevent, enjoin or otherwise affect the transactions contemplated by this
Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price")
<PAGE>
shall be equal to $903,677.00, subject to adjustment (if any) as provided in
Section 1.1 above, and subject to further adjustment (if any) as a result of a
reduction in the Maximum Earn-Out (as defined in this Section 1.3 below).
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholder shall deliver to the Company, within thirty days
after written request from the Company, such additional
<PAGE>
audited and/or unaudited, reviewed financial statements of the Corporation as
the Company may reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder. In the event that
the Shareholder does not timely deliver a satisfactory shareholder
representation letter and complete the Closing in Escrow, the Shareholder shall
immediately refund to the Company any such advanced costs; in the event that
such shareholder representation letter is satisfactory and is timely received,
and the Closing in Escrow is completed, the Shareholder shall be relieved of
his/her obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Shareholder acknowledges that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholder shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholder ratably over
the 8 quarter annual periods beginning January 1, 1998 and ending December 31,
1999 provided that the Corporation achieves the targeted performance standards
set forth in Exhibit B attached hereto. In the event that the Corporation fails
to achieve the margin requirement set forth in Exhibit B during any calendar
quarter, then for each calendar quarter in which the Corporation fails to
achieve such
<PAGE>
margin requirement, the cash portion of the Purchase Price shall be reduced by
one eighth (1/8) of the Maximum Earn-Out. In the event that the Corporation
achieves the margin requirement during the relevant calendar quarter, but fails
to achieve the revenue requirement set forth in Exhibit B, then for each such
calendar quarter, the cash portion of the Purchase Price shall be reduced by:
(i) one eighth (1/8) of the Maximum Earn-Out, multiplied by: (ii) a fraction,
the numerator of which is the difference between the actual revenue achieved
during such calendar quarter and the revenue requirement for such calendar
quarter as set forth in Exhibit B, and the denominator of which is the revenue
required during such calendar quarter as set forth in Exhibit B. The Maximum
Earn-Out, less any reductions as set forth in this paragraph, is hereinafter
referred to as the "Earn-Out". The Earn-Out shall bear interest at the rate of
7% per annum commencing as of the Closing Date (i.e., once the Earn-Out is
determined, the Shareholder will be due such amount plus interest at the rate of
7% per annum on such amount, accrued from the Closing Date until the date of
payment of the Earn-Out to the Shareholder). The Earn-Out shall be paid to the
Shareholder promptly following calculation of the Corporation's performance for
the quarter ending December 31, 1999. The Company covenants and agrees to
maintain sufficient cash, or availability of cash (e.g., by way of a line of
credit) in order to fund the Earn-Out.
At the request of the Shareholder made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholder in an amount equal to up to 30% of the Purchase
Price. Said loan by the Company to the Shareholder (the "Shareholder Loan")
shall bear interest at a rate of seven percent (7%) per annum, and shall be
secured by all of the Company Stock paid as part of the Purchase Price at
Closing. The collateral security agreement evidencing the collateralization of
the Shareholder Loan with the Company Stock and the Earn-Out shall be on such
terms as are reasonably acceptable to the Company, which terms shall include,
but shall not be limited to, the retention of all of the Company Stock by the
Company until full repayment of the Shareholder Loan (including accrued
interest). The Shareholder shall have the right to prepay the Shareholder Loan
(plus accrued interest) at any time without penalty and shall have the right to
direct the Company to offset the balance due under the Shareholder Loan (plus
accrued interest) against the Earn-Out as earned each quarter. The Shareholder
Loan shall mature as of the date that the Earn-Out is payable. In
<PAGE>
the event that the Shareholder Loan (including accrued interest) is not repaid
in full upon maturity, the Company shall enjoy all rights of a secured party
under the Uniform Commercial Code then in effect in the State of New York,
provided that the Company's only recourse shall be first against the remaining
Earn-Out and then against the Company Stock it holds as collateral, and there
shall not be any recourse against the Shareholder individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W.,
Washington, D.C. 20036, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholder shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated opinion of counsel as referred to in Section
1.2(a)(vii) above; and (iii) the Company shall deliver the Purchase Price to the
Shareholder (less the Maximum Earn-Out, which shall be payable to the
Shareholder pursuant to the terms of Section 1.3 above, and with the Company
Stock collateralized against the Shareholder Loan being delivered to the Company
as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, and has
<PAGE>
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Corporation
is duly qualified and in good standing to conduct business in each jurisdiction
in which the business it is conducting, or the operation, ownership or leasing
of its properties, makes such qualification necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 1,000 shares of $1.00 par value
capital stock of which 1,000 shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. The Corporation owns all of the issued and outstanding shares of capital
stock of each of Flash Transportation, Inc., and Houston Flash Delivery, Inc.
There are no other shares of capital stock or other equity or debt securities of
the Corporation, of any kind or class whatsoever, authorized, issued or
outstanding, or any warrants, options, subscription rights, or any other rights,
agreements, or commitments of any nature relating to the
<PAGE>
issuance of, or granting of, rights to acquire any shares of capital stock or
such securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow)
except for the transferred assets referred to in Schedule 2.6. Except as
disclosed on Exhibit C, none of the Corporation's assets is subject to any
restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation except as set forth in Schedule 2.6. Immediately after the
consummation of the transactions contemplated by this Agreement to be effected
at the Closing, the Corporation will (i) have all right, title, and interest in
and to, or will have a valid right to use, without liability to third
party(ies), such assets and properties; and (ii) have all assets, rights,
employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Corporation after the
Closing Date in substantially the same manner as presently conducted by the
Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Shareholder is a party, or (d) violate
any law applicable to the Shareholder or the Corporation.
<PAGE>
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation in connection with
the consummation of the transactions contemplated hereby or thereby or which
seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholder, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholder, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholder,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement
<PAGE>
with any governmental entity) against, affecting or naming the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholder and shall be paid in full by him/her at the Closing
in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed
<PAGE>
upon it, and has timely filed all tax returns and related documents required to
be filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements (such
reserves, the "Reserves"); such Reserves are adequate and reasonable and were
established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
<PAGE>
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Shareholder nor the Corporation are in default
under any license agreements pertaining to the Intellectual Property used in the
Corporation's business and licensed to the Shareholder and/or the Corporation;
all such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
<PAGE>
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
<PAGE>
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar
<PAGE>
plan, policy or arrangement (collectively referred to herein as the "Plans").
The Corporation is not in default under the terms of any of the Plans. The
Corporation has made all contributions to each of the Plans required by the
terms of the respective Plans, as well as all contributions required to be made
in order to satisfy all requirements of law. Each of the Plans has sufficient
assets to satisfy (under reasonable and permitted actuarial assumptions) its
obligations on a termination basis, and the level of contributions required
pursuant to the terms of each Plan is sufficient to satisfy (under reasonable
and permitted actuarial assumptions) the obligations of such Plan on a
continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
<PAGE>
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses,
<PAGE>
permits, orders, approvals and authorizations necessary for the conduct of its
business as presently conducted. The Corporation and its employees and agents
have all licenses, permits, orders, approvals and authorizations necessary for
the operation of the real and personal property presently leased to, owned or
operated by the Corporation. None of the permits issued to the Corporation will
be adversely affected by the consummation of the transactions contemplated by
this Agreement. No suspension or cancellation of any such licenses, permits,
orders, approvals or authorizations is pending or, to the best of the
Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Corporation nor the Shareholder is aware
of any present intention on the part of any significant customer or supplier or
other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
<PAGE>
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. Each of the Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on May 2,
1997. The Shareholder and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each
<PAGE>
jurisdiction in which the business it is conducting, or the operation, ownership
or leasing of its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all
<PAGE>
injunctions, judgments, orders or consent or similar decrees or agreements of
any governmental entity to which the Company is currently subject (or to which
the Company was subject since its inception), and (ii) all correspondence
through the date hereof with respect to any of the matters referred to in clause
(b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
<PAGE>
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
<PAGE>
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholder
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholder shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are
<PAGE>
necessary for consummation of the transactions contemplated by this Agreement
and the Related Agreements, and (iii) fulfill all conditions precedent
applicable to such party pursuant to this Agreement and the Related Agreements.
In case at any time after the Closing Date any further action is necessary or
desirable to carry out the purposes of this Agreement or the Related Agreements,
each party hereto shall use their respective best efforts to take or cause to be
taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $112,029.00 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets and liabilities of the
Corporation as of the Closing Date (including, but not limited to, accrued tax
liabilities as if the tax year ended on the Closing Date). In the event that the
Corporation has less than the prescribed $112,029.00 working capital as of the
Closing Date, as determined by such balance sheet, the Shareholder shall
forthwith pay the Company an amount equal to the difference between the actual
working capital as of the Closing Date and $112,029.00 working capital (the
"Shortfall"). If the Shareholder does not pay the Shortfall to the Company
<PAGE>
within five (5) days after demand, then, in addition to all other remedies which
the Company may have, the Company may deduct the amount of the Shortfall from
any of the obligations of the Company to the Shareholder (including, but not
limited to, the Earn-Out to which the Shareholder may be entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the
<PAGE>
Company to effect the transactions contemplated by this Agreement are subject to
the satisfaction of the following conditions (which are for the exclusive
benefit of the Company, any or all of which may be waived in whole or in part by
the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
such party. In addition, the Related Agreements shall have been entered into by
the respective parties thereto.
<PAGE>
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this
<PAGE>
Agreement by either the Company or the Shareholder as provided in Section 8.1,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto or any of its respective Affiliates,
officers, directors or shareholders except (i) for the obligation of the
Shareholder to refund to the Company the audit expenses as set forth in Section
1.3 of this Agreement; (ii) for any and all obligations under the
confidentiality provisions contained in Section 3.2 of this Agreement; and (iii)
to the extent that such termination results from the willful breach by a party
hereto of any of its representations or warranties, or of any of its covenants
or agreements, as set forth in this Agreement. In the event that termination
results from the willful breach by a party hereto of any of its representations
or warranties, or of any of its covenants or agreements, as set forth in this
Agreement, the breaching party shall be liable to the non-breaching party for
all direct damages (but not indirect or consequential damages) incurred as a
result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholder. The
Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholder under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments,
<PAGE>
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the
<PAGE>
date of mailing to the following address or telecopy number, or to such other
address or addresses as such Person may subsequently designate by written notice
given hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
John Walker
705 N. Clear Creek
Friendswood, Texas 77546
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the Company and Flash Transportation, Inc.
dated April 24, 1997, which Agreement will be of no further force or effect upon
execution of this Agreement), both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the
<PAGE>
terms contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the
<PAGE>
negotiation, execution and delivery of this Agreement, the Related Agreements
and the consummation of the transactions contemplated hereby and thereby, shall
be paid by the party incurring such costs and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholder that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement
<PAGE>
has been executed, the names of the parties to this Agreement and the terms
hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
----------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
CLOVER SUPPLY, INC.
By: /s/ John J. Walker
- - - - -------------------------- ----------------------------------------
Name: John J. Walker
Title: President
Witness: "SHAREHOLDER"
/s/ John J. Walker
- - - - -------------------------- --------------------------------------------
John J. Walker
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), S Car Go Courier, Inc., a California corporation
(the"Corporation"), and Michael R. Cowles (the "Shareholder"). Unless defined
herein, all capitalized terms used in this Agreement shall have the meaning
given them in the Operating Agreement of Dispatch Management Services LLC dated
December 1, 1996 by and between the Members of Dispatch Management Services LLC,
as amended (the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desires to sell all of his right,
title and interest in the Stock to the Company, and the Company desires to
purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with the
Shareholder and certain employees of the Corporation in the form attached hereto
as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
1
<PAGE>
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholder does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholder does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
2
<PAGE>
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such terminations of employment, and
the Company will reduce the cash portion of the purchase price by the amount of
such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Silver, Freedman &
Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C. 20005 (or
such other place as is mutually agreed upon by the parties) within thirty (30)
days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former Shareholder of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholder's
and/or third parties' right, title
3
<PAGE>
and interest in and to all Intellectual Property (as defined in Section 2.14(d)
hereinbelow) owned by the Shareholder and/or third parties and heretofore
licensed to or used by the Corporation; (v) Certificate of Good Standing for the
Corporation as issued by the Secretary of State of the State of California; (vi)
the certificates, dated the Closing in Escrow Date, required pursuant to
Sections 7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of counsel to the
Shareholder and the Corporation as to such matters as counsel to the Company may
reasonably require, including but not limited to such counsel's opinion that:
(A) the Corporation is in good standing; (B) the Corporation is authorized to
conduct its business in each jurisdiction in which it is doing business; (C) the
Shareholder and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholder, and the Related Agreements to which the Shareholder is a party,
constitute the legal, valid and binding obligations of the Shareholder, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholder are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the
"Purchase Price") shall be equal to $912,625, subject to adjustment (if any) as
provided in Section 1.1 above, and subject to
4
<PAGE>
further adjustment (if any) as a result of a reduction in the Maximum Earn-Out
(as defined in this Section 1.3 below).
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholder shall deliver to the Company, within thirty days
after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
5
<PAGE>
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder. In the event that
the Shareholder does not timely deliver a satisfactory shareholder
representation letters and complete the Closing in Escrow, the Shareholder shall
immediately refund to the Company any such advanced costs; in the event that
such shareholder representation letter is satisfactory and is timely received,
and the Closing in Escrow is completed, the Shareholder shall be relieved of his
obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as partial payment of the
Purchase Price shall be equal to the aggregate dollar value of the stock
component of the Purchase Price divided by the Initial Public Offering price per
share as set forth on the cover page of the prospectus relating to the Initial
Public Offering. The Shareholder acknowledges that the sale of the Company Stock
will be restricted for a period of time by virtue of a "lock-up" agreement which
may be imposed by the Company, and the Shareholder shall execute such a "lockup"
agreement, as may be required by the Company, by which the sale of the Company
Stock is restricted (perhaps prohibited) for a period of two (2) years from the
date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholder ratably over
the 8 quarter annual periods beginning January 1, 1998 and ending December 31,
1999 provided that the Corporation achieves the targeted performance standards
set forth in Exhibit B attached hereto. In the event that the Corporation fails
to achieve the margin requirement set forth in Exhibit B during any calendar
quarter, then for each calendar quarter in which the Corporation fails to
achieve such margin requirement, the cash portion of the Purchase Price shall be
reduced by one eighth (1/8) of the Maximum Earn-Out. In the event that the
Corporation achieves the margin requirement during
6
<PAGE>
the relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue requirement for such calendar quarter as set forth in Exhibit B, and
the denominator of which is the revenue required during such calendar quarter as
set forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth
in this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out
shall bear interest at the rate of 7% per annum commencing as of the Closing
Date (i.e., once the Earn-Out is determined, the Shareholder will be due such
amount plus interest at the rate of 7% per annum on such amount, accrued from
the Closing Date until the date of payment of the Earn-Out to the Shareholder).
The Earn-Out shall be paid to the Shareholder promptly following calculation of
the Corporation's performance for the quarter ending December 31, 1999. The
Company covenants and agrees to maintain sufficient cash, or availability of
cash (e.g., by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholder made to the Company in writing not later
than the Closing in Escrow, the Company shall (immediately after Closing) make a
loan to the Shareholder, collectively, in an amount equal to up to 30% of the
Purchase Price. Said loan by the Company to the Shareholder (the "Shareholder
Loan") shall bear interest at a rate of seven percent (7%) per annum, and shall
be secured by all of the Company Stock paid as part of the Purchase Price at
Closing. The collateral security agreement evidencing the collateralization of
the Shareholder Loan with the Company Stock and the Earn-Out shall be on such
terms as are reasonably acceptable to the Company, which terms shall include,
but shall not be limited to, the retention of all of the Company Stock by the
Company until full repayment of the Shareholder Loan (including accrued
interest). The Shareholder shall have the right to prepay the Shareholder Loan
(plus accrued interest) at any time without penalty and shall have the right to
direct the Company to offset the balance due under the Shareholder Loan (plus
accrued interest) against the Earn-Out as earned each quarter. The Shareholder
Loan shall mature as of the date that the Earn-Out is payable. In the event that
the Shareholder Loan (including accrued interest) is not repaid in full upon
maturity, the Company shall enjoy all rights of a secured party under the
Uniform Commercial Code then in effect in the State of
7
<PAGE>
Maryland, provided that the Company's only recourse shall be first against the
remaining Earn-Out and then against the Company Stock it holds as collateral,
and there shall not be any recourse against the Shareholder individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholder
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholder (less the
Maximum Earn-Out, which shall be payable to the Shareholder pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of California, and
8
<PAGE>
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Corporation
is duly qualified and in good standing to conduct business in each jurisdiction
in which the business it is conducting, or the operation, ownership or leasing
of its properties, makes such qualification necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
9 2.3. Capital Structure, Due Authorization and Issuance. The
authorized capital stock of the Corporation consists solely of 1,000 shares of
common stock, par value $1.00 per share, of which 500 shares are and will be as
of the Closing in Escrow Date and the Closing Date issued and outstanding. All
issued and outstanding shares of the capital stock of the Corporation have been
duly authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
9
<PAGE>
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Shareholder is a party, or (d) violate
any law applicable to the Shareholder or the Corporation.
2.8. Compliance with Laws.
10
<PAGE>
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. Neither the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation in connection with
the consummation of the transactions contemplated hereby or thereby or which
seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholder, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholder, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholder,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
11
<PAGE>
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholder and shall be paid in full by him at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no
12
<PAGE>
outstanding or proposed statements of deficiency in tax payments to any federal,
state, local or foreign government with respect to the Corporation for any tax
period. As of the dates such Financial Statements were and will be prepared, all
accounts receivable reflected on the Financial Statements (i) have and will have
arisen from bona fide transactions in the ordinary course of the Corporation's
business, consistent with its past practices, and (ii) are good and collectible
at the aggregate recorded amounts thereof, net of any applicable reserves for
returns or doubtful accounts which are reflected in such Financial Statements
(such reserves, the "Reserves"); such Reserves are adequate and reasonable and
were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the
13
<PAGE>
Intellectual Property as currently used or as necessary for the conduct of the
Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Shareholder nor the Corporation are in default
under any license agreements pertaining to the Intellectual Property used in the
Corporation's business and licensed to the Shareholder and/or the Corporation;
all such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
14
<PAGE>
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation nor the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate
15
<PAGE>
coverage, within terms of scope and amount of coverage, for its assets,
properties and operations. There are no pending material insurance claims by the
Corporation as to which the applicable insurers have denied coverage. In
addition, there exist no material claims under such insurance that have not been
properly filed by the Corporation. During the past two years, the Corporation
has not been refused any insurance coverage by any insurer from which the
Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
16
<PAGE>
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the
17
<PAGE>
Occupational Safety and Health Act of 1970, as amended; the Equal Pay Act of
1963, as amended; the Age Discrimination in Employment Act of 1967, as amended;
the Americans with Disabilities Act of 1990; the Family Medical Leave Act of
1993; the Immigration Reform and Control Act of 1986 (together with the
regulations promulgated thereunder, hereinafter collectively referred to as
"IRCA"); the Worker Adjustment and Retraining Notification Act; the Employee
Polygraph Protection Act; the Drug-Free Workplace Act of 1988; the Health
Insurance Portability and Accountability Act of 1996; the Code; the regulations
promulgated under each such act; and any and all other federal, state and local
laws, regulations and requirements of any nature applicable to the Corporation.
The Corporation further represents that it is not in arrears in the payment of
wages to any employee (except to the extent of its normal payroll practices),
and there are no claims, liabilities, demands or causes of action, realized or
unrealized, actual, potential or contingent, pursuant to statutory rights or in
tort, contract or otherwise, against the Corporation arising out of or in
connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto;
18
<PAGE>
(iii) neither the Corporation nor the Shareholder is aware of the assertion by
any third party of any claim of Default or breach under any of the Contracts;
and (iv) neither the Corporation nor the Shareholder is aware of any present
intention on the part of any significant customer or supplier or other business
partner of the Corporation to either (x) terminate or significantly change its
existing business relationship with the Corporation either now or in the
foreseeable future, or (y) fail to renew or extend its existing business
relationship with the Corporation at the end of the term of any existing
contractual arrangement such entity may have with the Corporation. For purposes
of this Agreement, the term "Default" means, with respect to any Contract, (x)
any material breach of, or material default under, such Contract, (y) any event,
other than the normal passage of time, which would (either with or without
notice or lapse of time or both) give rise to any right of termination,
cancellation or acceleration of, or any obligation to repay, with respect to
such Contract, or (z) any event, other than the normal passage of time, which
would result in either a significant increase in the obligations or liabilities
of, or a loss of any significant benefit of, the party in question under such
Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. Each of the Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
19
<PAGE>
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 19,
1997. The Shareholder and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the
20
<PAGE>
consummation of the transactions contemplated hereby and thereby by the Company,
will not (a) conflict with or violate any provision of the Certificate of
Incorporation or By-laws of the Company, (b) except as set forth on Exhibit D,
require any consent, waiver, approval, authorization or permission of, or filing
with or notification to, any third party, (c) result in or constitute a default,
or require any consent or approval of or notice to any person or entity under or
pursuant to any of the contracts to which the Company is a party; or (d) violate
any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any
21
<PAGE>
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
22
<PAGE>
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholder
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholder shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
23
<PAGE>
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
24
<PAGE>
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $114,078 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets and liabilities of the
Corporation as of the Closing Date (including, but not limited to, accrued tax
liabilities as if the tax year ended on the Closing Date). In the event that the
Corporation has less than the prescribed $114,078 working capital as of the
Closing Date, as determined by such balance sheet, the Shareholder shall
forthwith pay the Company an amount equal to the difference between the actual
working capital as of the Closing Date and $114,078 working capital (the
"Shortfall"). If the Shareholder does not pay the Shortfall to the Company
within five (5) days after demand, then, in addition to all other remedies which
the Company may have, the Company may deduct the amount of the Shortfall from
any of the obligations of the Company to the Shareholder (including, but not
limited to, the Earn-Out to which the Shareholder may be entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of his decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
25
<PAGE>
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely
26
<PAGE>
result in, individually or in the aggregate, a material adverse effect on the
Corporation, its assets or its business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
the Shareholder. In addition, the Related Agreements shall have been entered
into by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
27
<PAGE>
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or Shareholder except (i) for the
obligation of the Shareholder to refund to the Company the audit expenses as set
forth in Section 1.3 of this Agreement; (ii) for any and all obligations under
the confidentiality provisions contained in Section 3.2 of this Agreement; and
(iii) to the extent that such termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholder.
The Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
28
<PAGE>
Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholder under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
29
<PAGE>
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
Michael R. Cowles
S Car Go Courier, Inc.
411 Brannon Street, 2nd Floor
San Francisco, California 94107
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes
30
<PAGE>
the entire agreement and supersedes all prior agreements and understandings
(including but not limited to that certain Class C Stock Transfer Agreement
between the parties dated July 16, 1997, which Agreement will be of no further
force or effect upon execution of this Agreement), both written and oral, among
the parties with respect to the subject matter hereto and is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder. Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto with respect to any
of the terms contained herein, and each party hereto agrees to be bound by any
such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections
31
<PAGE>
3.1, 3.2. and 6.2 hereof will result in irreparable harm for which there is no
adequate remedy at law and that the Company and/or the Corporation shall be
entitled, without the necessity of proving actual damages, to injunctive relief
in addition to damages and all other remedies which may otherwise be available
to the Company and/or the Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholder that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should
32
<PAGE>
die, withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-----------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
By: /s/ Michael R. Cowles
- - - - ------------------------- -----------------------------
Name: Michael R. Cowles
Title: President
Witness: "SHAREHOLDER"
/s/ Michael R. Cowles
- - - - -------------------------- ---------------------------------
Michael R. Cowles
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Christian Delivery Service, a New Hampshire corporation
(the "Business Contribution Member"), Leo J. Gould, (the "Shareholder") and [DMS
Subsidiary Number ___], a Delaware corporation (the "Specific Company
Subsidiary"). Unless defined herein, all capitalized terms used in this
Agreement shall have the meaning given them in the Operating Agreement of
Dispatch Management Services LLC dated December 1, 1996 by and between the
Members of Dispatch Management Services LLC, as amended (the "Operating
Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member is in the business of providing
dispatch and courier services (such business, and any other lines of business
related thereto, the "Business");
WHEREAS, the Shareholder owns all of the issued and outstanding capital
stock of the Business Contribution Member;
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below, and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
<PAGE>
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into employment
agreements with [set forth names of back-office personnel being retained] (the
"Back-Office Employees"), in the form attached hereto as Exhibit A, as well as a
non-competition agreement with the Shareholder of the Business Contribution
Member and certain employees of the Business Contribution Member and the
Specific Company Subsidiary in the form attached hereto as Exhibit B (such
employment agreements and non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements");
WHEREAS, the parties intend that at the Closing the Business Contribution
Member will change its corporate name and/or trade name, as necessary, so that
the Specific Company Subsidiary may trade under the trade name previously used
for the Business (which trade name is specifically acquired by the Specific
Company Subsidiary hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member and the Shareholder, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Business Contribution Member shall be obliged to deliver to the Company,
within thirty (30) days after execution of this Agreement: (i) the audited
financial statements required pursuant to Section 1.4 below and (ii) the
agreements required pursuant to Section 3.1 below.
<PAGE>
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Business Contribution Member and the Shareholder a disclosure document, together
with a notice (the "Notice") specifying the date by which the Business
Contribution Member and the Shareholder must execute and deliver satisfactory
representation letters in order to consummate the sale of the Assets and
assumption of the Assumed Liabilities pursuant to the terms of this Agreement.
Upon timely delivery from the Business Contribution Member and the
Shareholders of representation letters satisfactory to the Company, the parties
will close in escrow (the "Closing in Escrow") pursuant to the terms and
conditions of this Agreement. Such Closing in Escrow shall take place at the
offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue,
N.W., Suite 400, Washington, D.C. 20036 (or such other place as is mutually
agreed upon by the parties) within thirty (30) days (or such shorter period as
is specified in the Notice) after timely delivery of satisfactory representation
letters from the Business Contribution Member and the Shareholder.
In the event that the Business Contribution Member and/or the
Shareholder does not timely deliver satisfactory representation letters (as
determined in the sole discretion of the Company), this Agreement will be of no
further force or effect, except for any and all obligations under Sections 3.2
(confidentiality), 1.4 (reimbursement of audit expenses) and 8.2 (effect of
termination under Section 8.1), which obligations will survive termination of
this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
(ii) All rights to the trade name "Christian Delivery
Service," the brand name "Christian Delivery Service" logos, and other
Intellectual Property as defined in Section 2.11.(d) hereinbelow, customer
lists, goodwill and other intangible assets; and
3
<PAGE>
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (the "Contracts"), as set forth on Exhibit D attached hereto.
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member, and only those liabilities and obligations, which
are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member and/or the Shareholder shall, as appropriate, enter into,
execute and deliver to the law firm of Akin, Gump, Strauss, Hauer & Feld,
L.L.P., as escrow agent: (i) a bill of sale, (ii) an instrument of assignment
and assumption (the form and substance of which shall be reasonably acceptable
to the Company), and (iii) any other instruments of conveyance or transfer which
may be necessary in the sole
4
<PAGE>
discretion of the Company, including, without limitation, any instruments of
assignment in connection with the Intellectual Property and the Contracts, each
in form and substance reasonably acceptable to the Company, pursuant to which
the Business Contribution Member and/or the Shareholder shall convey, assign,
transfer and deliver to the Company all right, title and interest in, to and
under the Assets, free and clear of any and all Encumbrances (as defined in
Section 2.3(a) below), and the Company shall assume the Assumed Liabilities from
the Business Contribution Member. At the Closing in Escrow, the Business
Contribution Member shall also cause to be delivered the opinion of its counsel
as to such matters as counsel to the Company may reasonably require, including
but not limited to such counsel's opinion that: the Business Contribution Member
is in good standing; the Business Contribution Member is authorized to conduct
its business in each jurisdiction in which it is doing business; the Business
Contribution Member and the Shareholder have full power to enter into and
perform their respective obligations under this Agreement, as well the Related
Agreements to which they are a party; this Agreement, and the Related Agreements
to which the Business Contribution Member and/or the Shareholder is a party,
constitutes legal, valid and binding obligations of the Business Contribution
Member and the Shareholder, respectively, enforceable in accordance with their
respective terms (except as enforcement may be limited by bankruptcy, insolvency
and other similar laws affecting the enforcement of creditor's rights, and
principles of equity); and neither the Business Contribution Member nor the
Shareholder is threatened with or affected by any actions, proceedings or
investigations wherein an unfavorable decision, ruling or finding could have a
materially adverse effect on the financial condition or operation of the
Business and/or the Assets, or could prevent, enjoin or otherwise affect the
transactions contemplated by this Agreement.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
Without limiting the foregoing, the Business Contribution Member and/or the
Shareholder shall take whatever steps are necessary (such as filings with the
United States Patent and Trademark Office) to transfer the Intellectual Property
5
<PAGE>
to the Specific Company Subsidiary.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets, subject to
downward adjustment for the full amount of the Assumed Liabilities as listed on
Exhibit F attached hereto (the "Purchase Price"), shall be equal to two-thirds
(2/3) of the Business Contribution Member's net revenue derived from the
Business during the twelve calendar months ending June 30, 1997, and subject to
further adjustment (if any) as a result of a reduction in the Maximum Earn-Out
(as defined in this Section 1.4 below).
The parties hereto agree to allocate the Purchase Price to the
Assets in accordance with the manner set forth on Schedule 1.4 attached hereto
and in accordance with the applicable provisions of Section 1060 of the Code
(the "Price Allocation"). Accordingly, each party to this Agreement shall adopt
and utilize such Price Allocation for purposes of all tax returns filed by them
and shall not voluntarily take any position inconsistent therewith in connection
with any examination of any tax return, any refund claim, any litigation
proceeding or otherwise. Each of the Company and the Business Contribution
Member shall file on a timely basis a Form 8594 in accordance with the
requirements of Section 1060 of the Code and the provisions of this Section 1.4.
In the event that the Price Allocation is disputed by an taxing authority, the
party receiving notice of the dispute shall promptly notify the other parties
hereto of such dispute and the parties hereto shall consult with each other
concerning resolution of the dispute.
Unless the Company gives the Shareholder and the Business
Contribution Member written notice to the contrary, the Shareholder and the
Business Contribution Member shall deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) audited financial statements of the
Business, including balance sheets dated as of December 31, 1994, 1995 and 1996,
and income statements and cash flow statements for each of the three twelve
month periods ended on such dates; (ii) unaudited financial statements of the
Business,
6
<PAGE>
including a balance sheet dated as of June 30, 1996, and an income statement and
cash flow statement for the twelve month period ended on June 30, 1996; and
(iii) unaudited, reviewed financial statements of the Business, including a
balance sheet dated as of June 30, 1997 and an income statement and a cash flow
statement for the six month period ended June 30, 1997. The intent of providing
the audited financial statements referred to in the foregoing sentence is to
resolve any auditing issues prior to calculation of the Purchase Price, so that
the Purchase Price may be quickly and efficiently calculated. In the event that
the closing of the Initial Public Offering has not occurred on or before
November 12, 1997, but does occur on or before December 12, 1997, then in that
event, in lieu of the unaudited, reviewed financial statements of the Business
for the six month period ended June 30, 1997, the Shareholders and the Business
Contribution Member shall deliver to the Company, within thirty days after
written request from the Company: (i) an updated set of audited financial
statements of the Business, including a balance sheet dated as of June 30, 1997,
and income statements and cash flow statements for the six month period ended
June 30, 1997; (ii) unaudited financial statements for the Business, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Business, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders and the Business Contribution Member shall
deliver to the Company, within thirty days after written request from the
Company, such additional audited and/or unaudited, reviewed financial statements
of the Business as the Company may reasonably request.
All of the financial statements referred to in this Section 1.4
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.4,
within the prescribed time limits, shall be the sole responsibility of the
Business Contribution Member, provided that the Company will, upon the request
of the Business Contribution Member, advance such costs on behalf of the
Business
7
<PAGE>
Contribution Member. In the event that the Business Contribution Member and/or
the Shareholder does not timely deliver satisfactory shareholder representation
letters and complete the Closing in Escrow, the Business Contribution Member and
the Shareholder shall be jointly and severally responsible for immediately
refunding to the Company any such advanced costs; in the event that all such
representation letters are satisfactory and are timely received, and the Closing
in Escrow is completed, the Business Contribution Member and the Shareholder
shall be relieved of their obligation to refund to the Company any such advanced
costs.
The Company shall pay thirty percent (40%) of the Purchase Price in cash (the
"Maximum Earn-Out"), which is subject to reduction in accordance with the terms
of the next paragraph, and seventy percent (60%) of the Purchase Price in
(restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Business Contribution Member and the Shareholders acknowledge that the sale of
the Company Stock will be restricted for a period of time by virtue of a
"lock-up" agreement which may be imposed by the Company, and the Business
Contribution Member and the Shareholder shall execute such a "lock-up"
agreement, as may be required by the Company, by which the sale of the Company
Stock is restricted (perhaps prohibited) for a period of two (2) years from the
date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Business Contribution
Member ratably over the 8 quarter annual periods beginning January 1, 1998 and
ending December 31, 1999 provided that the Specific Company Subsidiary achieves
the targeted performance standards set forth in Exhibit G attached hereto. In
the event that the Specific Company Subsidiary fails to achieve the margin
requirement set forth in Exhibit B during any calendar quarter, then for each
calendar quarter in which the Specific Company Subsidiary fails to achieve such
margin requirement, the cash portion of the Purchase Price shall be reduced by
one-eighth (1/8) of the Maximum Earn-Out. In the event that the Corporation
achieves the margin requirement during the relevant calendar quarter, but fails
to achieve the revenue requirement set
8
<PAGE>
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue requirement for such calendar quarter as set forth in Exhibit B, and
the denominator of which is the revenue required during such calendar quarter as
set forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth
in this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out
shall bear interest at the rate of 7% per annum commencing as of the Closing
Date (i.e., once the Earn-Out is determined, the Shareholder will be due such
amount plus interest at the rate of 7% per annum on such amount, accrued from
the Closing Date until the date of payment of the Earn-Out to the Shareholder).
The Earn-Out shall be paid to the Business Contribution Member promptly
following calculation of the Specific Company Subsidiary's performance for the
quarter ending December 31, 1999. The Company covenants and agrees to maintain
sufficient cash, or availability of cash (e.g., by way of a line of credit) in
order to fund the Earn-Out.
At the request of the Business Contribution Member made to the
Company in writing not later than the Closing in Escrow, the Company shall
(immediately after Closing) make a loan to the Business Contribution Member in
an amount equal to up to 40% of the Purchase Price. Said loan by the Company to
the Business Contribution Member (the "Business Contribution Member Loan") shall
bear interest at a rate of seven percent (7%) per annum, and shall be secured by
all of the Company Stock paid as part of the Purchase Price at Closing. The
collateral security agreement evidencing the collateralization of the Business
Contribution Member Loan with the Company Stock and the Earn-Out shall be on
such terms as are reasonably acceptable to the Company, which terms shall
include, but shall not be limited to, the retention of all of the Company Stock
by the Company until full repayment of the Business Contribution Loan. The
Business Contribution Member shall have the right to prepay the Business
Contribution Member Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Business Contribution Member Loan (plus accrued interest) against the Earn-Out
as earned each quarter. The Business Contribution Member Loan shall mature as of
the date that the Earn-Out is payable. In the event
9
<PAGE>
that the Business Contribution Member Loan is not repaid in full upon maturity,
the Company shall enjoy all rights of a secured party under the Uniform
Commercial Code then in effect in the State of New York, provided that the
Company's only recourse shall be first against the remaining Earn-Out and then
against the Company Stock it holds as collateral, and there shall not be any
recourse against the Business Contribution Member or the Shareholder
individually.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement (the "Closing")
shall take place at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
1333 New Hampshire Avenue, N.W., Suite 400, Washington, D.C. 20036,
contemporaneously with the closing of the Reorganization Event unless the
Initial Public Offering unless the Initial Public Offering does not occur by
March 31, 1998, in which case this Agreement shall be rendered null and void, or
unless another date, time or place is agreed to in writing by the parties hereto
(the day on which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P. shall
deliver to the Company the bill of sale, instruments of assignment and
assumption, transfer documents, and other documents and materials theretofore
held in escrow from the Closing in Escrow; (ii) the Business Contribution Member
and the Shareholder shall deliver to the Company updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.3(a) above; and (iii) the
Company shall deliver the Purchase Price to the Business Contribution Member
(less the Maximum Earn-Out, which shall be payable to the Business Contribution
Member pursuant to the terms of Section 1.4 above, and with the Company Stock
collateralized against the Business Contribution Member Loan being delivered to
the Company as appropriate). At Closing, Company, Business Contribution Member,
Shareholder and Specific Company Subsidiary shall also take all additional steps
as may be necessary or appropriate to deliver the Assets to the Specific Company
Subsidiary, have the Specific Company Subsidiary assume the Assumed Liabilities,
and put the Specific Company Subsidiary in physical possession and operating
control of the
10
<PAGE>
Business and all of the Assets.
2. Representations, Warranties and Covenants of the Business Contribution
Member and the Shareholder.
The Business Contribution Member and the Shareholder hereby jointly
and severally represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Business Contribution
Member is an "S" Corporation duly organized, validly existing and in good
standing under the laws of the State of New Hampshire, and has all requisite
corporate power and authority to own, lease and operate its properties
(including, without limitation, the Assets) and to carry on its business as now
being conducted (including, without limitation, the Business). The Business
Contribution Member is duly qualified and in good standing to conduct business
in each jurisdiction in which the business it is conducting (including, without
limitation, the Business), or the operation, ownership or leasing of its
properties (including, without limitation, the Assets), makes such qualification
necessary.
2.2. Authority and Enforceability.
(a) Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite corporate power and authority to
execute and deliver this Agreement and each of the Related Agreements to which
it is a party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Business
Contribution Member. This Agreement and each of the Related Agreements to which
the Business Contribution Member is a party has been duly executed and delivered
by the Business Contribution Member, and this Agreement and each of the Related
Agreements to which the Business Contribution Member is a party constitute the
legal, valid and binding obligations of the Business Contribution Member,
enforceable against the Business Contribution Member in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity
11
<PAGE>
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
(b) Matters Relating to the Shareholder. The Shareholder has
all requisite legal right, power and authority to enter into this Agreement and
each of the Related Agreements to which he is a party and to agree to the
transactions contemplated hereby and thereby and to perform all of his
respective obligations hereunder and thereunder. This Agreement and each of the
Related Agreements to which the Shareholder is a party constitute the legal,
valid and binding obligations of the Shareholder, enforceable against the
Shareholder in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
2.3. Title to Assets; Condition.
(a) The Business Contribution Member owns beneficially and of
record, and has good and marketable title to, the Assets, free and clear of any
Encumbrances. For purposes of this Agreement, the term "Encumbrances" shall mean
restrictions, conditions, covenants, liens, easements, charges, encroachments or
any other matter affecting fee simple title (other than the Assumed
Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this Agreement
to be effected at the Closing, the Company will (i) have all right, title, and
interest in and to, or will have a valid right to use, without liability to
third party(ies), the Assets; and (ii) have all assets, rights, Back-Office
Employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the
12
<PAGE>
Business after the Closing Date in substantially the same manner as presently
conducted by the Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member and the Shareholder of this
Agreement and each of the Related Agreements to which they are, respectively, a
party, and the consummation of the transactions contemplated hereby and thereby
by each of the Business Contribution Member and the Shareholder will not (a)
conflict with or violate any provision of the articles or certificate of
incorporation or by-laws of the Business Contribution Member, (b) except as set
forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an Encumbrance, under or pursuant
to (i) any of the Contracts, or (ii) any other material agreements to which the
Business Contribution Member and/or the Shareholder is a party, or (d) violate
any law applicable to the Business Contribution Member or the Shareholder or by
which any of the Assets is bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Business Contribution Member or the Business is
currently subject (or which the Business Contribution Member or the Business was
subject to during the previous three years) or which are otherwise applicable to
the Business Contribution Member or the Assets or to the conduct of the
Business, and (ii) all correspondence
13
<PAGE>
from the date hereof with respect to any of the matters referred to in clause
(b) or clause (i) of this Section 2.6. Neither the Business Contribution Member
nor the Shareholder is aware of any proposed legislation or law which is
reasonably expected to be enacted and which, if so enacted, could reasonably be
expected to have a material adverse effect on either the Business or the
Business Contribution Member.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member and/or the Shareholder,
threatened that questions the validity of this Agreement or the Related
Agreements or any action taken or to be taken by the Business Contribution
Member or the Shareholder in connection with the consummation of the
transactions contemplated hereby or thereby or which seeks to prohibit, enjoin
or otherwise challenge any of the transactions contemplated hereby or thereby.
Exhibit H sets forth an accurate and complete list, and a brief description
(setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Legal Proceeding pending or, to the
knowledge of the Business Contribution Member and/or the Shareholder, threatened
against or affecting the Business Contribution Member, the Business or any of
the Assets. To the knowledge of the Business Contribution Member and/or the
Shareholder, no event has occurred and no circumstance, matter or set of facts
exist which would constitute a valid basis for the assertion by any third party
of any claim or Legal Proceeding, other than those listed on Exhibit H. Except
as set forth in Exhibit H, there is no outstanding or, to the knowledge of the
Business Contribution Member and/or the Shareholder, threatened judgment,
injunction, order or consent or similar decree or agreement (including, without
limitation, any consent or similar decree or agreement with any governmental
entity) against, affecting or naming the Business Contribution Member, the
Business or any of the Assets.
14
<PAGE>
2.8. Financial Advisors.
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business Contribution Member and/or the
Shareholder in connection with the negotiations relating to or the transactions
contemplated by this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member and/or the Shareholder. Such fees, commissions, like payments or expense
reimbursements as are described on Exhibit I attached hereto shall remain
liabilities and expenses of the Business Contribution Member and/or the
Shareholder exclusively, and are specifically excluded from the Assumed
Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which, together with the financial statements
(including the notes and exhibits thereto), to be delivered to the Company
pursuant to Section 1.4 herein (the "Financial Statements") were and will be
prepared in accordance with the books and records of the Business, are and will
be complete and correct in all material respects, have and will have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), applied consistently with the past practices of the Business, except
where otherwise specifically noted therein, and present and will present fairly
in all material respects the financial position, results of operations and
changes in financial position or cash flows, whichever is applicable, of the
Business as at the dates and for the periods indicated (subject, in the case of
the unaudited financial statements, to normal year-end audit adjustments).
Without limiting the foregoing, no undisclosed liabilities or obligations of any
nature (whether known or unknown, or absolute, accrued, contingent or otherwise)
shall exist as at Closing in Escrow or the Closing not reflected in the
Business's most recently dated balance sheet supplied to the Company. The
Business Contribution Member has paid all federal, state and local income,
profits, franchises, sales, use, occupation, property, excise and payroll
15
<PAGE>
taxes, and all license fees and other charges imposed upon it, and has timely
filed all tax returns and related documents required to be filed with any
governmental authority. There are no outstanding or proposed statements of
deficiency in tax payments to any federal, state, local or foreign government
with respect to the Business Contribution Member for any tax period. As of the
dates such Financial Statements were and will be prepared, all accounts
receivable reflected on the Financial Statements (i) have and will have arisen
from bona fide transactions in the ordinary course of the Business Contribution
Member's business, consistent with its past practices, and (ii) are good and
collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for returns or doubtful accounts which are reflected in such Financial
Statements (such reserves, the "Reserves"); such Reserves are adequate and
reasonable and were established in accordance with GAAP.
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d)
hereinbelow) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly-used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for
16
<PAGE>
the conduct of the Business as now conducted. After Closing, the Specific
Company Subsidiary will have the right to use all of the Intellectual Property
as currently used or as necessary for the conduct of the Business as now
conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property , and neither the Business Contribution Member nor any
of the Shareholders have received any notice or claim (whether written, oral or
otherwise) challenging the Business Contribution Member's ownership or rights in
such Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto; the Business Contribution
Member has all legal and other rights required to transfer the ownership of the
Intellectual Property to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Business Contribution Member nor any of the Shareholders has
received any notice or claim (whether written oral or otherwise) challenging the
validity or enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Business Contribution
Member will conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title or interest held by any other
person or entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture
17
<PAGE>
or relinquishment of any Intellectual Property used in the conduct of its
business as now conducted (including, without limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property used or able to be used by the Business
Contribution Member in the conduct of its business (including, without
limitation, the Business) as heretofore conducted; and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date.
Neither the Business Contribution Member nor any of the Shareholders has granted
to any other Person or entity any rights or permissions to use any of the
Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data
18
<PAGE>
right), and license or other contract (including without limitation license(s)
to use specific telephone numbers and/or radio channels/frequencies) relating to
any of the foregoing, and any goodwill associated with any business owning,
holding or using any of the foregoing.
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be assumed by the Specific Company Subsidiary directly from and after
Closing, the Business Contribution Member hereby agrees to keep such insurance
policy(ies) as are reflected by such Assumed Liabilities in full force and
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is valid and enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity); (ii) no Default (as defined below) exists under any Contract either by
the Business Contribution Member or by any other party thereto; (iii) neither
the Business Contribution Member nor any of the Shareholders is aware of the
assertion by any third party of any claim of Default or breach under any of the
Contracts; and (iv) neither the Business Contribution Member nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Business Contribution
Member to either (x)
19
<PAGE>
terminate or significantly change its existing business relationship with the
Business Contribution Member either now or in the foreseeable future, or (y)
fail to renew or extend its existing business relationship with the Business
Contribution Member at the end of the term of any existing contractual
arrangement such entity may have with the Business Contribution Member. For
purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any breach of or default under such Contract, (y) any event, other
than the normal passage of time, which would (either with or without notice or
lapse of time or both) give rise to any right of termination, cancellation or
acceleration or any obligation to repay with respect to such Contract, or (z)
any event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member or any of the
Shareholders in connection with this Agreement, the Related Agreements or the
transactions contemplated hereby or thereby 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 statement contained herein or therein, in light of the
circumstances under which they were made, not misleading. Neither the Business
Contribution Member nor any of the Shareholders knows of any facts which are
reasonably likely to cause a material adverse effect on the Assets or the
Business.
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, the Shareholders, and Certain Employees
of the Business Contribution Member
Each of the Shareholders, the Business Contribution Member,
and certain employees of the Business Contribution Member noted on Exhibit B
attached hereto, shall have, at the Closing in Escrow, entered into agreements,
the form of which is attached to this Agreement as Exhibit B.
20
<PAGE>
3.2. Confidentiality. The Business Contribution Member and the
Shareholders shall abide by the terms of the Confidentiality Agreement between
the Business Contribution Member and the Company (or the Company's predecessor,
Dispatch Management Services LLC) executed on July 24, 1997. The Business
Contribution Member, the Shareholders, and the Specific Company Subsidiary each
acknowledge and agree that the Company shall have the right to disclose certain
information concerning the Specific Company Subsidiary, the Assets and/or the
Business to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member and the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors'
21
<PAGE>
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company; or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the
22
<PAGE>
knowledge of the Company, threatened against or affecting the Company. To the
knowledge of the Company, no event has occurred and no circumstance, matter or
set of facts exist which would constitute a valid basis for the assertion by any
third party of any claim or Legal Proceeding, other than those listed on Exhibit
H. Except as set forth in Exhibit H, there is no outstanding or, to the
knowledge of the Company, threatened, judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member and the Shareholders,
jointly and severally, covenant and agree that (except as expressly contemplated
or permitted by this Agreement, or to the extent that the Company shall
otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the
23
<PAGE>
Business and (ii) preserve the present relationship of the Business Contribution
Member with Persons having business dealings with the Business Contribution
Member;
(c) comply with all laws and with all contractual and other
obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any Encumbrance;
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on the Business or the Assets,
and (ii) any Legal Proceeding commenced by or against the Business Contribution
Member or any Legal Proceeding commenced or threatened relating to the
transactions contemplated by this Agreement; and
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member or the Shareholders in this Agreement or the
Related Agreements untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, the Business Contribution
Member shall take all steps necessary to change its corporate name and/or trade
name to a name not confusingly similar to the trade name being conveyed
hereunder and to be utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business
24
<PAGE>
hours and under reasonable circumstances, and the Business Contribution Member
shall cooperate fully therein. In order that the Company may have full
opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may reasonably request of the affairs of the
Business and the Business Contribution Member, each of the Business Contribution
Member and the Shareholders shall use their respective best efforts to cause the
Business Contribution Member's officers, employees, consultants, agents,
accountants, attorneys and other representatives to cooperate fully with such
Company representatives in connection with such review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Business Contribution
Member nor any of the Shareholders shall pursue, initiate, encourage or engage
in any negotiations or discussions with any third parties concerning the sale of
the Business, the Assets, or any part thereof or concerning the terms and
conditions of this Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member and the Shareholders shall give prompt notice to the Company of (a) any
notice of, or other communication relating to, a default under any contract
material to the financial condition, properties, business operations, or results
of operations of the Business and/or the Business
25
<PAGE>
Contribution Member to which it is a party or is subject, (b) any notice or
other communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement or any of the Related Agreements, or (c) any material adverse
change in the properties (including but not limited to the Assets), business
operations, results of operations, financial condition or prospects of the
Business, other than changes resulting from general economic conditions. In
addition, the Business Contribution Member and the Shareholders shall be
required to update the schedules and other information supplied pursuant to this
Agreement at such time as the information contained therein changes in any
material respect.
6.6. Working Capital as of the Closing Date. The Shareholders and
the Business Contribution Member shall ensure that the Assets, less the Assumed
Liabilities, includes at least $10,000 working capital (defined as the excess of
current (liquid) assets over current liabilities) as of the Closing Date;
provided, however, that the Company shall have the right to require a greater
amount of working capital as of the Closing Date if the amount of working
capital shown on the balance sheet of the Business Contribution Member as of
September 30, 1997, is greater than $110,000.
For purposes of determining whether the required working capital
existed as of the Closing Date, the Company will cause to be prepared, promptly
following the Closing, a balance sheet setting forth the Assets and Assumed
Liabilities as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, consistent with past practices of the Business
Contribution Member, and shall include full accrual of all tax liabilities of
the Business Contribution Member as of the Closing Date (including but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that less than the prescribed $10,000 working capital
existed as of the Closing Date, as determined by such balance sheet, the
Shareholders and/or the Business Contribution Member shall forthwith pay the
Company an amount equal to the difference between the actual working capital as
of the Closing Date and $10,000 working capital (the "Shortfall"). If the
Shareholders and/or the Business Contribution Member do not pay the Shortfall to
the Company within five (5) days after demand, then, in addition to all other
remedies which the Company may have, the Company may deduct the
26
<PAGE>
amount of the Shortfall from any of the obligations of the Company to the
Shareholders or the Business Contribution Member (including, but not limited to,
the Earn-Out to which the Business Contribution Member may be entitled
thereafter).
In the event that the Business Contribution Member shall notify the
Company in writing within five days after demand is made by the Company for
payment of the Shortfall of its decision to dispute the amount of the Shortfall,
the Company shall forthwith instruct Price Waterhouse LLP to audit the balance
sheet of the Business as of the Closing Date, and to calculate the working
capital therein in accordance with GAAP. Price Waterhouse LLP shall then
determine the amount of the Shortfall as set out in this paragraph 6.6, whose
decision shall be final and binding on the parties hereto. The Business
Contribution Member shall forthwith pay to the Company the amount of such
Shortfall, together with fifty percent (50%) of the cost of the audit conducted
by Price Waterhouse LLP. In the event Price Waterhouse LLP determines the
Shortfall to have been zero, the entire cost of such audit shall be borne by the
Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the
27
<PAGE>
satisfaction of the following conditions (which are for the exclusive benefit of
the Company, any or all of which may be waived in whole or in part by the
Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member and the Shareholders set forth in
this Agreement (with regard to any supplements or updates thereto) shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of the Closing in Escrow Date and the Closing Date as though made on
and as of the Closing in Escrow Date and the Closing Date, respectively, except
as otherwise contemplated by this Agreement, and the Company shall have received
a certificate from the Shareholders and the Business Contribution Member (signed
by a senior executive officer of the Business Contribution Member) certifying to
such effect.
(b) Performance of Obligations. The Business Contribution
Member and the Shareholders shall each have performed all obligations required
to be performed by each such party under this Agreement at or prior to the
Closing in Escrow Date and the Closing Date, respectively, and the Company shall
have received a certificate from the Shareholders and the Business Contribution
Member (signed by a senior executive officer of the Business Contribution
Member) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Assets or the Business.
(d) Contractual Consents. The Business Contribution Member
and/or the Shareholders shall have given all notices to, and obtained all
consents, approvals or authorizations of or from, any individual, corporation or
other party which may be necessary to permit the consummation of the
transactions contemplated hereby (including, without limitation, any consents
required under the Contracts, or which may be required to permit the change of
ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member and/or the Shareholders are a party shall
have been duly executed
28
<PAGE>
and delivered by such party. In addition, the Related Agreements shall have been
entered into by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member
and the Shareholders. The obligations of the Business Contribution Member and
the Shareholders to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Business Contribution Member and the Shareholders), any
or all of which may be waived in whole or in part by the Business Contribution
Member or the Shareholders.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Agreement and Plan of Merger of Dispatch
Management Services
29
<PAGE>
LLC, Kiwi Express Software, L.L.C. and Dispatch Management Services Corp., dated
as of September 8, 1997 are not preserved; or
(d) by the Company in the event that the Business Contribution
Member and/or any of the Shareholders do not timely deliver representation
letters satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or shareholders except (i)
for the obligation of the Business Contribution Member and the Shareholders to
refund to the Company the audit expenses as set forth in Section 1.4 of this
Agreement; (ii) for any and all obligations under the confidentiality provisions
contained in Section 3.2 of this Agreement; and (iii) to the extent that such
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement. In the event that termination results from the willful
breach by a party hereto of any of its representations or warranties, or of any
of its covenants or agreements, as set forth in this Agreement, the breaching
party shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member and
the Shareholders. The Business Contribution Member and the Shareholders each
hereby agrees to jointly and severally indemnify, defend and hold harmless the
Company, the Specific Company Subsidiary, and their respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business Contribution Member's most
30
<PAGE>
recently dated balance sheet delivered to the Company, (ii) any inaccuracy in or
breach of any of the Business Contribution Member's and/or any of the
Shareholders' representations, warranties, covenants or agreements contained in
this Agreement, the Related Agreements or in any other agreement or document
entered into or delivered on or after the date hereof in connection with this
Agreement or any of the transactions contemplated hereby and thereby, (ii) any
liability or obligation of the Business Contribution Member and/or any of the
Shareholders other than an Assumed Liability, and (iii) any non-compliance with
any notice requirement, if any, which may be contained in the Uniform Commercial
Code as adopted by the State of New York relating to bulk sales. Provided,
however, the indemnification by the Business Contribution Member and/or the
Shareholders under this Section 9.1.(a) shall include direct damages only (and
not indirect or consequential damages). For purposes of this Agreement, the term
"Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member and/or
the Shareholders from and against and in respect of any and all Losses resulting
from, arising out of, relating to, imposed upon or incurred by the Business
Contribution Member and/or the Shareholders by reason of (i) any inaccuracy in
or breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby; or (ii) any failure to discharge the Assumed Liabilities as
required by their terms. Provided, however, the indemnification by the Company
under this Section 9.1.(b) shall include direct damages only (and not indirect
or consequential damages) and shall be limited in the aggregate to the Purchase
Price.
31
<PAGE>
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, New York 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Business Contribution Member or the
Shareholders, to:
Christian Delivery Service
18 Clinton Drive
Hollis, New Hampshire 03049
Attention: Leo J. Gould
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have
32
<PAGE>
been signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Asset Transfer Agreement between the parties dated _______________, which
Agreement will be of no further force or effect upon execution of this
Agreement), both written and oral, among the parties with respect to the subject
matter hereto and is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
all parties hereto with respect to any of the terms contained herein, and each
party hereto agrees to be bound by any such amendment, modification or
supplement.
10.5. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York, without
giving effect to the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced,
33
<PAGE>
and they therefore consent that the rights and obligations of the parties under
this Agreement may be enforced by a decree of specific performance issued by a
court of competent jurisdiction. Such remedy shall, however, not be exclusive
and shall be in addition to any other remedies which any party may have under
this Agreement or otherwise. Without limiting the foregoing, the Business
Contribution Member and the Shareholders acknowledge that the failure to comply
with any of the provisions of Sections 3.1, 3.2. and 6.3 hereof will result in
irreparable harm for which there is no adequate remedy at law and that the
Company and/or the Specific Company Subsidiary shall be entitled, without the
necessity of proving actual damages, to injunctive relief in addition to damages
and all other remedies which may otherwise be available to the Company and/or
the Specific Company Subsidiary.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Business Contribution Member and the Shareholders that money damages are
inadequate to compensate the Company and/or the Specific Company Subsidiary for
a breach of the terms of this Agreement, and that the Company and/or the
Specific Company Subsidiary shall be entitled to specific performance of the
terms of this Agreement. The arbitrator may enter a default decision against any
party who fails to participate in the proceeding. The decision of
34
<PAGE>
the arbitrator shall be final, conclusive, binding and non-appealable. The
losing party shall pay all costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof
35
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
- - - - --------------------------- ----------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest: CHRISTIAN DELIVERY SERVICE.
By: /s/ Leo J. Gould
- - - - --------------------------- ----------------------------------------
Name: Leo J. Gould
Title:
"SPECIFIC COMPANY SUBSIDIARY"
Attest:
--------------------------------------------
By: /s/ Linda Jenkinson
- - - - --------------------------- ----------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Witness: "SHAREHOLDERS"
/s/ Leo J. Gould
- - - - --------------------------- --------------------------------------------
Leo J. Gould
36
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 9th day of
October, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Striders Courier Inc., a Texas corporation (the
"Corporation"), and Tammy K. Patterson and Merlene Y. Flores, (collectively, the
"Shareholders"). Unless defined herein, all capitalized terms used in this
Agreement shall have the meaning given them in the Operating Agreement of
Dispatch Management Services LLC dated December 1, 1996 by and between the
Members of Dispatch Management Services LLC, as amended (the "Operating
Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing
the registration statement with the Securities and Exchange Commission relating
to the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); and (ii) the Corporation has not terminated the
employment of the (unwanted) employees specified by the Company in the Notice,
then the Company will make a reasonable estimate of the costs and expenses to be
incurred in connection with such terminations of employment, and the Company
will reduce the cash portion of the purchase price by the amount of such
reasonable estimate.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant
2
<PAGE>
to the terms and conditions of this Agreement. Such Closing in Escrow shall take
place at the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New
Hampshire Avenue NW, Washington, D.C. 20036 (or such other place as is mutually
agreed upon by the parties) within thirty (30) days (or such shorter period as
is specified in the Notice) after timely delivery of satisfactory shareholder
representation letters from all of the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., as escrow agent:
(i) certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholders and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretary of State of Texas; (vi) the certificates, dated the Closing in
Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and
(vii) the opinion of counsel to the Shareholders and the Corporation as to such
matters as counsel to the Company may reasonably require, including but not
limited to such counsel's opinion that: (A) the Corporation is in good standing;
(B) the Corporation is
3
<PAGE>
authorized to conduct its business in each jurisdiction in which it is doing
business; (C) the Shareholders and the Corporation have the full power to enter
into and perform their respective obligations under this Agreement; (D) this
Agreement constitutes the legal, valid and binding obligations of the
Corporation and the Shareholders, and the Related Agreements to which the
Shareholders are a party, constitute the legal, valid and binding obligations of
the Shareholders, each enforceable in accordance with their respective terms
(except as enforcement may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditor's rights, and principles of
equity); and (E) neither the Corporation nor the Shareholders are threatened
with or affected by any actions, proceedings or investigations wherein an
unfavorable decision, ruling or finding could have a material adverse effect on
the financial condition or operation of the Corporation, or could prevent,
enjoin or otherwise affect the transactions contemplated by this Agreement or
the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to $714,053, subject to adjustment (if any) as provided
in Section 1.1 above, and subject to further adjustment (if any) as a result of
a reduction in the Maximum Earn-Out (as defined in this Section 1.3 below).
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and
4
<PAGE>
cash flow statement for the twelve month period ended on June 30, 1996: and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of June 30, 1997 and an income statement and a cash flow
statement for the six month period ended June 30, 1997. The intent of providing
the audited financial statements referred to in the foregoing sentence is to
resolve any auditing issues prior to calculation of the Purchase Price, so that
the Purchase Price may be quickly and efficiently calculated. In the event that
the closing of the Initial Public Offering has not occurred on or before
November 12, 1997, but does occur on or before December 12, 1997, then in that
event, in lieu of the unaudited, reviewed financial statements of the
Corporation for the six month period ended June 30, 1997, the Shareholders shall
deliver to the Company, within thirty days after written request from the
Company: (i) an updated set of audited financial statements of the Corporation,
including a balance sheet dated as of June 30, 1997, and income statements and
cash flow statements for the six month period ended June 30, 1997; (ii)
unaudited financial statements for the Corporation, including a balance sheet
dated as of September 30, 1996, and an income statement and cash flow statement
for the twelve month period ended on September 30, 1996; and (iii) unaudited,
reviewed financial statements of the Corporation, including a balance sheet
dated as of September 30, 1997 and income statements and cash flow statements
for the three month period ended September 30, 1997. In the event that the
closing of the Initial Public Offering has not occurred on or before December
12, 1997, then upon written request from the Company given on or before March 1,
1998, the Shareholders shall deliver to the Company, within thirty days after
written request from the Company, such additional audited and/or unaudited,
reviewed financial statements of the Corporation as the Company may reasonably
request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Company. However, in the event that all of the Shareholders do not timely
deliver satisfactory shareholder representation letters or complete the Closing
in Escrow, without fault by the Company, the Shareholders shall immediately
reimburse the Company for any such advanced costs.
5
<PAGE>
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Shareholders acknowledge that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholders shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the Brand Contribution Percentage requirement set
forth in Exhibit B during any calendar quarter, then for each calendar quarter
in which the Corporation fails to achieve such Brand Contribution Percentage
requirement, the cash portion of the Purchase Price shall be reduced by one
eighth (1/8) of the Maximum Earn-Out. In the event that the Corporation achieves
the Brand Contribution Percentage requirement during the relevant calendar
quarter, but fails to achieve the revenue requirement set forth in Exhibit B,
then for each such calendar quarter, the cash portion of the Purchase Price
shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out, multiplied
by: (ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar quarter and the revenue requirement for
such calendar quarter as set forth in Exhibit B, and the denominator of which is
the revenue required during such calendar quarter as set forth in Exhibit B. The
Maximum Earn-Out, less any reductions as set forth in this paragraph, is
hereinafter referred to as the "Earn-Out". The Earn-Out shall bear interest at
the rate of 7% per annum commencing as of the Closing Date (i.e., once the
Earn-Out is determined, the Shareholders will be due such amount plus interest
at the rate of 7% per annum on such amount, accrued from the Closing Date
6
<PAGE>
until the date of payment of the Earn-Out to the Shareholders). The Earn-Out
shall be paid to the Shareholders promptly following calculation of the
Corporation's performance for the quarter ending December 31, 1999. The Company
covenants and agrees to maintain sufficient cash, or availability of cash (e.g.,
by way of a line of credit) in order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders, collectively, in an amount equal to up to 30%
of the Purchase Price. Said loan by the Company to the Shareholders (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Shareholders shall have the right to prepay
the Shareholder Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Shareholder Loan (plus accrued interest) against the Earn-Out as earned each
quarter. The Shareholder Loan shall mature as of the date that the Earn-Out is
payable. In the event that the Shareholder Loan (including accrued interest) is
not repaid in full upon maturity, the Company shall enjoy all rights of a
secured party under the Uniform Commercial Code then in effect in the State of
New York, provided that the Company's only recourse shall be first against the
remaining Earn-Out and then against the Company Stock it holds as collateral,
and there shall not be any recourse against the Shareholders individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., contemporaneously with the closing of
the Initial Public Offering unless the Initial Public Offering does not occur by
March 31, 1998, in which case this Agreement shall be rendered null and void, or
unless another date, time or place
7
<PAGE>
is agreed to in writing by the parties hereto (the day on which the Closing
takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P. shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholders shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated opinion of counsel as referred to in Section
1.2(a)(vii) above; and (iii) the Company shall deliver the Purchase Price to the
Shareholders (less the Maximum Earn-Out, which shall be payable to the
Shareholders pursuant to the terms of Section 1.3 above, and with the Company
Stock collateralized against the Shareholder Loan being delivered to the Company
as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is an "S"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute
8
<PAGE>
the legal, valid and binding obligations of the Shareholders, each enforceable
in accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of ___ shares of ___ par value
capital stock of which ____ shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to
9
<PAGE>
third party(ies), such assets and properties; and (ii) have all assets, rights,
employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Corporation after the
Closing Date in substantially the same manner as presently conducted by the
Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholders nor the Corporation is aware
of any proposed legislation or law which is reasonably expected to be enacted
and which, if so enacted, could reasonably be expected to have a material
adverse effect on the Corporation.
10
<PAGE>
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders and/or the Corporation in
connection with the negotiations relating to or the transactions contemplated by
this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
11
<PAGE>
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements (such
reserves, the "Reserves"); such Reserves are adequate and reasonable and were
established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
12
<PAGE>
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license agreements are valid and in full force and effect,
and shall continue in full force and effect as to the Corporation after Closing.
13
<PAGE>
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the
14
<PAGE>
Shareholders has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life
15
<PAGE>
insurance, accidental death and dismemberment insurance, disability insurance or
other similar plan, policy or arrangement (collectively referred to herein as
the "Plans"). The Corporation is not in default under the terms of any of the
Plans. The Corporation has made all contributions to each of the Plans required
by the terms of the respective Plans, as well as all contributions required to
be made in order to satisfy all requirements of law. Each of the Plans has
sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
16
<PAGE>
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee.
17
<PAGE>
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation. For purposes of this Agreement, the term "Default" means, with
respect to any Contract, (x) any material breach of, or material default under,
such Contract, (y) any event, other than the normal passage of time, which would
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration of, or any obligation to repay,
with respect to such Contract, or (z) any event, other than the normal passage
of time, which would result in either a significant increase in the obligations
or liabilities of, or a
18
<PAGE>
loss of any significant benefit of, the party in question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 19,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership
19
<PAGE>
or leasing of its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was
20
<PAGE>
subject since its inception), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree
21
<PAGE>
that (except as expressly contemplated or permitted by this Agreement, or to the
extent that the Company shall otherwise consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material
22
<PAGE>
respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the
23
<PAGE>
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $89,257 working capital (defined as the
excess of current (liquid) assets over current liabilities) as of the Closing
Date. For purposes of determining whether the Corporation had the required
working capital as of the Closing Date, the Company will cause to be prepared,
promptly following the Closing, a balance sheet of the Corporation as of the
Closing Date. Such balance sheet shall be prepared in accordance with GAAP, and
shall include full accrual of all assets and liabilities of the Corporation as
of the Closing Date (including, but not limited to, accrued tax liabilities as
if the tax year ended on the Closing Date). In the event that the Corporation
has less than the prescribed $89,257 working capital as of the Closing Date, as
determined by such balance sheet, the Shareholders shall forthwith pay the
Company an amount equal to the difference between the actual working capital as
of the Closing Date and $89,257 working capital (the "Shortfall"). If the
Shareholders do not pay the Shortfall to the Company within five (5) days after
demand, then, in addition to all other remedies which the Company may have, the
Company may deduct the amount of the Shortfall from any of the obligations of
the Company to the Shareholders (including, but not limited to, the Earn-Out to
which the Shareholders may be entitled thereafter).
24
<PAGE>
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to
25
<PAGE>
any supplements or updates thereto) shall be true and correct in all respects as
of the date of this Agreement and (except to the extent such representations and
warranties speak as of a specified, earlier date) as of the Closing in Escrow
Date and the Closing Date as though made on and as of the Closing in Escrow Date
and the Closing Date, respectively, except as otherwise contemplated by this
Agreement, and the Company shall have received a certificate from the
Shareholders and the Corporation (signed by each of the Shareholders and a
senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
26
<PAGE>
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results
27
<PAGE>
from the willful breach by a party hereto of any of its representations or
warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholders under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
28
<PAGE>
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
29
<PAGE>
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
Striders Courier Inc.
1705 Cedar Springs
Dallas, Texas 75202
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the parties dated May 16, 1997, which Agreement
will be of no further force or effect upon execution of this Agreement), both
written and oral, among the parties with respect to the subject matter hereto
and is not intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of all parties
hereto with respect to any of the terms contained herein, and each party hereto
agrees to be bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Texas, without giving effect to the
principles of conflicts of law thereof.
30
<PAGE>
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or
31
<PAGE>
relating to this Agreement or its alleged breach that cannot be resolved by
mutual agreement shall be resolved exclusively by arbitration by a single
arbitrator in Dallas County, Texas, in accordance with the commercial
arbitration rules of the American Arbitration Association ("AAA") and judgment
on the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. It is acknowledged by the Corporation and the Shareholders
that money damages are inadequate to compensate the Company and/or the
Corporation for a breach of the terms of this Agreement, and that the Company
and/or the Corporation shall be entitled to specific performance of the terms of
this Agreement. The arbitrator may enter a default decision against any party
who fails to participate in the proceeding. The decision of the arbitrator shall
be final, conclusive, binding and non-appealable. The losing party shall pay all
costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
32
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
STRIDERS COURIER INC.
By: /s/ Merlene Y. Flores
- - - - ------------------------- ----------------------------------------
Name: Merlene Y. Flores
Title: Vice President
Witness: "SHAREHOLDERS"
TAMMY K. PATTERSON
/s/ Tammy K. Patterson
- - - - ------------------------- ----------------------------------------
Witness: MERLENE Y. FLORES
/s/ Merlene Y. Flores
- - - - ------------------------- ----------------------------------------
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and the successor-in-interest to Dispatch Management Services LLC by
merger (the "Company"), Gregory W. Austin (the "Business Contribution Member")
and DMS Corp. Subsidiary Number ___ a Delaware corporation to-be-formed (the
"Specific Company Subsidiary"). Unless defined herein, all capitalized terms
used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996 by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member owns the business trading as
Battery Point Messenger, which is in the business of providing time critical, on
demand, point-to-point delivery services (such business, and any other lines of
business related thereto, the "Business");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below, and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
<PAGE>
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into employment
agreements with certain employees of the Business Contribution Member and the
Specific Company Subsidiary (the "Back-Office Employees"), identified in Exhibit
A hereto, as well as non-competition agreements with the Business Contribution
Member and certain employees of the Business Contribution Member and the
Specific Company Subsidiary in the form attached hereto as Exhibit B (such
employment agreements and non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements");
WHEREAS, the parties intend that, as of Closing, the Business Contribution
Member will have taken all steps necessary for the Specific Company Subsidiary
to trade under the trade name previously used for the Business (which trade name
is specifically acquired by the Company hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Business
Contribution Member shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited financial
statements required pursuant to Section 1.4 below and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the
2
<PAGE>
common stock, par value $.01 per share, of the Company (the "Initial Public
Offering"), the Company will deliver to the Business Contribution Member a
disclosure document, together with a notice (the "Notice") specifying the date
by which the Business Contribution Member must execute and deliver a
satisfactory representation letter in order to consummate the sale of the Assets
and assumption of the Assumed Liabilities pursuant to the terms of this
Agreement.
Upon timely delivery from the Business Contribution Member of a
representation letter satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of a satisfactory representation letter from the Business
Contribution Member.
In the event that the Business Contribution Member does not timely
deliver satisfactory representation letters (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.4 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
(ii) All rights to the trade and brand names "Battery
Point Messenger" and "Alpha Express", logos, and other Intellectual Property as
defined in Section 2.11.(d) hereinbelow, customer lists, goodwill and other
intangible assets; and
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (including, but not limited to, leases) (the "Contracts"), as set
forth on Exhibit D attached hereto.
3
<PAGE>
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member, and only those liabilities and obligations, which
are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member shall, as appropriate, enter into, execute and deliver to
the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i) a bill of
sale, (ii) an instrument of assignment and assumption (the form and substance of
which shall be reasonably acceptable to the Company), and (iii) any other
instruments of conveyance or transfer which may be necessary in the sole
discretion of the Company, including, without limitation, any instruments of
assignment in connection with the Intellectual Property and the Contracts, each
in form and substance reasonably acceptable to the Company, pursuant to which
the Business Contribution Member shall convey, assign, transfer and deliver to
the Company all right, title and interest in, to and
4
<PAGE>
under the Assets, free and clear of any and all Encumbrances (as defined in
Section 2.3(a) below), and the Company shall assume the Assumed Liabilities from
the Business Contribution Member. At the Closing in Escrow, the Business
Contribution Member shall also cause to be delivered the opinion of its counsel
as to such matters as counsel to the Company may reasonably require, including
but not limited to such counsel's opinion that: the Business Contribution Member
is authorized to conduct its business in each jurisdiction in which it is doing
business; the Business Contribution Member has full power to enter into and
perform his or her respective obligations under this Agreement, as well the
Related Agreements to which he or she is a party; this Agreement, and the
Related Agreements to which the Business Contribution Member is a party,
constitutes a legal, valid and binding obligation of the Business Contribution
Member enforceable in accordance with their respective terms (except as
enforcement may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditor's rights, and principles of equity); and
the Business Contribution Member is not threatened with or affected by any
actions, proceedings or investigations wherein an unfavorable decision, ruling
or finding could have a materially adverse effect on the financial condition or
operation of the Business and/or the Assets, or could prevent, enjoin or
otherwise affect the transactions contemplated by this Agreement.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
Without limiting the foregoing, the Business Contribution Member shall take
whatever steps are necessary (such as filings with the United States Patent and
Trademark Office) to transfer the Intellectual Property to the Specific Company
Subsidiary.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets, net of the
downward adjustment for the full amount of the Assumed Liabilities as listed on
Exhibit F attached hereto (the
5
<PAGE>
"Purchase Price"), shall be equal to $611,383, and subject to further adjustment
(if any) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.4 below).
The parties hereto hereby agree to allocate the Purchase Price among
the Assets in accordance with the manner set forth on Schedule 1.4 attached
hereto and in accordance with the applicable provisions of Section 1060 of the
Code (the "Price Allocation"). Accordingly, each party to this Agreement shall
adopt and utilize such Price Allocation for purposes of all tax returns filed by
them and shall not voluntarily take any position inconsistent therewith in
connection with any examination of any tax return, any refund claim, any
litigation proceeding or otherwise. Each of the Company and the Business
Contribution Member shall file on a timely basis a Form 8594 in accordance with
the requirements of Section 1060 of the Code and the provisions of this Section
1.4. In the event that the Price Allocation is disputed by any taxing authority,
the party receiving notice of the dispute shall promptly notify the other
parties hereto of such dispute and the parties hereto shall consult with each
other concerning resolution of the dispute.
Unless the Company gives the Business Contribution Member written
notice to the contrary, the Business Contribution Member shall deliver to the
Company, within thirty (30) days after execution of this Agreement: (i) audited
financial statements of the Business, including balance sheets dated as of
December 31, 1994, 1995 and 1996, and income statements and cash flow statements
for each of the three twelve month periods ended on such dates; (ii) unaudited
financial statements of the Business, including a balance sheet dated as of June
30, 1996, and an income statement and cash flow statement for the twelve month
period ended on June 30, 1996: and (iii) unaudited, reviewed financial
statements of the Business, including a balance sheet dated as of June 30, 1997
and an income statement and a cash flow statement for the six month period ended
June 30, 1997. The intent of providing the audited financial statements referred
to in the foregoing sentence is to resolve any auditing issues prior to
calculation of the Purchase Price, so that the Purchase Price may be quickly and
efficiently calculated. In the event that the closing of the Initial Public
Offering has not occurred on or before November 12, 1997, but does occur on or
before December 12, 1997, then in that event, in lieu of the unaudited, reviewed
financial statements of the Business for the six month period ended June 30,
1997, the Business Contribution Member shall deliver to the Company, within
thirty days after written request from the Company: (i) an updated set of
audited financial
6
<PAGE>
statements of the Business, including a balance sheet dated as of June 30, 1997,
and income statements and cash flow statements for the six month period ended
June 30, 1997; (ii) unaudited financial statements for the Business, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Business, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Business Contribution Member shall deliver to the Company,
within thirty days after written request from the Company, such additional
audited and/or unaudited, reviewed financial statements of the Business as the
Company may reasonably request.
All of the financial statements referred to in this Section 1.4
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.4,
within the prescribed time limits, shall be the sole responsibility of the
Business Contribution Member, provided that the Company will, upon the request
of the Business Contribution Member, advance such costs on behalf of the
Business Contribution Member. In the event that the Business Contribution Member
does not timely deliver a satisfactory representation letter and complete the
Closing in Escrow, the Business Contribution Member shall be responsible for
immediately refunding to the Company any such advanced costs; in the event that
all such representation letters are satisfactory and are timely received, and
the Closing in Escrow is completed, the Business Contribution Member shall be
relieved of his or her obligation to refund to the Company any such advanced
costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as partial payment of the
Purchase Price shall be equal to the aggregate dollar value of the stock
component of the Purchase Price divided by the Initial Public Offering price per
share as set forth on the cover page of the prospectus relating to the Initial
Public Offering. The Business Contribution
7
<PAGE>
Member acknowledges that the sale of the Company Stock will be restricted for a
period of time by virtue of a "lock-up" agreement which may be imposed by the
Company, and the Business Contribution Member shall execute such a "lock-up"
agreement, as may be required by the Company, by which the sale of the Company
Stock is restricted (perhaps prohibited) for a period of two (2) years from the
date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Business Contribution
Member ratably over the 8 quarter annual periods beginning January 1, 1998 and
ending December 31, 1999 provided that the Specific Company Subsidiary achieves
the targeted performance standards set forth in Exhibit G attached hereto. In
the event that the Specific Company Subsidiary fails to achieve the margin
requirement set forth in Exhibit G during any such calendar quarter, then for
each calendar quarter in which the Specific Company Subsidiary fails to achieve
such standards margin requirement, the cash portion of the Purchase Price shall
be reduced by one-eighth (1/8) of the Maximum Earn-Out. In the event that the
Corporation achieves the margin requirement during the relevant calendar
quarter, but fails to achieve the revenue requirement set forth in Exhibit G,
then for each such calendar quarter, the cash portion of the Purchase Price
shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out, multiplied
by: (ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar quarter and the revenue requirement for
such calendar quarter as set forth in Exhibit G, and the denominator of which is
the revenue required during such calendar quarter as set forth in Exhibit G. The
Maximum Earn-Out, less any reductions as set forth in this paragraph, is
hereinafter referred to as the "Earn-Out". The Earn-Out shall bear interest at
the rate of 7% per annum commencing as of the Closing Date (i.e., once the
Earn-Out is determined, the Shareholders will be due such amount plus interest
at the rate of 7% per annum on such amount, accrued from the Closing Date until
the date of payment of the Earn-Out to the Shareholders). The Earn-Out shall be
paid to the Business Contribution Member promptly following calculation of the
Specific Company Subsidiary's performance for the quarter ending December 31,
1999. The Company covenants and agrees to maintain sufficient cash, or
availability of cash (e.g., by way of a line of credit) in order to fund the
Earn-Out.
At the request of the Business Contribution Member made to the
Company in writing not later than the Closing in Escrow, the Company shall
(immediately after Closing) make a loan to
8
<PAGE>
the Business Contribution Member in an amount equal to up to 30% of the Purchase
Price. Said loan by the Company to the Business Contribution Member (the
"Business Contribution Member Loan") shall bear interest at a rate of seven
percent (7%) per annum, and shall be secured by all of the Company Stock paid as
part of the Purchase Price at Closing. The collateral security agreement
evidencing the collateralization of the Business Contribution Member Loan with
the Company Stock and the Earn-Out shall be on such terms as are reasonably
acceptable to the Company, which terms shall include, but shall not be limited
to, the retention of all of the Company Stock by the Company until full
repayment of the Business Contribution Loan. The Business Contribution Member
shall have the right to prepay the Business Contribution Member Loan (plus
accrued interest) at any time without penalty and shall have the right to direct
the Company to offset the balance due under the Business Contribution Member
Loan (plus accrued interest) against the Earn-Out as earned each quarter. The
Business Contribution Member Loan shall mature as of the date that the Earn-Out
is payable. In the event that the Business Contribution Member Loan is not
repaid in full upon maturity, the Company shall enjoy all rights of a secured
party under the Uniform Commercial Code then in effect in the State of Maryland,
provided that the Company's only recourse shall be first against the remaining
Earn-Out and then against the Company Stock it holds as collateral, and there
shall not be any recourse against the Business Contribution Member individually.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement (the "Closing")
shall take place at the offices of Silver, Freedman & Taff, L.L.P., 1100 New
York Avenue, N.W., Suite 700E, Washington, D.C. 20005, contemporaneously with
the closing of the Initial Public Offering unless the Initial Public Offering
does not occur by March 31, 1998, in which case this Agreement shall be rendered
null and void, or unless another date, time or place is agreed to in writing by
the parties hereto (the day on which the Closing takes place being the "Closing
Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the bill of sale, instruments of assignment and assumption,
transfer documents, and other documents and materials theretofore held in escrow
from the Closing in Escrow; (ii) the Business Contribution
9
<PAGE>
Member shall deliver to the Company updated certificates, dated the Closing
Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an updated
opinion of counsel as referred to in Section 1.3(a) above; and (iii) the Company
shall deliver the Purchase Price to the Business Contribution Member (less the
Maximum Earn-Out, which shall be payable to the Business Contribution Member
pursuant to the terms of Section 1.4 above, and with the Company Stock
collateralized against the Business Contribution Member Loan being delivered to
the Company as appropriate). At Closing, the Company, Business Contribution
Member and Specific Company Subsidiary shall also take all additional steps as
may be necessary or appropriate to deliver the Assets to the Specific Company
Subsidiary, have the Specific Company Subsidiary assume the Assumed Liabilities,
and put the Specific Company Subsidiary in physical possession and operating
control of the Business and all of the Assets.
2. Representations, Warranties and Covenants of the Business Contribution
Member.
The Business Contribution Member represents, warrants and covenants
to the Company as follows:
2.1. Power. The Business Contribution Member has all requisite power
and authority to own, lease and operate its properties (including, without
limitation, the Assets) and to carry on its business as now being conducted
(including, without limitation, the Business). The Business Contribution Member
is duly qualified to conduct business in each jurisdiction in which the business
it is conducting (including, without limitation, the Business), or the
operation, ownership or leasing of its properties (including, without
limitation, the Assets), makes such qualification necessary.
2.2. Authority and Enforceability.
Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite power and authority to execute
and deliver this Agreement and each of the Related Agreements to which it is a
party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Business Contribution
Member. This Agreement and each of the
10
<PAGE>
Related Agreements to which the Business Contribution Member is a party has been
duly executed and delivered by the Business Contribution Member, and this
Agreement and each of the Related Agreements to which the Business Contribution
Member is a party constitute the legal, valid and binding obligations of the
Business Contribution Member, enforceable against the Business Contribution
Member in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
2.3. Title to Assets; Condition.
(a) The Business Contribution Member owns beneficially and of
record, and has good and marketable title to, the Assets, free and clear of any
Encumbrances. For purposes of this Agreement, the term "Encumbrances" shall mean
restrictions, conditions, covenants, liens, easements, charges, encroachments or
any other matter affecting fee simple title (other than the Assumed
Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this Agreement
to be effected at the Closing, the Company will (i) have all right, title, and
interest in and to, or will have a valid right to use, without liability to
third party(ies), the Assets; and (ii) have all assets, rights, Back-Office
Employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Business after the
Closing Date in substantially the same manner as presently conducted by the
Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member of this Agreement and each of the
Related Agreements to which
11
<PAGE>
he or she is a party, and the consummation of the transactions contemplated
hereby and thereby by the Business Contribution Member will not (a) except as
set forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (b) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an Encumbrance, under or pursuant
to (i) any of the Contracts, or (ii) any other material agreements to which the
Business Contribution Member is a party, or (c) violate any law applicable to
the Business Contribution Member or by which any of the Assets is bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, to the best of the Business Contribution
Member's knowledge after due inquiry, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Business Contribution Member or the Business is
currently subject (or which the Business Contribution Member or the Business was
subject to during the previous three years) or which are otherwise applicable to
the Business Contribution Member or the Assets or to the conduct of the
Business, and (ii) all correspondence from the date hereof with respect to any
of the matters referred to in clause (b) or clause (i) of this Section 2.6. The
Business Contribution Member is not aware of any proposed legislation or law
which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Business.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member, threatened that
questions the validity of this Agreement or the Related
12
<PAGE>
Agreements or any action taken or to be taken by the Business Contribution
Member in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Business
Contribution Member, threatened against or affecting the Business Contribution
Member, the Business or any of the Assets. To the knowledge of the Business
Contribution Member, no event has occurred and no circumstance, matter or set of
facts exist which would constitute a valid basis for the assertion by any third
party of any claim or Legal Proceeding, other than those listed on Exhibit H.
Except as set forth in Exhibit H, there is no outstanding or, to the knowledge
of the Business Contribution Member, threatened judgment, injunction, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Business Contribution Member, the Business or any of the
Assets.
2.8. Financial Advisors.
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business Contribution Member in connection with
the negotiations relating to or the transactions contemplated by this Agreement
or the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member. Such fees, commissions, like payments or expense reimbursements as are
described on Exhibit I attached hereto shall remain liabilities and expenses of
the Business Contribution Member exclusively, and are specifically excluded from
the Assumed Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which,
13
<PAGE>
together with the financial statements (including the notes and exhibits
thereto), to be delivered to the Company pursuant to Section 1.4 herein (the
"Financial Statements") were and will be prepared in accordance with the books
and records of the Business, are and will be complete and correct in all
material respects, have and will have been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"), applied consistently with the
past practices of the Business, except where otherwise specifically noted
therein, and present and will present fairly in all material respects the
financial position, results of operations and changes in financial position or
cash flows, whichever is applicable, of the Business as at the dates and for the
periods indicated (subject, in the case of the unaudited financial statements,
to normal year-end audit adjustments). Without limiting the foregoing, no
undisclosed liabilities or obligations of any nature (whether known or unknown,
or absolute, accrued, contingent or otherwise) shall exist as at Closing in
Escrow or the Closing not reflected in the Business's most recently dated
balance sheet supplied to the Company. The Business Contribution Member has paid
all federal, state and local income, profits, franchises, sales, use,
occupation, property, excise and payroll taxes, and all license fees and other
charges imposed upon it, and has timely filed all tax returns and related
documents required to be filed with any governmental authority. There are no
outstanding or proposed statements of deficiency in tax payments to any federal,
state, local or foreign government with respect to the Business Contribution
Member for any tax period. As of the dates such Financial Statements were and
will be prepared, all accounts receivable reflected on the Financial Statements
(i) have and will have arisen from bona fide transactions in the ordinary course
of the Business Contribution Member's business, consistent with its past
practices, and (ii) are good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for returns or doubtful accounts which
are reflected in such Financial Statements (such reserves, the "Reserves"); such
Reserves are adequate and reasonable and were established in accordance with
GAAP.
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with
14
<PAGE>
past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d)
hereinbelow) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly-used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for the conduct of the Business as now conducted. After Closing,
the Specific Company Subsidiary will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property, and the Business Contribution Member has not received
any notice or claim (whether written, oral or otherwise) challenging the
Business Contribution Member's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto; the Business Contribution Member has all legal
and other rights required to transfer the ownership of the Intellectual Property
to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and the Business Contribution Member has not received any notice or claim
(whether written oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other
15
<PAGE>
Intellectual Property used by the Business Contribution Member will conflict
with, infringe upon, violate or interfere with or constitute an appropriation of
any right, title or interest held by any other person or entity, and there have
been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property used or able to be used by the Business
Contribution Member in the conduct of its business (including, without
limitation, the Business) as heretofore conducted; and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date. The
Business Contribution Member
16
<PAGE>
has not granted to any other Person or entity any rights or permissions to use
any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
Internet domain name or industrial design, any registrations thereof and pending
applications therefor (to the extent applicable), any other intellectual
property right (including, without limitation, any know-how, trade secret, trade
right, formula, conditional or proprietary report or information, customer or
membership list, any marketing data, and any computer program, software,
database or data right), and license or other contract (including without
limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be assumed by the Specific Company Subsidiary directly from and after
Closing, the Business Contribution Member hereby agrees to keep such insurance
policy(ies) as are reflected by such Assumed Liabilities in full force and
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is, to the best of the
Business Contribution Member's knowledge after due inquiry, valid and
enforceable in accordance with its
17
<PAGE>
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity); (ii) to the best of
the Business Contribution Member's knowledge after due inquiry, no Default (as
defined below) exists under any Contract either by the Business Contribution
Member or by any other party thereto; (iii) the Business Contribution Member is
not aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) the Business Contribution Member is not
aware of any present intention on the part of any significant customer or
supplier or other business partner of the Business Contribution Member to either
(x) terminate or significantly change its existing business relationship with
the Business Contribution Member either now or in the foreseeable future, or (y)
fail to renew or extend its existing business relationship with the Business
Contribution Member at the end of the term of any existing contractual
arrangement such entity may have with the Business Contribution Member. For
purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any breach of or default under such Contract, (y) any event, other
than the normal passage of time, which would (either with or without notice or
lapse of time or both) give rise to any right of termination, cancellation or
acceleration or any obligation to repay with respect to such Contract, or (z)
any event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading. The Business Contribution Member knows of no facts which
are reasonably likely to cause a material adverse effect on the Assets or the
Business.
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
18
<PAGE>
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, and Certain Employees of the Business
Contribution Member
The Business Contribution Member, and certain employees of the
Business Contribution Member noted on Exhibit B attached hereto, shall have, at
the Closing in Escrow, entered into agreements, the form of which is attached to
this Agreement as Exhibit B.
3.2. Confidentiality. The Business Contribution Member shall abide
by the terms of the Confidentiality Agreement between the Business Contribution
Member and the Company (or the Company's predecessor, Dispatch Management
Services LLC) executed on March 19, 1997. The Business Contribution Member and
the Specific Company Subsidiary each acknowledge and agree that the Company
shall have the right to disclose certain information concerning the Specific
Company Subsidiary, the Assets and/or the Business to third parties (which third
parties will in turn be bound by an agreement similar to the Confidentiality
Agreement), for such general corporate purposes as includes but is not limited
to obtaining financing and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action
19
<PAGE>
on the part of the Company. This Agreement and each of the Related Agreements to
which it is a party have been duly executed and delivered by the Company, and
constitute the legal, valid and binding obligations of the Company enforceable
against the Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the
20
<PAGE>
transactions contemplated hereby or thereby. Exhibit H sets forth an accurate
and complete list, and a brief description (setting forth the names of the
parties involved, the court or other governmental or mediating entity involved,
the relief sought and the substantive allegations and the status thereof), of
each Legal Proceeding pending or, to the knowledge of the Company, threatened
against or affecting the Company. To the knowledge of the Company, no event has
occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit H. Except as set forth in
Exhibit H, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member covenants and agrees
that (except as expressly contemplated or permitted by this Agreement, or to the
extent that the Company shall otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
(a) conduct the Business only in the ordinary course,
consistent with past practice;
21
<PAGE>
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (ii) preserve the present
relationship of the Business Contribution Member with Persons having business
dealings with the Business Contribution Member;
(c) comply with all laws and with all contractual and other
obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any Encumbrance;
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on the Business or the Assets,
and (ii) any Legal Proceeding commenced by or against the Business Contribution
Member or any Legal Proceeding commenced or threatened relating to the
transactions contemplated by this Agreement.
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member in this Agreement or the Related Agreements untrue
or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, the Business Contribution
Member shall take all steps necessary to change its trade name to a name not
confusingly similar to the trade name being conveyed hereunder and to be
utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Business Contribution Member shall cooperate
fully therein. In
22
<PAGE>
order that the Company may have full opportunity to make such physical,
business, accounting and legal review, examination or investigation as it may
reasonably request of the affairs of the Business and the Business Contribution
Member, the Business Contribution Member shall use his or her respective best
efforts to cause the Business Contribution Member's employees, consultants,
agents, accountants, attorneys and other representatives to cooperate fully with
such Company representatives in connection with such review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, the Business Contribution Member shall
not pursue, initiate, encourage or engage in any negotiations or discussions
with any third parties concerning the sale of the Business, the Assets, or any
part thereof or concerning the terms and conditions of this Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member shall give prompt notice to the Company of (a) any notice of, or other
communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Business and/or the Business Contribution Member to which it is a party
or is subject, (b) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement or any of the
Related Agreements, or (c) any material adverse change in the properties
(including but
23
<PAGE>
not limited to the Assets), business operations, results of operations,
financial condition or prospects of the Business, other than changes resulting
from general economic conditions. In addition, the Business Contribution Member
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.6 Working Capital as of the Closing Date. The Business
Contribution Member shall ensure that the Assets, less the Assumed Liabilities,
includes at least $76,423 working capital (defined as the excess of current
(liquid) assets over current liabilities) as of the Closing Date.
For purposes of determining whether the required working capital existed
as of the Closing Date, the Company will cause to be prepared, promptly
following the Closing, a balance sheet setting forth the Assets and Assumed
Liabilities as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, consistent with past practices of the Business
Contribution Member, and shall include full accrual of all tax liabilities of
the Business Contribution Member as of the Closing Date (including but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date. In the event that less than the prescribed $76,423 working capital existed
as of the Closing Date, as determined by such balance sheet, the Business
Contribution Member shall forthwith pay the Company an amount equal to the
difference between the actual working capital as of the Closing Date and $76,423
working capital (the "Shortfall"). If the Business Contribution Member does not
pay the Shortfall to the Company within five (5) days after demand, then, in
addition to all other remedies which the Company may have, the Company may
deduct the amount of the Shortfall from any of the obligations of the Company to
the Business Contribution Member (including, but not limited to, the Earn-Out to
which the Business Contribution Member may be entitled thereafter).
In the event that the Business Contribution Member shall
notify the Company in writing within five days after demand is made by the
Company for payment of the Shortfall of its decision to dispute the amount of
the Shortfall, the Company shall forthwith instruct Price Waterhouse LLP to
audit the balance sheet of the Business as of the Closing Date, and to calculate
the working capital therein in accordance with GAAP. Price Waterhouse LLP shall
then determine the amount of the Shortfall as set out in this paragraph 6.6,
whose decision shall be final and binding on the parties hereto. The Business
Contribution Member shall forthwith pay to the Company the
24
<PAGE>
amount of such Shortfall, together with fifty percent (50%) of the cost of the
audit conducted by Price Waterhouse LLP. In the event Price Waterhouse LLP
determines the Shortfall to have been zero, the entire cost of such audit shall
be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member set forth in this Agreement (with
regard to any supplements or updates thereto) shall be true and correct in all
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Business Contribution Member certifying to such effect.
25
<PAGE>
(b) Performance of Obligations. The Business Contribution
Member shall have performed all obligations required to be performed under this
Agreement at or prior to the Closing in Escrow Date and the Closing Date, and
the Company shall have received a certificate from the Business Contribution
Member certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Assets or the Business.
(d) Contractual Consents. The Business Contribution Member
shall have given all notices to, and obtained all consents, approvals or
authorizations of or from, any individual, corporation or other party which may
be necessary to permit the consummation of the transactions contemplated hereby
(including, without limitation, any consents required under the Contracts, or
which may be required to permit the change of ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member is a party shall have been duly executed
and delivered. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member.
The obligations of the Business Contribution Member to effect the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions (which are for the exclusive benefit of the Business Contribution
Member), any or all of which may be waived in whole or in part by the Business
Contribution Member.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
26
<PAGE>
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Business Contribution
Member does not timely deliver a representation letter satisfactory to the
Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or shareholders except (i)
for the obligation of the Business Contribution Member to refund to the Company
the audit expenses as set forth in Section 1.4 of this Agreement; (ii) for any
and all obligations under the confidentiality provisions contained in Section
3.2 of this Agreement; and (iii) to the extent that such termination results
from the willful breach by a party hereto of any of its representations or
warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
27
<PAGE>
(a) Indemnification by the Business Contribution Member. The
Business Contribution Member hereby agrees to indemnify, defend and hold
harmless the Company, the Specific Company Subsidiary, and their respective
officers, directors, employees and agents (collectively, the "Indemnitee") from
and against and in respect of any and all Losses (as defined below) to the
extent resulting from, arising out of, relating to, imposed upon or incurred by
the Indemnitee by reason of (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business' most recently dated balance sheet delivered to the
Company; (ii) any inaccuracy in or breach of any of the Business Contribution
Member's representations, warranties, covenants or agreements contained in this
Agreement, the Related Agreements or in any other agreement or document entered
into or delivered on or after the date hereof in connection with this Agreement
or any of the transactions contemplated hereby and thereby, (iii) any liability
or obligation of the Business Contribution Member other than an Assumed
Liability, and (iv) any non-compliance with any notice requirement, if any,
which may be contained in the Uniform Commercial Code as adopted by the State of
California relating to bulk sales. Provided, however, the indemnification by the
Business Contribution Member under this Section 9.1.(a) shall include direct
damages only (and not indirect or consequential damages). For purposes of this
Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member from and
against and in respect of any and all Losses resulting from, arising out of,
relating to, imposed upon or incurred by the Business Contribution Member by
reason of (i) any inaccuracy in or breach of any of the Company's
representations, warranties, covenants or agreements contained in this Agreement
or in any other agreement or document entered into or delivered by the Company
on or after the date hereof in connection with this Agreement or any of the
transactions contemplated hereby and/or
28
<PAGE>
thereby; or (ii) any failure to discharge the Assumed Liabilities as required by
their terms. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Business Contribution Member, to:
Gregory W. Austin
Battery Point Messenger
29
<PAGE>
411 Brannan Street, 2nd Floor
San Francisco, California 94107
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Asset Transfer Agreement between the Business Contribution Member and Dispatch
Management Services LLC dated July 16, 1997, which Agreement will be of no
further force or effect upon execution of this Agreement), both written and
oral, among the parties with respect to the subject matter hereto and is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of all parties hereto with
respect to any of the terms contained herein, and each party hereto agrees to be
bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time,
30
<PAGE>
geographical or other applicable limitations shall be deemed modified to the
minimum extent necessary to render the applicable provisions of such covenants
enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Business Contribution Member acknowledges that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.3 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Specific Company Subsidiary shall be entitled, without
the necessity of proving actual damages, to injunctive relief in addition to
damages and all other remedies which may otherwise be available to the Company
and/or the Specific Company Subsidiary.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Business Contribution
31
<PAGE>
Member that money damages are inadequate to compensate the Company and/or the
Specific Company Subsidiary for a breach of the terms of this Agreement, and
that the Company and/or the Specific Company Subsidiary shall be entitled to
specific performance of the terms of this Agreement. The arbitrator may enter a
default decision against any party who fails to participate in the proceeding.
The decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
32
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
- - - - ------------------------- -----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest:
/s/ Gregory W. Austin
- - - - ------------------------- -----------------------------------
Name: Gregory W. Austin
"SPECIFIC COMPANY SUBSIDIARY"
Attest: DMS CORP. SUBSIDIARY NO. __
By: /s/ Linda Jenkinson
- - - - ------------------------- -----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Christopher Grealish, Inc. (dba Boulder Denver Courier,
Inc. and Denver Boulder Courier, Inc.), a Colorado corporation
(the"Corporation"), and Christopher Grealish, ( the "Sole Shareholder"). Unless
defined herein, all capitalized terms used in this Agreement shall have the
meaning given them in the Operating Agreement of Dispatch Management Services
LLC dated December 1, 1996 by and between the Members of Dispatch Management
Services LLC, as amended (the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Sole Shareholder owns all of the issued and outstanding
shares of capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Sole Shareholder, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Sole
Shareholder and the Corporation shall be obliged to deliver to the Company,
within thirty (30) days after execution of this Agreement: (i) the audited and
unaudited financial statements required pursuant to Section 1.3 below; and (ii)
the agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Sole Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Sole Shareholder must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchases certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such
2
<PAGE>
terminations of employment, and the Company will reduce the cash portion of the
purchase price by the amount of such reasonable estimate.
Upon timely delivery from the Shareholders of shareholder representation
letters satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Silver, Freedman &
Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C. 20005 (or
such other place as is mutually agreed upon by the parties) within thirty (30)
days (or such shorter period as is specified in the Notice) after timely
delivery of satisfactory shareholder representation letters from the Sole
Shareholder.
In the event that the Shareholders does not timely deliver
satisfactory shareholder representation letters (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
4.8 (confidentiality), 1.3 (reimbursement of audit expenses) and 8.2 (effect of
termination under Section 8.1), which obligations will survive termination of
this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Sole Shareholder shall deliver the
following to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent:
(i) certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the
Shareholders's and/or third parties' right, title and interest in and to all
Intellectual Property (as defined in Section 2.14(d) hereinbelow) owned by the
Sole Shareholder and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretaries
3
<PAGE>
of State of Colorado; (vi) the certificates, dated the Closing in Escrow Date,
required pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and (vii) the
opinion of counsel to the Sole Shareholder and the Corporation as to such
matters as counsel to the Company may reasonably require, including but not
limited to such counsel's opinion that: (A) the Corporation is in good standing;
(B) the Corporation is authorized to conduct its business in each jurisdiction
in which it is doing business; (C) the Sole Shareholder and the Corporation have
the full power to enter into and perform their respective obligations under this
Agreement; (D) this Agreement constitutes the legal, valid and binding
obligations of the Corporation and the Sole Shareholder, and the Related
Agreements to which the is a party, constitute the legal, valid and binding
obligations of the Sole Shareholder, each enforceable in accordance with their
respective terms (except as enforcement may be limited by bankruptcy, insolvency
and other similar laws affecting the enforcement of creditor's rights, and
principles of equity); and (E) neither the Corporation nor the Sole Shareholder
is threatened with or affected by any actions, proceedings or investigations
wherein an unfavorable decision, ruling or finding could have a material adverse
effect on the financial condition or operation of the Corporation, or could
prevent, enjoin or otherwise affect the transactions contemplated by this
Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Sole Shareholder will be obliged to sell the Stock,
at the purchase price specified in Section 1.3 below, on the Closing Date
specified in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the
"Purchase Price") shall be equal to $570,656.00, subject to adjustment (if any)
as provided in Section 1.1 above, and subject to further adjustment (if any) as
a result of a reduction in the Maximum Earn-Out (as defined in this Section 1.3
below).
4
<PAGE>
Unless the Company gives the Sole Shareholder written notice to the
contrary, the Sole Shareholder shall deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Sole Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Sole Shareholder shall deliver to the Company, within thirty
days after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
5
<PAGE>
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the Sole
Shareholder, provided that the Company will, upon the request of the Sole
Shareholder, advance such costs on behalf of the Sole Shareholder. In the event
that the Sole Shareholder does not timely deliver satisfactory shareholder
representation letters and complete the Closing in Escrow, the Sole Shareholder
shall immediately refund to the Company any such advanced costs; in the event
that all such shareholder representation letters are satisfactory and are timely
received, and the Closing in Escrow is completed, the Sole Shareholder shall be
relieved of their obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as partial payment of the
Purchase Price shall be equal to the aggregate dollar value of the stock
component of the Purchase Price divided by the Initial Public Offering price per
share as set forth on the cover page of the prospectus relating to the Initial
Public Offering. The Sole Shareholder acknowledges that the sale of the Company
Stock will be restricted for a period of time by virtue of a "lock-up" agreement
which may be imposed by the Company, and the Sole Shareholder shall execute such
a "lock-up" agreement, as may be required by the Company, by which the sale of
the Company Stock is restricted (perhaps prohibited) for a period of two (2)
years from the date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Sole Shareholder ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation fails to achieve such margin requirement, the cash portion of the
Purchase Price shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In
the event that the Corporation achieves the margin requirement during
6
<PAGE>
the relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one eighth (1/8) of the Maximum
Earn-Out, multiplied by: (ii) a fraction, the numerator of which is the
difference between the actual revenue achieved during such calendar quarter and
the revenue requirement for such calendar quarter as set forth in Exhibit B, and
the denominator of which is the revenue required during such calendar quarter as
set forth in Exhibit B. The Maximum Earn-Out, less any reductions as set forth
in this paragraph, is hereinafter referred to as the "Earn-Out". The Earn-Out
shall bear interest at the rate of 7% per annum commencing as of the Closing
Date (i.e., once the Earn-Out is determined, the Sole Shareholder will be due
such amount plus interest at the rate of 7% per annum on such amount, accrued
from the Closing Date until the date of payment of the Earn-Out to the Sole
Shareholder). The Earn-Out shall be paid to the Sole Shareholder promptly
following calculation of the Corporation's performance for the quarter ending
December 31, 1999. The Company covenants and agrees to maintain sufficient cash,
or availability of cash (e.g., by way of a line of credit) in order to fund the
Earn-Out.
In addition to the Maximum Earn-out, the Sole Shareholder shall be
entitled to an "Earn-up" equal to one-third (1/3) of the amount equal to (i) the
Corporation's actual revenue during the two-year period ending December 31,
1999; less (ii) $1,711,968.00 (such difference being referred to as the "Excess
Revenue") provided that the Corporation achieves an average effective Brand
Contribution Percentage (as defined in Exhibit B) of 12.5% on the Excess Revenue
during the two year period ending December 31, 1999. In the event that the
Corporation fails to achieve such 12.5% Brand Contribution Percentage, but
achieves at least a 7.5% Brand Contribution Percentage on the Excess Revenue
during such time period, the Earn-up shall be multiplied by a fraction (not
greater than the number 1), the numerator of which is the difference between
7.5% and the actual Brand Contribution Percentage achieved on the Excess Revenue
during such time period, and the denominator of which is 5%.
The Earn-up shall be paid to the Sole Shareholder by the issuance of
registered unrestricted common stock of the Company (determined by reference to
the Initial Public Offering price per share as set forth on the cover page of
the prospectus relating to the Initial Public Offering). The Earn-up shall be
paid to the Sole Shareholder promptly following calculation of the Corporation's
revenue for
7
<PAGE>
the two-year period ending December 31, 1999. Notwithstanding the actual number
derived by calculation of the Earn-up in accordance with the provisions of this
paragraph, the maximum amount of Earn-up payable by the Company to the Sole
Shareholder shall be $149,344.00 worth of Company stock.
At the request of the Sole Shareholder made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Sole Shareholder, in an amount equal to up to 30% of the
Purchase Price. Said loan by the Company to the Sole Shareholder (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Sole Shareholder shall have the right to
prepay the Shareholder Loan (plus accrued interest) at any time without penalty
and shall have the right to direct the Company to offset the balance due under
the Shareholder Loan (plus accrued interest) against the Earn-Out as earned each
quarter. The Shareholder Loan shall mature as of the date that the Earn-Out is
payable. In the event that the Shareholder Loan (including accrued interest) is
not repaid in full upon maturity, the Company shall enjoy all rights of a
secured party under the Uniform Commercial Code then in effect in the State of
Maryland, provided that the Company's only recourse shall be first against the
remaining Earn-Out and then against the Company Stock it holds as collateral,
and there shall not be any recourse against the Sole Shareholder individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or
8
<PAGE>
unless another date, time or place is agreed to in writing by the parties hereto
(the day on which the Closing takes place being the "Closing Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Sole Shareholder
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Sole Shareholder (less
the Maximum Earn-Out, which shall be payable to the Sole Shareholder pursuant to
the terms of Section 1.3 above, and with the Company Stock collateralized
against the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Sole Shareholder.
The Corporation and the Sole Shareholder hereby jointly and
severally represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Sole Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Sole Shareholder and
the Corporation, and each of the Related Agreements to which the Sole
Shareholder is a party constitute the legal, valid
9
<PAGE>
and binding obligations of the Sole Shareholder, each enforceable in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 100 shares of no par value
capital stock of which 100 shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Sole Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i)
10
<PAGE>
have all right, title, and interest in and to, or will have a valid right to
use, without liability to third party(ies), such assets and properties; and (ii)
have all assets, rights, employees, subcontractors and other persons and items
which are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Sole Shareholder and the Corporation, and each
of the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Sole Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Sole Shareholder is a party, or (d)
violate any law applicable to the Sole Shareholder or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. The Sole Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
11
<PAGE>
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Sole Shareholder and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Sole Shareholder or the Corporation in
connection with the consummation of the transactions contemplated hereby or
thereby or which seeks to prohibit, enjoin or otherwise challenge any of the
transactions contemplated hereby or thereby. Exhibit E sets forth an accurate
and complete list, and a brief description (setting forth the names of the
parties involved, the court or other governmental or mediating entity involved,
the relief sought and the substantive allegations and the status thereof), of
each Legal Proceeding pending or, to the knowledge of the Corporation and/or the
Sole Shareholder, threatened against or affecting the Corporation. To the
knowledge of the Corporation and/or the Sole Shareholder, no event has occurred
and no circumstance, matter or set of facts exist which would constitute a valid
basis for the assertion by any third party of any claim or Legal Proceeding,
other than those listed on Exhibit E. Except as set forth in Exhibit E, there is
no outstanding or, to the knowledge of the Corporation and/or the Sole
Shareholder, threatened, judgment, injunction, order or consent or similar
decree or agreement (including, without limitation, any consent or similar
decree or agreement with any governmental entity) against, affecting or naming
the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Sole Shareholder and/or the Corporation in
connection with the negotiations relating to or the transactions contemplated by
this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Sole Shareholder hereunder or thereunder. The Sole Shareholder hereby agrees
that all such fees, commissions or like payments, or expense reimbursement as
shall appear on Exhibit F attached hereto shall be for the sole account of the
Sole Shareholder and shall be paid in full by them at the Closing in Escrow.
12
<PAGE>
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements (such
reserves, the "Reserves"); such Reserves are adequate and reasonable and were
established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Sole
Shareholder has been notified of any such defaults or breaches.
13
<PAGE>
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Sole Shareholder and/or the Corporation,
licensed by the Sole Shareholder and/or the Corporation, licensed to the Sole
Shareholder and/or the Corporation, or otherwise used or able to be used in the
business conducted by the Corporation (other than commonly-used computer
software which is generally available to the public and the use rights to which
were legally acquired by the Corporation either for free or through established
retail facilities) and indicates, with respect to each item of Intellectual
Property listed thereon, the owner thereof and, if applicable, the name of the
licensor and licensee thereof and the terms of such license or other contract
relating thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Sole Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Sole Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Sole Shareholder nor the Corporation are in
default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Sole Shareholder and/or
the Corporation; all
14
<PAGE>
such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Sole Shareholder has received any notice or
claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
15
<PAGE>
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or the Sole
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
16
<PAGE>
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of
17
<PAGE>
the Plans have provided continuation of coverage notices to employees and their
dependents as required by the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended ("COBRA"), and has complied with all such continuation of
coverage requirements. The execution and delivery of this Agreement will not
involve a prohibited transaction within the meaning of ERISA or Section 4975 of
the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
18
<PAGE>
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Sole Shareholder's knowledge,
threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Sole Shareholder is
aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor the Sole
Shareholder is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation. For purposes of this Agreement, the term "Default" means, with
respect to any Contract, (x) any material breach of, or material default under,
such Contract, (y) any event, other than the normal passage of time, which would
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration of, or any obligation to repay,
with respect to such Contract, or (z) any
19
<PAGE>
event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Sole Shareholder in
connection with this Agreement, the Related Agreements or the transactions
contemplated hereby or thereby 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 statement contained herein or therein, in light of the circumstances under
which they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the Sole
Shareholder.
3.1. Non-Competition and Other Covenants of the Sole Shareholder and
Certain Employees of the Corporation. The Sole Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Sole Shareholder shall abide by the terms
of the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on May 6,
1997. The Sole Shareholder and the Corporation both acknowledge and agree that
the Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Sole Shareholder as
follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and
20
<PAGE>
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Company is duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any
21
<PAGE>
applicable law. The Sole Shareholder has been provided with true and complete
copies of (i) all injunctions, judgments, orders or consent or similar decrees
or agreements of any governmental entity to which the Company is currently
subject (or to which the Company was subject since its inception), and (ii) all
correspondence through the date hereof with respect to any of the matters
referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Sole Shareholder by or on behalf of the Company in connection with this
Agreement, the Related Agreements or the transactions contemplated hereby or
thereby contains or will contain any untrue statement of a material fact or
22
<PAGE>
omits or will omit to state a material fact necessary to make the statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
4.8 Confidentiality. The Company agrees to keep confidential any
confidential information of the Corporation except to the extent that this
information (i) is or becomes publicly available other than as a result of
disclosure by the Company or a representative of the Company and (ii) is or
becomes available to the Company on a nonconfidential basis from a source (
other than the Corporation and its representatives) which, to the best of the
Company's knowledge after due inquiry, is not prohibited from disclosing such
information to the Company by a legal, contractual or fiduciary obligation to
the Corporation.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Sole Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
23
<PAGE>
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the Sole
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Sole Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Sole
Shareholder and the Corporation shall cooperate fully therein. In order that the
Company may have full opportunity to make such physical, business, accounting
and legal review, examination or investigation as it may reasonably request of
the affairs of the Corporation, the Corporation and the Sole Shareholder shall
use their respective best efforts to cause the Corporation's officers,
employees, consultants, agents, accountants, attorneys and other representatives
to cooperate fully with such Company representatives in connection with such
review and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the Sole
Shareholder shall pursue, initiate,
24
<PAGE>
encourage or engage in any negotiations or discussions with any third parties
concerning the sale of the Corporation, its assets, or any part thereof or
concerning the terms and conditions of this Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the Sole
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Sole
Shareholder shall be required to update the schedules and other information
supplied pursuant to this Agreement at such time as the information contained
therein changes in any material respect.
6.5 Working Capital as of the Closing Date. The Sole Shareholder
shall ensure that the Corporation has at least $71,332.00 working capital
(defined as the excess of current (liquid) assets over current liabilities) as
of the Closing Date. For purposes of determining whether the
25
<PAGE>
Corporation had the required working capital as of the Closing Date, the Company
will cause to be prepared, promptly following the Closing, a balance sheet of
the Corporation as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, and shall include full accrual of all assets and
liabilities of the Corporation as of the Closing Date (including, but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the prescribed $71,332.00
working capital as of the Closing Date, as determined by such balance sheet, the
Sole Shareholder shall forthwith pay the Company an amount equal to the
difference between the actual working capital as of the Closing Date and
$71,332.00 working capital (the "Shortfall"). If the Sole Shareholder does not
pay the Shortfall to the Company within five (5) days after demand, then, in
addition to all other remedies which the Company may have, the Company may
deduct the amount of the Shortfall from any of the obligations of the Company to
the Sole Shareholder (including, but not limited to, the Earn-Out to which the
Sole Shareholder may be entitled thereafter).
In the event that the Sole Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Sole Shareholder shall forthwith pay to
the Company the amount of such Shortfall, together with fifty percent (50%) of
the cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any
26
<PAGE>
governmental entity, requisite to the transactions contemplated hereby, shall
have been filed, occurred or have been obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Sole Shareholder set forth in this
Agreement (without regard to any supplements or updates thereto) shall be true
and correct in all respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of a specified, earlier
date) as of the Closing in Escrow Date and the Closing Date as though made on
and as of the Closing in Escrow Date and the Closing Date, respectively, except
as otherwise contemplated by this Agreement, and the Company shall have received
a certificate from the Sole Shareholder and the Corporation (signed by the Sole
Shareholder and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the Sole
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Sole Shareholder and the Corporation (signed by the Sole
Shareholder and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely
27
<PAGE>
result in, individually or in the aggregate, a material adverse effect on the
Corporation, its assets or its business.
(d) Contractual Consents. The Corporation and/or the Sole
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Sole Shareholder is a party shall have been duly executed and
delivered by such party. In addition, the Related Agreements shall have been
entered into by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the Sole
Shareholder. The obligations of the Corporation and the Sole Shareholder to
effect the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions (which are for the exclusive benefit of
the Corporation and the Sole Shareholder, any or all of which may be waived in
whole or in part by the Corporation or the Sole Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
28
<PAGE>
(a) by mutual written consent of the Company and the Sole
Shareholder;
(b) by either the Company or the Sole Shareholder, if the
closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Sole Shareholder does
not timely deliver shareholder representation letters satisfactory to the
Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Sole Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Sole Shareholder to refund to the Company the audit
expenses as set forth in Section 1.3 of this Agreement; (ii) for any and all
obligations under the confidentiality provisions contained in Sections 3.2 and
4.8 of this Agreement; and (iii) to the extent that such termination results
from the willful breach by a party hereto of any of its representations or
warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Sole
Shareholder. The Corporation and the Sole Shareholder each hereby agree to
jointly and severally indemnify, defend and hold harmless the Company and its
respective officers, directors, employees and agents (collectively, the
"Indemnitee") from and against and in respect of any and all Losses (as defined
below) to the extent resulting from, arising out of, relating to, imposed upon
or incurred by the Indemnitee by reason of: (i) the conduct of business by the
Corporation prior to the Closing Date (but only to the extent that the amount of
such Loss was not a stated liability on the Corporation's most
29
<PAGE>
recently dated balance sheet delivered to the Company); and (ii) any inaccuracy
in or breach of any of the Corporation's or the Sole Shareholder's
representations, warranties, covenants or agreements contained in this
Agreement, the Related Agreements or in any other agreement or document entered
into or delivered on or after the date hereof in connection with this Agreement
or any of the transactions contemplated hereby and/or thereby. Provided,
however, the indemnification by the Corporation and the Sole Shareholder under
this Section 9.1.(a) shall include direct damages only (and not indirect or
consequential damages). For purposes of this Agreement, the term "Losses" means
any and all deficiencies, judgments, settlements, demands, claims, actions or
causes of action, assessments, liabilities, losses, damages (whether direct,
indirect or consequential), interest, fines, penalties, costs and expenses
(including, without limitation, reasonable legal, accounting and other costs and
expenses incurred in connection with investigating, defending, settling or
satisfying any and all demands, claims actions, causes of action, suits,
proceedings, assessments, judgments or appeals, and in seeking indemnification
therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Sole Shareholder from and against and
in respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Sole Shareholder by reason of any inaccuracy in
or breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's
30
<PAGE>
obligations with respect thereto except to the extent such party can demonstrate
it was actually and materially prejudiced as a result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Sole Shareholder, to:
Christopher Grealish
1200 Pearl Street, #40
Boulder, CO 80302
and
David Walder
David Walder Law Offices
1942 Broadway, Suite 318
Boulder, Colorado 80302
31
<PAGE>
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies hereunder. Subject
to applicable law, this Agreement may be amended, modified or supplemented only
by written agreement of all parties hereto with respect to any of the terms
contained herein, and each party hereto agrees to be bound by any such
amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and
32
<PAGE>
they therefore consent that the rights and obligations of the parties under this
Agreement may be enforced by a decree of specific performance issued by a court
of competent jurisdiction. Such remedy shall, however, not be exclusive and
shall be in addition to any other remedies which any party may have under this
Agreement or otherwise. Without limiting the foregoing, the Corporation and the
Sole Shareholder acknowledge that the failure to comply with any of the
provisions of Sections 3.1, 3.2. and 6.2 hereof will result in irreparable harm
for which there is no adequate remedy at law and that the Company and/or the
Corporation shall be entitled, without the necessity of proving actual damages,
to injunctive relief in addition to damages and all other remedies which may
otherwise be available to the Company and/or the Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Sole Shareholder that money damages are inadequate to
compensate the Company and/or the Corporation for a breach of the terms of this
Agreement, and that the Company and/or the Corporation shall be entitled to
specific performance of the terms of this Agreement. The arbitrator may enter a
default decision against any party who fails to participate in the proceeding.
The decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
33
<PAGE>
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
By: /s/ Christopher Grealish
- - - - -------------------------------- -------------------------------------
Name: Christopher Grealish
Title: President
Witness: "SOLE SHAREHOLDER"
/s/ Christopher Grealish
- - - - -------------------------------- -----------------------------------------
Christopher Grealish
34
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 17th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), United Messengers Inc., a Texas corporation (the
"Corporation"), and Marla Kennedy, (the "Shareholder"). Unless defined herein,
all capitalized terms used in this Agreement shall have the meaning given them
in the Operating Agreement of Dispatch Management Services LLC dated December 1,
1996 by and between the Members of Dispatch Management Services LLC, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desires to sell all of her right,
title and interest in the Stock to the Company, and the Company desires to
purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other
<PAGE>
information required by this Agreement, and approval of the same by the Company,
the parties hereto will close in escrow pursuant to the terms and conditions set
forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with the
Shareholder and certain employees of the Corporation in the form attached hereto
as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; and (ii) the agreements
required pursuant to Section 3.1 below.
2
<PAGE>
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholder does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholder does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date (provided that the Corporation shall not reduce
the Purchase Price based on any liability relating to the Lease dated as of
____________, between the Corporation and ___________________ (the "Lease"), so
long as the total liability under such Lease as of the Closing Date is less than
$60,000); and (iii) the Corporation has not terminated the employment of the
(unwanted) employees specified by the Company in the Notice, then the Company
will make a reasonable estimate of the costs and expenses to be incurred in
connection with such terminations of
3
<PAGE>
employment, and the Company will reduce the cash portion of the purchase price
by the amount of such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C. 20036
(or such other place as is mutually agreed upon by the parties) within thirty
(30) days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P, as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book
4
<PAGE>
and all of the original share certificates representing shares of the
Corporation's capital stock at one time issued (but no longer issued and
outstanding) to former shareholders of the Corporation; (iii) all consents,
waivers, and authorizations necessary or appropriate for the consummation of the
transactions contemplated by this Agreement; (iv) agreements assigning to the
Corporation all of the Shareholder's and/or third parties' right, title and
interest in and to all Intellectual Property (as defined in Section 2.14(d)
hereinbelow) owned by any of the Shareholder and/or third parties and heretofore
licensed to or used by the Corporation; (v) Certificates of Good Standing for
the Corporation as issued by the Secretary of State of Texas; (vi) the
certificates, dated the Closing in Escrow Date, required pursuant to Sections
7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of counsel to the
Shareholder and the Corporation as to such matters as counsel to the Company may
reasonably require, including but not limited to such counsel's opinion that:
(A) the Corporation is in good standing; (B) the Corporation is authorized to
conduct its business in each jurisdiction in which it is doing business; (C) the
Shareholder and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholder, and the Related Agreements to which the Shareholder are a party,
constitute the legal, valid and binding obligations of the Shareholder, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholder are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or
5
<PAGE>
operation of the Corporation, or could prevent, enjoin or otherwise affect the
transactions contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be $560,000, subject to adjustment (if any) as provided in Section
1.1 above, and subject to further adjustment (if any) as a result of a reduction
in the Maximum Earn-Out (as defined in this Section 1.3 below).
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30,
6
<PAGE>
1997 and an income statement and a cash flow statement for the six month period
ended June 30, 1997. The intent of providing the audited financial statements
referred to in the foregoing sentence is to resolve any auditing issues prior to
calculation of the Purchase Price, so that the Purchase Price may be quickly and
efficiently calculated. In the event that the closing of the Initial Public
Offering has not occurred on or before November 12, 1997, but does occur on or
before December 12, 1997, then in that event, in lieu of the unaudited, reviewed
financial statements of the Corporation for the six month period ended June 30,
1997, the Shareholder shall deliver to the Company, within thirty days after
written request from the Company: (i) an updated set of audited financial
statements of the Corporation, including a balance sheet dated as of June 30,
1997, and income statements and cash flow statements for the six month period
ended June 30, 1997; (ii) unaudited financial statements for the Corporation,
including a balance sheet dated as of September 30, 1996, and an income
statement and cash flow statement for the twelve month period ended on September
30, 1996; and (iii) unaudited, reviewed financial statements of the Corporation,
including a balance sheet dated as of September 30, 1997 and income statements
and cash flow statements for the three month period ended September 30, 1997. In
the event that the closing of the Initial Public Offering has not occurred on or
before December 12, 1997, then upon written request from the Company given on or
before March 1, 1998, the Shareholder shall deliver to the Company, within
thirty days after written request from the Company, such additional audited
and/or unaudited, reviewed financial statements of the Corporation as the
Company may reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the
7
<PAGE>
financial statements required by this Section 1.3, within the prescribed time
limits, shall be the sole responsibility of the Shareholder, provided that the
Company will, upon the request of the Shareholder, advance such costs on behalf
of the Shareholder. In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter and complete the Closing in
Escrow, the Shareholder shall immediately refund to the Company any such
advanced costs; in the event that such shareholder representation letter is
satisfactory and is timely received, and the Closing in Escrow is completed, the
Shareholder shall be relieved of his/her obligation to refund to the Company any
such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Shareholder acknowledges that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholder shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholder ratably over
the 8 quarter annual periods beginning January 1, 1998 and ending December 31,
1999 provided that
8
<PAGE>
the Corporation achieves the targeted performance standards set forth in Exhibit
B attached hereto. In the event that the Corporation fails to achieve the margin
requirement set forth in Exhibit B during any calendar quarter, then for each
calendar quarter in which the Corporation fails to achieve such margin
requirement, the cash portion of the Purchase Price shall be reduced by one
eighth (1/8) of the Maximum Earn-Out. In the event that the Corporation achieves
the margin requirement during the relevant calendar quarter, but fails to
achieve the revenue requirement set forth in Exhibit B, then for each such
calendar quarter, the cash portion of the Purchase Price shall be reduced by:
(i) one eighth (1/8) of the Maximum Earn-Out, multiplied by: (ii) a fraction,
the numerator of which is the difference between the actual revenue achieved
during such calendar quarter and the revenue requirement for such calendar
quarter as set forth in Exhibit B, and the denominator of which is the revenue
required during such calendar quarter as set forth in Exhibit B. The Maximum
Earn-Out, less any reductions as set forth in this paragraph, is hereinafter
referred to as the "Earn-Out". The Earn-Out shall bear interest at the rate of
7% per annum commencing as of the Closing Date (i.e., once the Earn-Out is
determined, the Shareholder will be due such amount plus interest at the rate of
7% per annum on such amount, accrued from the Closing Date until the date of
payment of the Earn-Out to the Shareholder). The Earn-Out shall be paid to the
Shareholder promptly following calculation of the Corporation's performance for
the quarter ending December 31, 1999. The Company covenants and agrees to
maintain sufficient cash, or availability of cash (e.g., by way of a line of
credit) in order to fund the Earn-Out.
At the request of the Shareholder made to the Company in writing not later
than the Closing in Escrow, the Company shall (immediately after Closing) make a
loan to the
9
<PAGE>
Shareholder in an amount equal to up to 30% of the Purchase Price. Said loan by
the Company to the Shareholder (the "Shareholder Loan") shall bear interest at a
rate of seven percent (7%) per annum, and shall be secured by all of the Company
Stock paid as part of the Purchase Price at Closing. The collateral security
agreement evidencing the collateralization of the Shareholder Loan with the
Company Stock and the Earn-Out shall be on such terms as are reasonably
acceptable to the Company, which terms shall include, but shall not be limited
to, the retention of all of the Company Stock by the Company until full
repayment of the Shareholder Loan (including accrued interest). The Shareholder
shall have the right to prepay the Shareholder Loan (plus accrued interest) at
any time without penalty and shall have the right to direct the Company to
offset the balance due under the Shareholder Loan (plus accrued interest)
against the Earn-Out as earned each quarter. The Shareholder Loan shall mature
as of the date that the Earn-Out is payable. In the event that the Shareholder
Loan (including accrued interest) is not repaid in full upon maturity, the
Company shall enjoy all rights of a secured party under the Uniform Commercial
Code then in effect in the State of New York, provided that the Company's only
recourse shall be first against the remaining Earn-Out and then against the
Company Stock it holds as collateral, and there shall not be any recourse
against the Shareholder individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W.,
Washington, D.C. 20036, contemporaneously with the closing of the Initial Public
Offering
10
<PAGE>
unless the Initial Public Offering does not occur by March 31, 1998, in which
case this Agreement shall be rendered null and void, or unless another date,
time or place is agreed to in writing by the parties hereto (the day on which
the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholder shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated opinion of counsel as referred to in Section
1.2(a)(vii) above; and (iii) the Company shall deliver the Purchase Price to the
Shareholder (less the Maximum Earn-Out, which shall be payable to the
Shareholder pursuant to the terms of Section 1.3 above, and with the Company
Stock collateralized against the Shareholder Loan being delivered to the Company
as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, and has all requisite corporate power and authority to
own, lease and operate its properties and to
11
<PAGE>
carry on its business as now being conducted. The Corporation is duly qualified
and in good standing to conduct business in each jurisdiction in which the
business it is conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 1,000,000 shares of $.10 par
value capital stock of which 10,000 shares are and will be as of the Closing in
Escrow Date and the Closing Date issued and outstanding. All issued and
outstanding shares of the capital stock of the Corporation have been duly
authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third
12
<PAGE>
parties, including any imposed by law. There are no other shares of capital
stock or other equity or debt securities of the Corporation, of any kind or
class whatsoever, authorized, issued or outstanding, or any warrants, options,
subscription rights, or any other rights, agreements, or commitments of any
nature relating to the issuance of, or granting of, rights to acquire any shares
of capital stock or such securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
13
<PAGE>
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Shareholder is a party, or (d) violate
any law applicable to the Shareholder or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None
14
<PAGE>
of the Shareholder nor the Corporation is aware of any proposed legislation or
law which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation in connection with
the consummation of the transactions contemplated hereby or thereby or which
seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholder, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholder, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholder,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
15
<PAGE>
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholder and shall be paid in full by him/her at the Closing
in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and
16
<PAGE>
for the periods indicated (subject, in the case of the unaudited financial
statements, to normal year-end audit adjustments). Without limiting the
foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or otherwise) shall exist as
at Closing in Escrow or the Closing not reflected in the most recently dated
balance sheet supplied to the Company. The Corporation has paid all federal,
state and local income, profits, franchises, sales, use, occupation, property,
excise and payroll taxes, and all license fees and other charges imposed upon
it, and has timely filed all tax returns and related documents required to be
filed with any governmental authority. There are no outstanding or proposed
statements of deficiency in tax payments to any federal, state, local or foreign
government with respect to the Corporation for any tax period. As of the dates
such Financial Statements were and will be prepared, all accounts receivable
reflected on the Financial Statements (i) have and will have arisen from bona
fide transactions in the ordinary course of the Corporation's business,
consistent with its past practices, and (ii) are good and collectible at the
aggregate recorded amounts thereof, net of any applicable reserves for returns
or doubtful accounts which are reflected in such Financial Statements (such
reserves, the "Reserves"); such Reserves are adequate and reasonable and were
established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches.
17
<PAGE>
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of
18
<PAGE>
any and all encumbrances) of all of the Intellectual Property, and neither the
Corporation nor the Shareholder has received any notice or claim (whether
written, oral or otherwise) challenging the Corporation's ownership or rights in
such Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto. Neither the Shareholder nor
the Corporation are in default under any license agreements pertaining to the
Intellectual Property used in the Corporation's business and licensed to the
Shareholder and/or the Corporation; all such license agreements are valid and in
full force and effect, and shall continue in full force and effect as to the
Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
19
<PAGE>
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the
20
<PAGE>
extent applicable), any other intellectual property right (including, without
limitation, any know-how, trade secret, trade right, formula, conditional or
proprietary report or information, customer or membership list, any marketing
data, and any computer program, software, database or data right), and license
or other contract (including without limitation license(s) to use specific
telephone numbers and/or radio channels/frequencies) relating to any of the
foregoing, and any goodwill associated with any business owning, holding or
using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect
21
<PAGE>
to any formal or informal stock option, profit sharing, pension, retirement,
bonus, stock bonus, thrift-savings, incentive, benefit, welfare, cafeteria,
medical insurance, dental insurance, life insurance, accidental death and
dismemberment insurance, disability insurance or other similar plan, policy or
arrangement (collectively referred to herein as the "Plans"). The Corporation is
not in default under the terms of any of the Plans. The Corporation has made all
contributions to each of the Plans required by the terms of the respective
Plans, as well as all contributions required to be made in order to satisfy all
requirements of law. Each of the Plans has sufficient assets to satisfy (under
reasonable and permitted actuarial assumptions) its obligations on a termination
basis, and the level of contributions required pursuant to the terms of each
Plan is sufficient to satisfy (under reasonable and permitted actuarial
assumptions) the obligations of such Plan on a continuing basis for benefits
accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
22
<PAGE>
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of
23
<PAGE>
1964, as amended, including the Civil Rights Act of 1991; the National Labor
Relations Act of 1935, as amended; the Fair Labor Standards Act of 1938, as
amended; the Occupational Safety and Health Act of 1970, as amended; the Equal
Pay Act of 1963, as amended; the Age Discrimination in Employment Act of 1967,
as amended; the Americans with Disabilities Act of 1990; the Family Medical
Leave Act of 1993; the Immigration Reform and Control Act of 1986 (together with
the regulations promulgated thereunder, hereinafter collectively referred to as
"IRCA"); the Worker Adjustment and Retraining Notification Act; the Employee
Polygraph Protection Act; the Drug-Free Workplace Act of 1988; the Health
Insurance Portability and Accountability Act of 1996; the Code; the regulations
promulgated under each such act; and any and all other federal, state and local
laws, regulations and requirements of any nature applicable to the Corporation.
The Corporation further represents that it is not in arrears in the payment of
wages to any employee (except to the extent of its normal payroll practices),
and there are no claims, liabilities, demands or causes of action, realized or
unrealized, actual, potential or contingent, pursuant to statutory rights or in
tort, contract or otherwise, against the Corporation arising out of or in
connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the
24
<PAGE>
Corporation will be adversely affected by the consummation of the transactions
contemplated by this Agreement. No suspension or cancellation of any such
licenses, permits, orders, approvals or authorizations is pending or, to the
best of the Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Corporation nor the Shareholder is aware
of any present intention on the part of any significant customer or supplier or
other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of
25
<PAGE>
time or both) give rise to any right of termination, cancellation or
acceleration of, or any obligation to repay, with respect to such Contract, or
(z) any event, other than the normal passage of time, which would result in
either a significant increase in the obligations or liabilities of, or a loss of
any significant benefit of, the party in question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. Each of the Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 19,
1997. The Shareholder and the Corporation both acknowledge and agree that the
Company shall have the
26
<PAGE>
right to disclose certain information concerning the Corporation to third
parties (which third parties will in turn be bound by an agreement similar to
the Confidentiality Agreement), for such general corporate purposes as includes
but is not limited to obtaining financing and/or underwriting, and for general
marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors'
27
<PAGE>
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforceability is considered in a
proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
28
<PAGE>
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions
29
<PAGE>
contemplated hereby or thereby 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 statement contained herein or therein, in light of the circumstances under
which they were made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. Except with
the prior consent of the Company, the Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
30
<PAGE>
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock, except that
the Corporation may, subject to the requirements of Section 6.5, distribute
excess working capital to the Shareholders;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of
31
<PAGE>
the Corporation and examination of its books and records as the Company may
reasonably request, and to make extracts and copies of such books and records.
Any such investigation and examination shall be conducted during regular
business hours and under reasonable circumstances, and the Shareholder and the
Corporation shall cooperate fully therein. In order that the Company may have
full opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may reasonably request of the affairs of the
Corporation, the Corporation and the Shareholder shall use their respective best
efforts to cause the Corporation's officers, employees, consultants, agents,
accountants, attorneys and other representatives to cooperate fully with such
Company representatives in connection with such review and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this
32
<PAGE>
Agreement and the Related Agreements, and (iii) fulfill all conditions precedent
applicable to such party pursuant to this Agreement and the Related Agreements.
In case at any time after the Closing Date any further action is necessary or
desirable to carry out the purposes of this Agreement or the Related Agreements,
each party hereto shall use their respective best efforts to take or cause to be
taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $70,000 working capital (defined as the
excess of current (liquid) assets over current liabilities) as of the Closing
Date. For purposes of determining whether the Corporation had the required
working capital as of the Closing Date, the Company will cause to be prepared,
promptly following the Closing, a balance sheet of the Corporation as of the
Closing Date. Such balance sheet shall be prepared in accordance with GAAP, and
shall include full
33
<PAGE>
accrual of all assets and liabilities of the Corporation as of the Closing Date
(including, but not limited to, accrued tax liabilities as if the tax year ended
on the Closing Date). In the event that the Corporation has less than the
prescribed $70,000 working capital as of the Closing Date, as determined by such
balance sheet, the Shareholder shall forthwith pay the Company an amount equal
to the difference between the actual working capital as of the Closing Date and
$70,000 working capital (the "Shortfall"). If the Shareholder does not pay the
Shortfall to the Company within five (5) days after demand, then, in addition to
all other remedies which the Company may have, the Company may deduct the amount
of the Shortfall from any of the obligations of the Company to the Shareholder
(including, but not limited to, the Earn-Out to which the Shareholder may be
entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
34
<PAGE>
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified,
35
<PAGE>
earlier date) as of the Closing in Escrow Date and the Closing Date as though
made on and as of the Closing in Escrow Date and the Closing Date, respectively,
except as otherwise contemplated by this Agreement, and the Company shall have
received a certificate from the Shareholder and the Corporation (signed by the
Shareholder and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
such party. In addition, the Related Agreements shall have been entered into by
the respective parties thereto.
36
<PAGE>
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
37
<PAGE>
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholder to refund to the Company the audit expenses as
set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholder.
The Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend
38
<PAGE>
and hold harmless the Company and its respective officers, directors, employees
and agents (collectively, the "Indemnitee") from and against and in respect of
any and all Losses (as defined below) to the extent resulting from, arising out
of, relating to, imposed upon or incurred by the Indemnitee by reason of: (i)
the conduct of business by the Corporation prior to the Closing Date (but only
to the extent that the amount of such Loss was not a stated liability on the
Corporation's most recently dated balance sheet delivered to the Company); (ii)
any inaccuracy in or breach of any of the Corporation's or the Shareholder's
representations, warranties, covenants or agreements contained in this
Agreement, the Related Agreements or in any other agreement or document entered
into or delivered on or after the date hereof in connection with this Agreement
or any of the transactions contemplated hereby and/or thereby; and (iii) any
liability of the Company arising under the Lease. Provided, however, the
indemnification by the Corporation and the Shareholder under this Section
9.1.(a) shall include direct damages only (and not indirect or consequential
damages) and shall not exceed an amount equal to the Purchase Price. The
Corporation and the Shareholder shall not be liable for any indemnification to
the Company under this Section until the aggregate amount of indemnification
owed to the Company hereunder equals or exceeds $50,000. For purposes of this
Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
39
<PAGE>
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive for a
period ending on the second anniversary of the consummation of the Initial
Public Offering.
40
<PAGE>
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
Marla Kennedy
1705 Cedar Springs Road
Dallas, Texas 75202
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings
41
<PAGE>
(including but not limited to that certain Class C Stock Transfer Agreement
between the parties dated May 17, 1997, which Agreement will be of no further
force or effect upon execution of this Agreement), both written and oral, among
the parties with respect to the subject matter hereto and is not intended to
confer upon any Person other than the parties hereto any rights or remedies
hereunder. Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto with respect to any
of the terms contained herein, and each party hereto agrees to be bound by any
such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
42
<PAGE>
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial
43
<PAGE>
arbitration rules of the American Arbitration Association ("AAA") and judgment
on the award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. It is acknowledged by the Corporation and the Shareholder
that money damages are inadequate to compensate the Company and/or the
Corporation for a breach of the terms of this Agreement, and that the Company
and/or the Corporation shall be entitled to specific performance of the terms of
this Agreement. The arbitrator may enter a default decision against any party
who fails to participate in the proceeding. The decision of the arbitrator shall
be final, conclusive, binding and non-appealable. The losing party shall pay all
costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
44
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
--------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
UNITED MESSENGERS INC.
By: /s/ Marla Kennedy
- - - - -------------------------------- --------------------------------
Name:
Title:
Witness: "SHAREHOLDER"
/s/ Marla Kennedy
- - - - -------------------------------- --------------------------------------
Marla Kennedy
45
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and the successor-in-interest to Dispatch Management Services LLC by
merger (the "Company"), Christopher Neal (the "Business Contribution Member")
and DMS Corp. Subsidiary Number ___ a Delaware corporation to-be-formed (the
"Specific Company Subsidiary"). Unless defined herein, all capitalized terms
used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996 by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member owns the business trading as Zap
Courier, which is in the business of providing time-critical, on demand,
point-to-point delivery services (such business, and any other lines of business
related thereto, the "Business");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below, and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
<PAGE>
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into employment
agreements with certain employees of the Business Contribution Member and the
Specific Company Subsidiary (the "Back-Office Employees"), identified in Exhibit
A hereto, as well as non-competition agreements with the Business Contribution
Member and certain employees of the Business Contribution Member and the
Specific Company Subsidiary in the form attached hereto as Exhibit B (such
employment agreements and non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements");
WHEREAS, the parties intend that, as of Closing, the Business Contribution
Member will have taken all steps necessary for the Specific Company Subsidiary
to trade under the trade name previously used for the Business (which trade name
is specifically acquired by the Company hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Business
Contribution Member shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited financial
statements required pursuant to Section 1.4 below and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the
2
<PAGE>
common stock, par value $.01 per share, of the Company (the "Initial Public
Offering"), the Company will deliver to the Business Contribution Member a
disclosure document, together with a notice (the "Notice") specifying the date
by which the Business Contribution Member must execute and deliver a
satisfactory representation letter in order to consummate the sale of the Assets
and assumption of the Assumed Liabilities pursuant to the terms of this
Agreement.
Upon timely delivery from the Business Contribution Member of a
representation letter satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of a satisfactory representation letter from the Business
Contribution Member.
In the event that the Business Contribution Member does not timely
deliver satisfactory representation letters (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.4 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
(ii) All rights to the trade and brand names "Zap
Courier" and "Crosstown Messenger", logos, and other Intellectual Property as
defined in Section 2.11.(d) hereinbelow, customer lists, goodwill and other
intangible assets; and
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (including, but not limited to, leases) (the "Contracts"), as set
forth on Exhibit D attached hereto.
3
<PAGE>
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member, and only those liabilities and obligations, which
are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member shall, as appropriate, enter into, execute and deliver to
the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i) a bill of
sale, (ii) an instrument of assignment and assumption (the form and substance of
which shall be reasonably acceptable to the Company), and (iii) any other
instruments of conveyance or transfer which may be necessary in the sole
discretion of the Company, including, without limitation, any instruments of
assignment in connection with the Intellectual Property and the Contracts, each
in form and substance reasonably acceptable to the Company, pursuant to which
the Business Contribution Member shall convey, assign, transfer and deliver to
the Company all right, title and interest in, to and
4
<PAGE>
under the Assets, free and clear of any and all Encumbrances (as defined in
Section 2.3(a) below), and the Company shall assume the Assumed Liabilities from
the Business Contribution Member. At the Closing in Escrow, the Business
Contribution Member shall also cause to be delivered the opinion of its counsel
as to such matters as counsel to the Company may reasonably require, including
but not limited to such counsel's opinion that: the Business Contribution Member
is authorized to conduct its business in each jurisdiction in which it is doing
business; the Business Contribution Member has full power to enter into and
perform his or her respective obligations under this Agreement, as well the
Related Agreements to which he or she is a party; this Agreement, and the
Related Agreements to which the Business Contribution Member is a party,
constitutes a legal, valid and binding obligation of the Business Contribution
Member enforceable in accordance with their respective terms (except as
enforcement may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditor's rights, and principles of equity); and
the Business Contribution Member is not threatened with or affected by any
actions, proceedings or investigations wherein an unfavorable decision, ruling
or finding could have a materially adverse effect on the financial condition or
operation of the Business and/or the Assets, or could prevent, enjoin or
otherwise affect the transactions contemplated by this Agreement.
(b) Further Actions. On and after the Closing in Escrow, the parties
hereto shall enter into, execute and deliver such other and further agreements,
documents and instruments, as any of them may reasonably request, for the
purpose of effectuating the transactions contemplated by this Agreement. Without
limiting the foregoing, the Business Contribution Member shall take whatever
steps are necessary (such as filings with the United States Patent and Trademark
Office) to transfer the Intellectual Property to the Specific Company
Subsidiary.
(c) Consummation of Sale. Upon Closing in Escrow, subject to the
terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets, net of the
downward adjustment for the full amount of the Assumed Liabilities as listed on
Exhibit F attached hereto (the
5
<PAGE>
"Purchase Price"), shall be equal to $675,080, and subject to further adjustment
(if any) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.4 below).
The parties hereto hereby agree to allocate the Purchase Price among
the Assets in accordance with the manner set forth on Schedule 1.4 attached
hereto and in accordance with the applicable provisions of Section 1060 of the
Code (the "Price Allocation"). Accordingly, each party to this Agreement shall
adopt and utilize such Price Allocation for purposes of all tax returns filed by
them and shall not voluntarily take any position inconsistent therewith in
connection with any examination of any tax return, any refund claim, any
litigation proceeding or otherwise. Each of the Company and the Business
Contribution Member shall file on a timely basis a Form 8594 in accordance with
the requirements of Section 1060 of the Code and the provisions of this Section
1.4. In the event that the Price Allocation is disputed by any taxing authority,
the party receiving notice of the dispute shall promptly notify the other
parties hereto of such dispute and the parties hereto shall consult with each
other concerning resolution of the dispute.
Unless the Company gives the Business Contribution Member written
notice to the contrary, the Business Contribution Member shall deliver to the
Company, within thirty (30) days after execution of this Agreement: (i) audited
financial statements of the Business, including balance sheets dated as of
December 31, 1994, 1995 and 1996, and income statements and cash flow statements
for each of the three twelve month periods ended on such dates; (ii) unaudited
financial statements of the Business, including a balance sheet dated as of June
30, 1996, and an income statement and cash flow statement for the twelve month
period ended on June 30, 1996: and (iii) unaudited, reviewed financial
statements of the Business, including a balance sheet dated as of June 30, 1997
and an income statement and a cash flow statement for the six month period ended
June 30, 1997. The intent of providing the audited financial statements referred
to in the foregoing sentence is to resolve any auditing issues prior to
calculation of the Purchase Price, so that the Purchase Price may be quickly and
efficiently calculated. In the event that the closing of the Initial Public
Offering has not occurred on or before November 12, 1997, but does occur on or
before December 12, 1997, then in that event, in lieu of the unaudited, reviewed
financial statements of the Business for the six month period ended June 30,
1997, the Business Contribution Member shall deliver to the Company, within
thirty days after written request from the Company: (i) an updated set of
audited financial
6
<PAGE>
statements of the Business, including a balance sheet dated as of June 30, 1997,
and income statements and cash flow statements for the six month period ended
June 30, 1997; (ii) unaudited financial statements for the Business, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Business, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Business Contribution Member shall deliver to the Company,
within thirty days after written request from the Company, such additional
audited and/or unaudited, reviewed financial statements of the Business as the
Company may reasonably request.
All of the financial statements referred to in this Section 1.4
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.4,
within the prescribed time limits, shall be the sole responsibility of the
Business Contribution Member, provided that the Company will, upon the request
of the Business Contribution Member, advance such costs on behalf of the
Business Contribution Member. In the event that the Business Contribution Member
does not timely deliver a satisfactory representation letter and complete the
Closing in Escrow, the Business Contribution Member shall be responsible for
immediately refunding to the Company any such advanced costs; in the event that
all such representation letters are satisfactory and are timely received, and
the Closing in Escrow is completed, the Business Contribution Member shall be
relieved of his or her obligation to refund to the Company any such advanced
costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as partial payment of the
Purchase Price shall be equal to the aggregate dollar value of the stock
component of the Purchase Price divided by the Initial Public Offering price per
share as set forth on the cover page of the prospectus relating to the Initial
Public Offering. The Business Contribution
7
<PAGE>
Member acknowledges that the sale of the Company Stock will be restricted for a
period of time by virtue of a "lock-up" agreement which may be imposed by the
Company, and the Business Contribution Member shall execute such a "lock-up"
agreement, as may be required by the Company, by which the sale of the Company
Stock is restricted (perhaps prohibited) for a period of two (2) years from the
date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Business Contribution
Member ratably over the 8 quarter annual periods beginning January 1, 1998 and
ending December 31, 1999 provided that the Specific Company Subsidiary achieves
the targeted performance standards set forth in Exhibit G attached hereto. In
the event that the Specific Company Subsidiary fails to achieve the margin
requirement set forth in Exhibit G during any such calendar quarter, then for
each calendar quarter in which the Specific Company Subsidiary fails to achieve
such standards margin requirement, the cash portion of the Purchase Price shall
be reduced by one-eighth (1/8) of the Maximum Earn-Out. In the event that the
Corporation achieves the margin requirement during the relevant calendar
quarter, but fails to achieve the revenue requirement set forth in Exhibit G,
then for each such calendar quarter, the cash portion of the Purchase Price
shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out, multiplied
by: (ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar quarter and the revenue requirement for
such calendar quarter as set forth in Exhibit G, and the denominator of which is
the revenue required during such calendar quarter as set forth in Exhibit G. The
Maximum Earn-Out, less any reductions as set forth in this paragraph, is
hereinafter referred to as the "Earn-Out". The Earn-Out shall bear interest at
the rate of 7% per annum commencing as of the Closing Date (i.e., once the
Earn-Out is determined, the Shareholders will be due such amount plus interest
at the rate of 7% per annum on such amount, accrued from the Closing Date until
the date of payment of the Earn-Out to the Shareholders). The Earn-Out shall be
paid to the Business Contribution Member promptly following calculation of the
Specific Company Subsidiary's performance for the quarter ending December 31,
1999. The Company covenants and agrees to maintain sufficient cash, or
availability of cash (e.g., by way of a line of credit) in order to fund the
Earn-Out.
At the request of the Business Contribution Member made to the
Company in writing not later than the Closing in Escrow, the Company shall
(immediately after Closing) make a loan to
8
<PAGE>
the Business Contribution Member in an amount equal to up to 30% of the Purchase
Price. Said loan by the Company to the Business Contribution Member (the
"Business Contribution Member Loan") shall bear interest at a rate of seven
percent (7%) per annum, and shall be secured by all of the Company Stock paid as
part of the Purchase Price at Closing. The collateral security agreement
evidencing the collateralization of the Business Contribution Member Loan with
the Company Stock and the Earn-Out shall be on such terms as are reasonably
acceptable to the Company, which terms shall include, but shall not be limited
to, the retention of all of the Company Stock by the Company until full
repayment of the Business Contribution Loan. The Business Contribution Member
shall have the right to prepay the Business Contribution Member Loan (plus
accrued interest) at any time without penalty and shall have the right to direct
the Company to offset the balance due under the Business Contribution Member
Loan (plus accrued interest) against the Earn-Out as earned each quarter. The
Business Contribution Member Loan shall mature as of the date that the Earn-Out
is payable. In the event that the Business Contribution Member Loan is not
repaid in full upon maturity, the Company shall enjoy all rights of a secured
party under the Uniform Commercial Code then in effect in the State of Maryland,
provided that the Company's only recourse shall be first against the remaining
Earn-Out and then against the Company Stock it holds as collateral, and there
shall not be any recourse against the Business Contribution Member individually.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement (the "Closing")
shall take place at the offices of Silver, Freedman & Taff, L.L.P., 1100 New
York Avenue, N.W., Suite 700E, Washington, D.C. 20005, contemporaneously with
the closing of the Initial Public Offering unless the Initial Public Offering
does not occur by March 31, 1998, in which case this Agreement shall be rendered
null and void, or unless another date, time or place is agreed to in writing by
the parties hereto (the day on which the Closing takes place being the "Closing
Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the bill of sale, instruments of assignment and assumption,
transfer documents, and other documents and materials theretofore held in escrow
from the Closing in Escrow; (ii) the Business Contribution
9
<PAGE>
Member shall deliver to the Company updated certificates, dated the Closing
Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an updated
opinion of counsel as referred to in Section 1.3(a) above; and (iii) the Company
shall deliver the Purchase Price to the Business Contribution Member (less the
Maximum Earn-Out, which shall be payable to the Business Contribution Member
pursuant to the terms of Section 1.4 above, and with the Company Stock
collateralized against the Business Contribution Member Loan being delivered to
the Company as appropriate). At Closing, the Company, Business Contribution
Member and Specific Company Subsidiary shall also take all additional steps as
may be necessary or appropriate to deliver the Assets to the Specific Company
Subsidiary, have the Specific Company Subsidiary assume the Assumed Liabilities,
and put the Specific Company Subsidiary in physical possession and operating
control of the Business and all of the Assets.
2. Representations, Warranties and Covenants of the Business Contribution
Member.
The Business Contribution Member represents, warrants and covenants
to the Company as follows:
2.1. Power. The Business Contribution Member has all requisite power
and authority to own, lease and operate its properties (including, without
limitation, the Assets) and to carry on its business as now being conducted
(including, without limitation, the Business). The Business Contribution Member
is duly qualified to conduct business in each jurisdiction in which the business
it is conducting (including, without limitation, the Business), or the
operation, ownership or leasing of its properties (including, without
limitation, the Assets), makes such qualification necessary.
2.2. Authority and Enforceability.
Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite power and authority to execute
and deliver this Agreement and each of the Related Agreements to which it is a
party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Business Contribution
Member. This Agreement and each of the
10
<PAGE>
Related Agreements to which the Business Contribution Member is a party has been
duly executed and delivered by the Business Contribution Member, and this
Agreement and each of the Related Agreements to which the Business Contribution
Member is a party constitute the legal, valid and binding obligations of the
Business Contribution Member, enforceable against the Business Contribution
Member in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
2.3. Title to Assets; Condition.
(a) The Business Contribution Member owns beneficially and of
record, and has good and marketable title to, the Assets, free and clear of any
Encumbrances. For purposes of this Agreement, the term "Encumbrances" shall mean
restrictions, conditions, covenants, liens, easements, charges, encroachments or
any other matter affecting fee simple title (other than the Assumed
Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this Agreement
to be effected at the Closing, the Company will (i) have all right, title, and
interest in and to, or will have a valid right to use, without liability to
third party(ies), the Assets; and (ii) have all assets, rights, Back-Office
Employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Business after the
Closing Date in substantially the same manner as presently conducted by the
Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member of this Agreement and each of the
Related Agreements to which
11
<PAGE>
he or she is a party, and the consummation of the transactions contemplated
hereby and thereby by the Business Contribution Member will not (a) except as
set forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (b) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an Encumbrance, under or pursuant
to (i) any of the Contracts, or (ii) any other material agreements to which the
Business Contribution Member is a party, or (c) violate any law applicable to
the Business Contribution Member or by which any of the Assets is bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, to the best of the Business Contribution
Member's knowledge after due inquiry, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Business Contribution Member or the Business is
currently subject (or which the Business Contribution Member or the Business was
subject to during the previous three years) or which are otherwise applicable to
the Business Contribution Member or the Assets or to the conduct of the
Business, and (ii) all correspondence from the date hereof with respect to any
of the matters referred to in clause (b) or clause (i) of this Section 2.6. The
Business Contribution Member is not aware of any proposed legislation or law
which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Business.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member, threatened that
questions the validity of this Agreement or the Related
12
<PAGE>
Agreements or any action taken or to be taken by the Business Contribution
Member in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Business
Contribution Member, threatened against or affecting the Business Contribution
Member, the Business or any of the Assets. To the knowledge of the Business
Contribution Member, no event has occurred and no circumstance, matter or set of
facts exist which would constitute a valid basis for the assertion by any third
party of any claim or Legal Proceeding, other than those listed on Exhibit H.
Except as set forth in Exhibit H, there is no outstanding or, to the knowledge
of the Business Contribution Member, threatened judgment, injunction, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Business Contribution Member, the Business or any of the
Assets.
2.8. Financial Advisors.
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business Contribution Member in connection with
the negotiations relating to or the transactions contemplated by this Agreement
or the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member. Such fees, commissions, like payments or expense reimbursements as are
described on Exhibit I attached hereto shall remain liabilities and expenses of
the Business Contribution Member exclusively, and are specifically excluded from
the Assumed Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which,
13
<PAGE>
together with the financial statements (including the notes and exhibits
thereto), to be delivered to the Company pursuant to Section 1.4 herein (the
"Financial Statements") were and will be prepared in accordance with the books
and records of the Business, are and will be complete and correct in all
material respects, have and will have been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"), applied consistently with the
past practices of the Business, except where otherwise specifically noted
therein, and present and will present fairly in all material respects the
financial position, results of operations and changes in financial position or
cash flows, whichever is applicable, of the Business as at the dates and for the
periods indicated (subject, in the case of the unaudited financial statements,
to normal year-end audit adjustments). Without limiting the foregoing, no
undisclosed liabilities or obligations of any nature (whether known or unknown,
or absolute, accrued, contingent or otherwise) shall exist as at Closing in
Escrow or the Closing not reflected in the Business's most recently dated
balance sheet supplied to the Company. The Business Contribution Member has paid
all federal, state and local income, profits, franchises, sales, use,
occupation, property, excise and payroll taxes, and all license fees and other
charges imposed upon it, and has timely filed all tax returns and related
documents required to be filed with any governmental authority. There are no
outstanding or proposed statements of deficiency in tax payments to any federal,
state, local or foreign government with respect to the Business Contribution
Member for any tax period. As of the dates such Financial Statements were and
will be prepared, all accounts receivable reflected on the Financial Statements
(i) have and will have arisen from bona fide transactions in the ordinary course
of the Business Contribution Member's business, consistent with its past
practices, and (ii) are good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for returns or doubtful accounts which
are reflected in such Financial Statements (such reserves, the "Reserves"); such
Reserves are adequate and reasonable and were established in accordance with
GAAP.
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with
14
<PAGE>
past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d)
hereinbelow) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly- used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for the conduct of the Business as now conducted. After Closing,
the Specific Company Subsidiary will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property, and the Business Contribution Member has not received
any notice or claim (whether written, oral or otherwise) challenging the
Business Contribution Member's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto; the Business Contribution Member has all legal
and other rights required to transfer the ownership of the Intellectual Property
to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and the Business Contribution Member has not received any notice or claim
(whether written oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other
15
<PAGE>
Intellectual Property used by the Business Contribution Member will conflict
with, infringe upon, violate or interfere with or constitute an appropriation of
any right, title or interest held by any other person or entity, and there have
been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property used or able to be used by the Business
Contribution Member in the conduct of its business (including, without
limitation, the Business) as heretofore conducted; and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date. The
Business Contribution Member
16
<PAGE>
has not granted to any other Person or entity any rights or permissions to use
any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
Internet domain name or industrial design, any registrations thereof and pending
applications therefor (to the extent applicable), any other intellectual
property right (including, without limitation, any know-how, trade secret, trade
right, formula, conditional or proprietary report or information, customer or
membership list, any marketing data, and any computer program, software,
database or data right), and license or other contract (including without
limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be assumed by the Specific Company Subsidiary directly from and after
Closing, the Business Contribution Member hereby agrees to keep such insurance
policy(ies) as are reflected by such Assumed Liabilities in full force and
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is, to the best of the
Business Contribution Member's knowledge after due inquiry, valid and
enforceable in accordance with its
17
<PAGE>
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity); (ii) to the best of
the Business Contribution Member's knowledge after due inquiry, no Default (as
defined below) exists under any Contract either by the Business Contribution
Member or by any other party thereto; (iii) the Business Contribution Member is
not aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) the Business Contribution Member is not
aware of any present intention on the part of any significant customer or
supplier or other business partner of the Business Contribution Member to either
(x) terminate or significantly change its existing business relationship with
the Business Contribution Member either now or in the foreseeable future, or (y)
fail to renew or extend its existing business relationship with the Business
Contribution Member at the end of the term of any existing contractual
arrangement such entity may have with the Business Contribution Member. For
purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any breach of or default under such Contract, (y) any event, other
than the normal passage of time, which would (either with or without notice or
lapse of time or both) give rise to any right of termination, cancellation or
acceleration or any obligation to repay with respect to such Contract, or (z)
any event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading. The Business Contribution Member knows of no facts which
are reasonably likely to cause a material adverse effect on the Assets or the
Business.
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
18
<PAGE>
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, and Certain Employees of the Business
Contribution Member
The Business Contribution Member, and certain employees of the
Business Contribution Member and the Specific Company Subsidiary noted on
Exhibit B attached hereto, shall have, at the Closing in Escrow, entered into
agreements, the form of which is attached to this Agreement as Exhibit B.
3.2. Confidentiality. The Business Contribution Member shall abide
by the terms of the Confidentiality Agreement between the Business Contribution
Member and the Company (or the Company's predecessor, Dispatch Management
Services LLC) executed on March 19, 1997. The Business Contribution Member and
the Specific Company Subsidiary each acknowledge and agree that the Company
shall have the right to disclose certain information concerning the Specific
Company Subsidiary, the Assets and/or the Business to third parties (which third
parties will in turn be bound by an agreement similar to the Confidentiality
Agreement), for such general corporate purposes as includes but is not limited
to obtaining financing and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of
19
<PAGE>
the transactions contemplated hereby and thereby have been duly authorized by
all necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions
20
<PAGE>
contemplated hereby or thereby or which seeks to prohibit, enjoin or otherwise
challenge any of the transactions contemplated hereby or thereby. Exhibit H sets
forth an accurate and complete list, and a brief description (setting forth the
names of the parties involved, the court or other governmental or mediating
entity involved, the relief sought and the substantive allegations and the
status thereof), of each Legal Proceeding pending or, to the knowledge of the
Company, threatened against or affecting the Company. To the knowledge of the
Company, no event has occurred and no circumstance, matter or set of facts exist
which would constitute a valid basis for the assertion by any third party of any
claim or Legal Proceeding, other than those listed on Exhibit H. Except as set
forth in Exhibit H, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member covenants and agrees
that (except as expressly contemplated or permitted by this Agreement, or to the
extent that the Company shall otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
21
<PAGE>
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (ii) preserve the present
relationship of the Business Contribution Member with Persons having business
dealings with the Business Contribution Member;
(c) comply with all laws and with all contractual and other
obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any Encumbrance;
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on the Business or the Assets,
and (ii) any Legal Proceeding commenced by or against the Business Contribution
Member or any Legal Proceeding commenced or threatened relating to the
transactions contemplated by this Agreement.
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member in this Agreement or the Related Agreements untrue
or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, the Business Contribution
Member shall take all steps necessary to change its trade name to a name not
confusingly similar to the trade name being conveyed hereunder and to be
utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any
22
<PAGE>
such investigation and examination shall be conducted during regular business
hours and under reasonable circumstances, and the Business Contribution Member
shall cooperate fully therein. In order that the Company may have full
opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may reasonably request of the affairs of the
Business and the Business Contribution Member, the Business Contribution Member
shall use his or her respective best efforts to cause the Business Contribution
Member's employees, consultants, agents, accountants, attorneys and other
representatives to cooperate fully with such Company representatives in
connection with such review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, the Business Contribution Member shall
not pursue, initiate, encourage or engage in any negotiations or discussions
with any third parties concerning the sale of the Business, the Assets, or any
part thereof or concerning the terms and conditions of this Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member shall give prompt notice to the Company of (a) any notice of, or other
communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Business and/or the Business Contribution Member to which it is a party
or is subject, (b) any notice or other communication from any third party
alleging that the consent of such
23
<PAGE>
third party is or may be required in connection with the transactions
contemplated by this Agreement or any of the Related Agreements, or (c) any
material adverse change in the properties (including but not limited to the
Assets), business operations, results of operations, financial condition or
prospects of the Business, other than changes resulting from general economic
conditions. In addition, the Business Contribution Member shall be required to
update the schedules and other information supplied pursuant to this Agreement
at such time as the information contained therein changes in any material
respect.
6.6 Working Capital as of the Closing Date. The Business
Contribution Member shall ensure that the Assets, less the Assumed Liabilities,
includes at least $84,385 working capital (defined as the excess of current
(liquid) assets over current liabilities) as of the Closing Date.
For purposes of determining whether the required working capital existed
as of the Closing Date, the Company will cause to be prepared, promptly
following the Closing, a balance sheet setting forth the Assets and Assumed
Liabilities as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, consistent with past practices of the Business
Contribution Member, and shall include full accrual of all tax liabilities of
the Business Contribution Member as of the Closing Date (including but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date. In the event that less than the prescribed $84,385 working capital existed
as of the Closing Date, as determined by such balance sheet, the Business
Contribution Member shall forthwith pay the Company an amount equal to the
difference between the actual working capital as of the Closing Date and $84,385
working capital (the "Shortfall"). If the Business Contribution Member does not
pay the Shortfall to the Company within five (5) days after demand, then, in
addition to all other remedies which the Company may have, the Company may
deduct the amount of the Shortfall from any of the obligations of the Company to
the Business Contribution Member (including, but not limited to, the Earn-Out to
which the Business Contribution Member may be entitled thereafter).
In the event that the Business Contribution Member shall
notify the Company in writing within five days after demand is made by the
Company for payment of the Shortfall of its decision to dispute the amount of
the Shortfall, the Company shall forthwith instruct Price Waterhouse LLP to
audit the balance sheet of the Business as of the Closing Date, and to calculate
the working capital therein in accordance with GAAP. Price Waterhouse LLP shall
then determine
24
<PAGE>
the amount of the Shortfall as set out in this paragraph 6.6, whose decision
shall be final and binding on the parties hereto. The Business Contribution
Member shall forthwith pay to the Company the amount of such Shortfall, together
with fifty percent (50%) of the cost of the audit conducted by Price Waterhouse
LLP. In the event Price Waterhouse LLP determines the Shortfall to have been
zero, the entire cost of such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member set forth in this Agreement (with
regard to any supplements or updates thereto) shall be true and correct in all
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and
25
<PAGE>
the Company shall have received a certificate from the Business Contribution
Member certifying to such effect.
(b) Performance of Obligations. The Business Contribution
Member shall have performed all obligations required to be performed under this
Agreement at or prior to the Closing in Escrow Date and the Closing Date, and
the Company shall have received a certificate from the Business Contribution
Member certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Assets or the Business.
(d) Contractual Consents. The Business Contribution Member
shall have given all notices to, and obtained all consents, approvals or
authorizations of or from, any individual, corporation or other party which may
be necessary to permit the consummation of the transactions contemplated hereby
(including, without limitation, any consents required under the Contracts, or
which may be required to permit the change of ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member is a party shall have been duly executed
and delivered. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member.
The obligations of the Business Contribution Member to effect the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions (which are for the exclusive benefit of the Business Contribution
Member), any or all of which may be waived in whole or in part by the Business
Contribution Member.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
26
<PAGE>
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Business Contribution
Member does not timely deliver a representation letter satisfactory to the
Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or shareholders except (i)
for the obligation of the Business Contribution Member to refund to the Company
the audit expenses as set forth in Section 1.4 of this Agreement; (ii) for any
and all obligations under the confidentiality provisions contained in Section
3.2 of this Agreement; and (iii) to the extent that such termination results
from the willful breach by a party hereto of any of its representations or
warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non-
27
<PAGE>
breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member. The
Business Contribution Member hereby agrees to indemnify, defend and hold
harmless the Company, the Specific Company Subsidiary, and their respective
officers, directors, employees and agents (collectively, the "Indemnitee") from
and against and in respect of any and all Losses (as defined below) to the
extent resulting from, arising out of, relating to, imposed upon or incurred by
the Indemnitee by reason of (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business' most recently dated balance sheet delivered to the
Company; (ii) any inaccuracy in or breach of any of the Business Contribution
Member's representations, warranties, covenants or agreements contained in this
Agreement, the Related Agreements or in any other agreement or document entered
into or delivered on or after the date hereof in connection with this Agreement
or any of the transactions contemplated hereby and thereby, (iii) any liability
or obligation of the Business Contribution Member other than an Assumed
Liability, and (iv) any non-compliance with any notice requirement, if any,
which may be contained in the Uniform Commercial Code as adopted by the State of
California relating to bulk sales. Provided, however, the indemnification by the
Business Contribution Member under this Section 9.1.(a) shall include direct
damages only (and not indirect or consequential damages). For purposes of this
Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member from and
against and in respect of any and all Losses resulting from, arising out of,
relating to, imposed upon or incurred by
28
<PAGE>
the Business Contribution Member by reason of (i) any inaccuracy in or breach of
any of the Company's representations, warranties, covenants or agreements
contained in this Agreement or in any other agreement or document entered into
or delivered by the Company on or after the date hereof in connection with this
Agreement or any of the transactions contemplated hereby and/or thereby; or (ii)
any failure to discharge the Assumed Liabilities as required by their terms.
Provided, however, the indemnification by the Company under this Section 9.1.(b)
shall include direct damages only (and not indirect or consequential damages)
and shall be limited in the aggregate to the Purchase Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
29
<PAGE>
(b) if to the Business Contribution Member, to:
Christopher Neal
Zap Courier
411 Brannan Street, 2nd Floor
San Francisco, California 94107
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Asset Transfer Agreement between the Business Contribution Member and Dispatch
Management Services LLC dated July 16, 1997, which Agreement will be of no
further force or effect upon execution of this Agreement), both written and
oral, among the parties with respect to the subject matter hereto and is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of all parties hereto with
respect to any of the terms contained herein, and each party hereto agrees to be
bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or
30
<PAGE>
similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Business Contribution Member acknowledges that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.3 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Specific Company Subsidiary shall be entitled, without
the necessity of proving actual damages, to injunctive relief in addition to
damages and all other remedies which may otherwise be available to the Company
and/or the Specific Company Subsidiary.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American
31
<PAGE>
Arbitration Association ("AAA") and judgment on the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. It is
acknowledged by the Business Contribution Member that money damages are
inadequate to compensate the Company and/or the Specific Company Subsidiary for
a breach of the terms of this Agreement, and that the Company and/or the
Specific Company Subsidiary shall be entitled to specific performance of the
terms of this Agreement. The arbitrator may enter a default decision against any
party who fails to participate in the proceeding. The decision of the arbitrator
shall be final, conclusive, binding and non-appealable. The losing party shall
pay all costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
32
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
- - - - ------------------------- ----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest:
/s/ Christopher Neal
- - - - ------------------------- --------------------------------------
Name: Christopher Neal
"SPECIFIC COMPANY SUBSIDIARY"
Attest: DMS CORP. SUBSIDIARY NO. __
By: /s/ Linda Jenkinson
- - - - ------------------------- ----------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 4th day of
October, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), TimeCycle Courier, Inc., a Pennsylvania corporation (the
"Corporation"), and Eric D. Nordberg and Jeffrey Appeltans, (collectively, the
"Shareholders"). Unless defined herein, all capitalized terms used in this
Agreement shall have the meaning given them in the Operating Agreement of
Dispatch Management Services LLC dated December 1, 1996 by and among the Members
of Dispatch Management Services LLC, as amended (the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders do not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs
2
<PAGE>
and expenses to be incurred in connection with such terminations of employment,
and the Company will reduce the cash portion of the purchase price by the amount
of such reasonable estimate.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C.
20036 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., as escrow agent:
(i) certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
3
<PAGE>
Shareholders and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretaries of State of Pennsylvania; (vi) the certificates, dated the
Closing in Escrow Date, required pursuant to Sections 7.2(a) and 7.2(b)
hereinbelow; and (vii) the opinion of counsel to the Shareholders and the
Corporation as to such matters as counsel to the Company may reasonably require,
including but not limited to such counsel's opinion that: (A) the Corporation is
in good standing; (B) the Corporation is authorized to conduct its business in
each jurisdiction in which it is doing business; (C) the Shareholders and the
Corporation have the full power to enter into and perform their respective
obligations under this Agreement; (D) this Agreement constitutes the legal,
valid and binding obligations of the Corporation and the Shareholders, and the
Related Agreements to which the Shareholders are a party, constitute the legal,
valid and binding obligations of the Shareholders, each enforceable in
accordance with their respective terms (except as enforcement may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditor's rights, and principles of equity); and (E) neither the Corporation
nor the Shareholders are threatened with or affected by any actions, proceedings
or investigations wherein an unfavorable decision, ruling or finding could have
a material adverse effect on the financial condition or operation of the
Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock, subject to
adjustment (if any) as provided in Section 1.1 above (the "Purchase Price")
shall be $462,789 (the "Initial Purchase Price") plus the amount required to be
paid to the Shareholders following the full eight-
4
<PAGE>
quarter period as set forth in this Section 1.3.
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholders shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders shall deliver to the Company, within thirty days
after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the
5
<PAGE>
financial statements required by this Section 1.3, within the prescribed time
limits, shall be the sole responsibility of the Shareholders, provided that the
Company will, upon the request of the Shareholders, advance such costs on behalf
of the Shareholders. In the event that all of the Shareholders do not timely
deliver satisfactory shareholder representation letters and complete the Closing
in Escrow, the Shareholders shall immediately refund to the Company any such
advanced costs; in the event that all such shareholder representation letters
are satisfactory and are timely received, and the Closing in Escrow is
completed, the Shareholders shall be relieved of their obligation to refund to
the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Initial Purchase
Price in cash and seventy percent (70%) of the Initial Purchase Price in
(restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the stock component
of the Initial Purchase Price shall equal the aggregate dollar value of the
stock component of the Initial Purchase Price divided by the initial public
offering price per share as set forth on the cover page of the Prospectus
relating to the initial public offering. The Shareholders acknowledge that the
sale of the Company Stock will be restricted for a period of time by virtue of a
"lock-up" agreement which may be imposed by the Company, and the Shareholders
shall execute such a "lock-up" agreement, as may be required by the Company, by
which the sale of the Company Stock is restricted (perhaps prohibited) for a
period of two (2) years from the date of the closing of the Initial Public
Offering.
Within 30 days following the end of the eighth full fiscal quarter
immediately following the Initial Public Offering (such eight-quarter period is
referred to herein as the "Eight Quarter Period"), the Company agrees to issue
to the Shareholders a certain number of shares of Common Stock. Such certain
number of shares of Common Stock to be issued shall be calculated by dividing
$1,400,000 by the Initial Public Offering price per share (adjusted for stock
splits, if any), provided that the average monthly revenues of the Business
Contribution Member for the Eight Quarter Period were at least $200,000.
If the average monthly revenues of the Business Contribution Member
for the Eight Quarter Period were less than $200,000, the Company shall issue to
the Shareholders a certain number of shares of Common Stock. Such certain number
of shares of Common Stock to
6
<PAGE>
be issued shall be calculated by dividing $1,400,000 by the Initial Public
Offering price per share (adjusted for stock splits, if any), and then
multiplying this amount by the following fraction: the average monthly revenues
of the Business Contribution Member for the Eight Quarter Period divided by
$200,000.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W.,
Washington, D.C. 20036, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P. shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholders shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated opinion of counsel as referred to in Section
1.2(a)(vii) above; and (iii) the Company shall deliver the Purchase Price to the
Shareholders.
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is an "S"
7
<PAGE>
Corporation duly organized, validly existing and in good standing under the laws
of the State of Pennsylvania, and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Corporation is duly qualified and in good standing
to conduct business in each jurisdiction in which the business it is conducting,
or the operation, ownership or leasing of its properties, makes such
qualification necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of ___ shares of ___ par value
capital stock of which ____ shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
8
<PAGE>
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except
9
<PAGE>
as set forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholders nor the Corporation is aware
of any proposed legislation or law which is reasonably expected to be enacted
and which, if so enacted, could reasonably be expected to have a material
adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related Agreements or any
action taken or to be taken by the Shareholders or the Corporation in connection
with the consummation of the transactions contemplated hereby or thereby or
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each
10
<PAGE>
Legal Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholders, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholders, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Corporation and/or the Shareholders,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders and/or the Corporation in
connection with the negotiations relating to or the transactions contemplated by
this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will
11
<PAGE>
present fairly in all material respects the financial position, results of
operations and changes in financial position or cash flows, whichever is
applicable, of the Corporation as at the dates and for the periods indicated
(subject, in the case of the unaudited financial statements, to normal year-end
audit adjustments). Without limiting the foregoing, no undisclosed liabilities
or obligations of any nature (whether known or unknown, or absolute, accrued,
contingent or otherwise) shall exist as at Closing in Escrow or the Closing not
reflected in the most recently dated balance sheet supplied to the Company. The
Corporation has paid all federal, state and local income, profits, franchises,
sales, use, occupation, property, excise and payroll taxes, and all license fees
and other charges imposed upon it, and has timely filed all tax returns and
related documents required to be filed with any governmental authority. There
are no outstanding or proposed statements of deficiency in tax payments to any
federal, state, local or foreign government with respect to the Corporation for
any tax period. As of the dates such Financial Statements were and will be
prepared, all accounts receivable reflected on the Financial Statements (i) have
and will have arisen from bona fide transactions in the ordinary course of the
Corporation's business, consistent with its past practices, and (ii) are good
and collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for returns or doubtful accounts which are reflected in such Financial
Statements (such reserves, the "Reserves"); such Reserves are adequate and
reasonable and were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
12
<PAGE>
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license agreements are valid and in full force and effect,
and shall continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of the Shareholders has received any notice
or claim (whether written, oral or otherwise) challenging the validity or
enforceability of any such Intellectual Property;
13
<PAGE>
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
14
<PAGE>
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar
15
<PAGE>
plan, policy or arrangement (collectively referred to herein as the "Plans").
The Corporation is not in default under the terms of any of the Plans. The
Corporation has made all contributions to each of the Plans required by the
terms of the respective Plans, as well as all contributions required to be made
in order to satisfy all requirements of law. Each of the Plans has sufficient
assets to satisfy (under reasonable and permitted actuarial assumptions) its
obligations on a termination basis, and the level of contributions required
pursuant to the terms of each Plan is sufficient to satisfy (under reasonable
and permitted actuarial assumptions) the obligations of such Plan on a
continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
16
<PAGE>
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee.
17
<PAGE>
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation. For purposes of this Agreement, the term "Default" means, with
respect to any Contract, (x) any material breach of, or material default under,
such Contract, (y) any event, other than the normal passage of time, which would
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration of, or any obligation to repay,
with respect to such Contract, or (z) any event, other than the normal passage
18
<PAGE>
of time, which would result in either a significant increase in the obligations
or liabilities of, or a loss of any significant benefit of, the party in
question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 20,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
19
<PAGE>
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
20
<PAGE>
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
21
<PAGE>
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
22
<PAGE>
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate,
23
<PAGE>
encourage or engage in any negotiations or discussions with any third parties
concerning the sale of the Corporation, its assets, or any part thereof or
concerning the terms and conditions of this Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $57,849 working capital (defined as the
excess of current (liquid) assets over current liabilities) as of the Closing
Date. For purposes of determining
24
<PAGE>
whether the Corporation had the required working capital as of the Closing Date,
the Company will cause to be prepared, promptly following the Closing, a balance
sheet of the Corporation as of the Closing Date. Such balance sheet shall be
prepared in accordance with GAAP, and shall include full accrual of all assets
and liabilities of the Corporation as of the Closing Date (including, but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the prescribed $57,849
working capital as of the Closing Date, as determined by such balance sheet, the
Shareholders shall forthwith pay the Company an amount equal to the difference
between the actual working capital as of the Closing Date and $57,849 working
capital (the "Shortfall"). If the Shareholders do not pay the Shortfall to the
Company within five (5) days after demand, then, in addition to all other
remedies which the Company may have, the Company may deduct the amount of the
Shortfall from any of the obligations of the Company to the Shareholders
(including, but not limited to, the Earn-Out to which the Shareholders may be
entitled thereafter).
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any
25
<PAGE>
governmental entity, requisite to the transactions contemplated hereby, shall
have been filed, occurred or have been obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could
26
<PAGE>
reasonably likely result in, individually or in the aggregate, a material
adverse effect on the Corporation, its assets or its business.
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
27
<PAGE>
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
28
<PAGE>
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholders under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party
29
<PAGE>
seeking such indemnification shall notify the other such parties in a reasonably
prompt manner; provided that failure to give such reasonably prompt notice shall
not release, waive or otherwise affect any party's obligations with respect
thereto except to the extent such party can demonstrate it was actually and
materially prejudiced as a result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
-----------------------------
-----------------------------
-----------------------------
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered
30
<PAGE>
one and the same agreement and shall become effective when two or more
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the parties dated August 1, 1997, which
Agreement will be of no further force or effect upon execution of this
Agreement), both written and oral, among the parties with respect to the subject
matter hereto and is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by written agreement of
all parties hereto with respect to any of the terms contained herein, and each
party hereto agrees to be bound by any such amendment, modification or
supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
31
<PAGE>
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholders that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails
32
<PAGE>
to participate in the proceeding. The decision of the arbitrator shall be final,
conclusive, binding and non-appealable. The losing party shall pay all costs and
expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
33
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
--------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
TIMECYCLE COURIER, INC.
By: /s/ Jeffrey Appeltans
- - - - -------------------------------- --------------------------------
Name: Jeffrey Appeltans
Title: President
Witness: "SHAREHOLDER"
/s/ Eric D. Nordberg
- - - - -------------------------------- --------------------------------------
Eric D. Nordberg
Witness:
/s/ Jeffrey Appeltans
- - - - -------------------------------- --------------------------------------
Jeffrey Appeltans
34
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 10th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Rocket Courier Services, Inc., a District of Columbia
corporation (the"Corporation"), and Sean Leonce, Grace Leonce and Samer Hassan
(collectively, the "Shareholders"). Unless defined herein, all capitalized terms
used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996 by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholders own all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholders desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with each
of the Shareholders and certain employees of the Corporation in the form
attached hereto as Exhibit A (such non-competition agreements, together with all
other agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholders, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholders
and the Corporation shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited and unaudited
financial statements required pursuant to Section 1.3 below; and (ii) the
agreements required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholders a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholders must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholders purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholders do not purchase the
(unwanted) assets specified by the Company in the Notice, then such assets will
be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholders do not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such terminations of
2
<PAGE>
employment, and the Company will reduce the cash portion of the purchase price
by the amount of such reasonable estimate.
Upon timely delivery from all of the Shareholders of shareholder
representation letters satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of satisfactory shareholder representation letters from all of
the Shareholders.
In the event that one or more of the Shareholders do not timely
deliver satisfactory shareholder representation letters (as determined in the
sole discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholders' and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholders shall deliver the following
to the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholders'
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholders and/or third parties and heretofore licensed to or used by the
Corporation; (v) Certificates of Good Standing for the Corporation as issued by
the Secretaries
3
<PAGE>
of the State of Maryland, the District of Columbia and the Commonwealth of
Virginia; (vi) the certificates, dated the Closing in Escrow Date, required
pursuant to Sections 7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of
counsel to the Shareholders and the Corporation as to such matters as counsel to
the Company may reasonably require, including but not limited to such counsel's
opinion that: (A) the Corporation is in good standing; (B) the Corporation is
authorized to conduct its business in each jurisdiction in which it is doing
business; (C) the Shareholders and the Corporation have the full power to enter
into and perform their respective obligations under this Agreement; (D) this
Agreement constitutes the legal, valid and binding obligations of the
Corporation and the Shareholders, and the Related Agreements to which the
Shareholders are a party, constitute the legal, valid and binding obligations of
the Shareholders, each enforceable in accordance with their respective terms
(except as enforcement may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditor's rights, and principles of
equity); and (E) neither the Corporation nor the Shareholders are threatened
with or affected by any actions, proceedings or investigations wherein an
unfavorable decision, ruling or finding could have a material adverse effect on
the financial condition or operation of the Corporation, or could prevent,
enjoin or otherwise affect the transactions contemplated by this Agreement or
the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholders will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the
"Purchase Price") shall be equal to $348,666.67, subject to adjustment (if any)
as provided in Section 1.1 above, and subject to further adjustment (if any) as
a result of a reduction in the Maximum Earn-Out (as defined in this Section 1.3
below).
4
<PAGE>
Unless the Company gives the Shareholders written notice to the
contrary, the Shareholders shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholders shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholders shall deliver to the Company, within thirty days
after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the Corporation as the Company may
reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial
5
<PAGE>
statements required by this Section 1.3, within the prescribed time limits,
shall be the sole responsibility of the Shareholders, provided that the Company
will, upon the request of the Shareholders, advance such costs on behalf of the
Shareholders. In the event that all of the Shareholders do not timely deliver
satisfactory shareholder representation letters and complete the Closing in
Escrow, the Shareholders shall immediately refund to the Company any such
advanced costs; in the event that all such shareholder representation letters
are satisfactory and are timely received, and the Closing in Escrow is
completed, the Shareholders shall be relieved of their obligation to refund to
the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as partial payment of the
Purchase Price shall be equal to the aggregate dollar value of the stock
component of the Purchase Price divided by the Initial Public Offering price per
share as set forth on the cover page of the prospectus relating to the Initial
Public Offering. The Shareholders acknowledge that the sale of the Company Stock
will be restricted for a period of time by virtue of a "lock-up" agreement which
may be imposed by the Company, and the Shareholders shall execute such a
"lock-up" agreement, as may be required by the Company, by which the sale of the
Company Stock is restricted (perhaps prohibited) for a period of two (2) years
from the date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholders ratably
over the 8 quarter annual periods beginning January 1, 1998 and ending December
31, 1999 provided that the Corporation achieves the targeted performance
standards set forth in Exhibit B attached hereto. In the event that the
Corporation fails to achieve the margin requirement set forth in Exhibit B
during any calendar quarter, then for each calendar quarter in which the
Corporation fails to achieve such margin requirement, the cash portion of the
Purchase Price shall be reduced by one eighth (1/8) of the Maximum Earn-Out. In
the event that the Corporation achieves the margin requirement during the
relevant calendar quarter, but fails to achieve the revenue requirement set
forth in Exhibit B, then for each such calendar quarter, the cash portion of the
Purchase Price shall be reduced by: (i) one
6
<PAGE>
eighth (1/8) of the Maximum Earn-Out, multiplied by: (ii) a fraction, the
numerator of which is the difference between the actual revenue achieved during
such calendar quarter and the revenue requirement for such calendar quarter as
set forth in Exhibit B, and the denominator of which is the revenue required
during such calendar quarter as set forth in Exhibit B. The Maximum Earn-Out,
less any reductions as set forth in this paragraph, is hereinafter referred to
as the "Earn-Out". The Earn-Out shall bear interest at the rate of 7% per annum
commencing as of the Closing Date (i.e., once the Earn-Out is determined, the
Shareholders will be due such amount plus interest at the rate of 7% per annum
on such amount, accrued from the Closing Date until the date of payment of the
Earn-Out to the Shareholders). The Earn-Out shall be paid to the Shareholders
promptly following calculation of the Corporation's performance for the quarter
ending December 31, 1999. The Company covenants and agrees to maintain
sufficient cash, or availability of cash (e.g., by way of a line of credit) in
order to fund the Earn-Out.
At the request of the Shareholders made to the Company in writing not
later than the Closing in Escrow, the Company shall (immediately after Closing)
make a loan to the Shareholders, collectively, in an amount equal to up to 30%
of the Purchase Price. Said loan by the Company to the Shareholders (the
"Shareholder Loan") shall bear interest at a rate of seven percent (7%) per
annum, and shall be secured by all of the Company Stock paid as part of the
Purchase Price at Closing. The collateral security agreement evidencing the
collateralization of the Shareholder Loan with the Company Stock and the
Earn-Out shall be on such terms as are reasonably acceptable to the Company,
which terms shall include, but shall not be limited to, the retention of all of
the Company Stock by the Company until full repayment of the Shareholder Loan
(including accrued interest). The Shareholders shall have the right to prepay
the Shareholder Loan (plus accrued interest) at any time without penalty and
shall have the right to direct the Company to offset the balance due under the
Shareholder Loan (plus accrued interest) against the Earn-Out as earned each
quarter. The Shareholder Loan shall mature as of the date that the Earn-Out is
payable. In the event that the Shareholder Loan (including accrued interest) is
not repaid in full upon maturity, the Company shall enjoy all rights of a
secured party under the Uniform Commercial Code then in effect in the State of
Maryland, provided that the Company's only recourse shall be first against the
remaining Earn-Out
7
<PAGE>
and then against the Company Stock it holds as collateral, and there shall not
be any recourse against the Shareholders individually.
In addition to the Maximum Earn-out, the Shareholders shall be entitled to
an "Earn-up" equal to one-third (1/3) of the difference between: (i) the
Corporation's actual revenue during the two-year period ending on the date of
the closing of the Initial Public Offering (up to a maximum of $2,400,000) and
(ii) $1,046,600 (such difference being referred to as the "Excess Revenue")
provided that the Corporation achieves an average effective Brand Contribution
Percentage (as defined in Exhibit B) of 12.5% on the Excess Revenue during the
two year period ending on the date of the closing of the Initial Public
Offering. In the event that the Corporation fails to achieve such 12.5% Brand
Contribution Percentage, but achieves at least a 7.5% Brand Contribution
Percentage on the Excess Revenue during such time period, the Earn-up shall be
multiplied by a fraction (not greater than the number 1), the numerator of which
is the difference between 7.5% and the actual Brand Contribution Percentage
achieved on the Excess Revenue during such time period, and the denominator of
which is 5%.
The Earn-up shall be paid to the Shareholders by the issuance of
registered unrestricted common stock of the Company (determined by reference to
the Initial Public Offering price per share as set forth on the cover page of
the prospectus relating to the Initial Public Offering). The Earn-up shall be
paid to the Shareholders promptly following calculation of the Corporation's
revenue for the two-year period ending on the date of the closing of the Initial
Public Offering. Notwithstanding the actual number derived by calculation of the
Earn-up in accordance with the provisions of this paragraph, the maximum amount
of Earn-up payable by the Company to the Shareholders shall be $451,133 worth of
Company stock.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
8
<PAGE>
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholders
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholders (less the
Maximum Earn-Out, which shall be payable to the Shareholders pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholders.
The Corporation and the Shareholders hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the District of Columbia, and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted. The Corporation is duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholders and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholders and the
Corporation, and each of the Related Agreements to which the Shareholders are a
party constitute the legal, valid and binding obligations of the Shareholders,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
9
<PAGE>
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 1,000 shares of no par value
capital stock of which 100 shares are and will be as of the Closing 3in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholders own all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of
10
<PAGE>
the Corporation after the Closing Date in substantially the same manner as
presently conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholders and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholders and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which any of the Shareholders is a party, or (d)
violate any law applicable to the Shareholders or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholders nor the Corporation is aware
of any proposed legislation or law which is reasonably expected to be enacted
and which, if so enacted, could reasonably be expected to have a material
adverse effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholders and/or the Corporation, threatened,
that questions the validity of this Agreement or the Related
11
<PAGE>
Agreements or any action taken or to be taken by the Shareholders or the
Corporation in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the
Corporation and/or the Shareholders, threatened against or affecting the
Corporation. To the knowledge of the Corporation and/or the Shareholders, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Corporation
and/or the Shareholders, threatened, judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholders and/or the Corporation in
connection with the negotiations relating to or the transactions contemplated by
this Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholders hereunder or thereunder. The Shareholders hereby agree that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholders and shall be paid in full by them at the Closing in
Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered
12
<PAGE>
pursuant to Section 1.3 herein (the "Financial Statements") were and will be
prepared in accordance with the books and records of the Corporation, are and
will be complete and correct in all material respects, have and will have been
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), applied consistently with the past practices of the Corporation,
except where otherwise specifically noted therein, and present and will present
fairly in all material respects the financial position, results of operations
and changes in financial position or cash flows, whichever is applicable, of the
Corporation as at the dates and for the periods indicated (subject, in the case
of the unaudited financial statements, to normal year-end audit adjustments).
Without limiting the foregoing, no undisclosed liabilities or obligations of any
nature (whether known or unknown, or absolute, accrued, contingent or otherwise)
shall exist as at Closing in Escrow or the Closing not reflected in the most
recently dated balance sheet supplied to the Company. The Corporation has paid
all federal, state and local income, profits, franchises, sales, use,
occupation, property, excise and payroll taxes, and all license fees and other
charges imposed upon it, and has timely filed all tax returns and related
documents required to be filed with any governmental authority. There are no
outstanding or proposed statements of deficiency in tax payments to any federal,
state, local or foreign government with respect to the Corporation for any tax
period. As of the dates such Financial Statements were and will be prepared, all
accounts receivable reflected on the Financial Statements (i) have and will have
arisen from bona fide transactions in the ordinary course of the Corporation's
business, consistent with its past practices, and (ii) are good and collectible
at the aggregate recorded amounts thereof, net of any applicable reserves for
returns or doubtful accounts which are reflected in such Financial Statements
(such reserves, the "Reserves"); such Reserves are adequate and reasonable and
were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and none of the
Shareholders have been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
13
<PAGE>
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholders and/or the Corporation, licensed
by the Shareholders and/or the Corporation, licensed to the Shareholders and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either for free or through established retail
facilities) and indicates, with respect to each item of Intellectual Property
listed thereon, the owner thereof and, if applicable, the name of the licensor
and licensee thereof and the terms of such license or other contract relating
thereto. The Corporation owns or has the lawful right to use all of the
Intellectual Property as currently used or as necessary for the conduct of its
business as now conducted. After Closing, the Corporation will have the right to
use all of the Intellectual Property as currently used or as necessary for the
conduct of the Corporation's business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholders and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor any of the Shareholders
has received any notice or claim (whether written, oral or otherwise)
challenging the Corporation's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto. Neither the Shareholders nor the Corporation are
in default under any license agreements pertaining to the Intellectual Property
used in the Corporation's business and licensed to the Shareholders and/or the
Corporation; all such license agreements are valid and in full force and effect,
and shall continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor any of
14
<PAGE>
the Shareholders has received any notice or claim (whether written, oral or
otherwise) challenging the validity or enforceability of any such Intellectual
Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or any of
the Shareholders has granted to any other Person or entity any rights or
permissions to use any of the Intellectual Property.
15
<PAGE>
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under
16
<PAGE>
the terms of any of the Plans. The Corporation has made all contributions to
each of the Plans required by the terms of the respective Plans, as well as all
contributions required to be made in order to satisfy all requirements of law.
Each of the Plans has sufficient assets to satisfy (under reasonable and
permitted actuarial assumptions) its obligations on a termination basis, and the
level of contributions required pursuant to the terms of each Plan is sufficient
to satisfy (under reasonable and permitted actuarial assumptions) the
obligations of such Plan on a continuing basis for benefits accrued to date.
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
17
<PAGE>
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual employee rights, affirmative action,
occupational health and safety, and immigration and right to work requirements.
Such compliance by the Corporation includes, but is not limited to, Title VII of
the Civil Rights Act of 1964, as amended, including the Civil Rights Act of
1991; the National Labor Relations Act of 1935, as amended; the Fair Labor
Standards Act of 1938, as amended; the Occupational Safety and Health Act of
1970, as amended; the Equal Pay Act of 1963, as amended; the Age Discrimination
in Employment Act of 1967, as amended; the Americans with Disabilities Act of
1990; the Family Medical Leave Act of 1993; the Immigration Reform and Control
Act of 1986 (together with the regulations promulgated thereunder, hereinafter
collectively referred to as "IRCA"); the Worker Adjustment and Retraining
Notification Act; the Employee Polygraph Protection Act; the Drug-Free Workplace
Act of 1988; the Health Insurance Portability and Accountability Act of 1996;
the Code; the regulations promulgated under each such act; and any and all other
federal, state and local laws, regulations and requirements of any nature
applicable to the Corporation. The Corporation further represents that it is not
in arrears in the payment of wages to any employee (except to the extent of its
normal payroll practices), and there are no claims, liabilities, demands or
causes of action, realized or unrealized, actual, potential or contingent,
pursuant to statutory rights or in tort, contract or otherwise, against the
Corporation arising out of or in connection with any event, fact, circumstance
or occasion relating to any applicant for employment, the employment of any
employee or the separation from employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently
18
<PAGE>
conducted. The Corporation and its employees and agents have all licenses,
permits, orders, approvals and authorizations necessary for the operation of the
real and personal property presently leased to, owned or operated by the
Corporation. None of the permits issued to the Corporation will be adversely
affected by the consummation of the transactions contemplated by this Agreement.
No suspension or cancellation of any such licenses, permits, orders, approvals
or authorizations is pending or, to the best of the Corporation's and/or the
Shareholders' knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor any of the Shareholders
is aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) neither the Corporation nor any of the
Shareholders is aware of any present intention on the part of any significant
customer or supplier or other business partner of the Corporation to either (x)
terminate or significantly change its existing business relationship with the
Corporation either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Corporation at the end of the
term of any existing contractual arrangement such entity may have with the
Corporation. For purposes of this Agreement, the term "Default" means, with
respect to any Contract, (x) any material breach of, or material default under,
such Contract, (y) any event, other than the normal passage of time, which would
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration of, or any obligation to repay,
with respect to such Contract, or (z) any event, other than the normal passage
of time, which would result in either a significant increase in the obligations
or liabilities of, or a loss of any significant benefit of, the party in
question under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
19
<PAGE>
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholders in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholders.
3.1. Non-Competition and Other Covenants of the Shareholders and
Certain Employees of the Corporation. Each of the Shareholders and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholders shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 20,
1997. The Shareholders and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholders as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is
20
<PAGE>
a party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary action on the part of the
Company. This Agreement and each of the Related Agreements to which it is a
party have been duly executed and delivered by the Company, and constitute the
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholders have been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
21
<PAGE>
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholders by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholders and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
22
<PAGE>
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholders or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
23
<PAGE>
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholders and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholders
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholders shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholders shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each
24
<PAGE>
party hereto shall use their respective best efforts to take or cause to be
taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholders shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholders
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholders shall
ensure that the Corporation has at least $43,583.33 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet of the Corporation as
of the Closing Date. Such balance sheet shall be prepared in accordance with
GAAP, and shall include full accrual of all assets and liabilities of the
Corporation as of the Closing Date (including, but not limited to, accrued tax
liabilities as if the tax year ended on the Closing Date). In the event that the
Corporation has less than the prescribed $43,583.33 working capital as of the
Closing Date, as determined by such balance sheet, the Shareholders shall
forthwith pay the Company an amount equal to the difference between the actual
working capital as of the Closing Date and $43,583.33 working capital (the
"Shortfall"). If the Shareholders do not pay the Shortfall to the Company within
five (5) days after demand, then, in addition to all other remedies which the
Company may have, the Company may deduct the amount of the Shortfall from any of
the obligations of the Company to the Shareholders (including, but not limited
to, the Earn-Out to which the Shareholders may be entitled thereafter).
25
<PAGE>
In the event that the Shareholders shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholders shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholders set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified,
26
<PAGE>
earlier date) as of the Closing in Escrow Date and the Closing Date as though
made on and as of the Closing in Escrow Date and the Closing Date, respectively,
except as otherwise contemplated by this Agreement, and the Company shall have
received a certificate from the Shareholders and the Corporation (signed by each
of the Shareholders and a senior executive officer of the Corporation)
certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholders shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholders and the Corporation (signed by each of the
Shareholders and a senior executive officer of the Corporation) certifying to
such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholders shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholders are a party shall have been duly executed and delivered
by such party. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholders. The obligations of the Corporation and the Shareholders to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholders, any or all of which may be waived in whole or
in part by the Corporation or the Shareholders).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
27
<PAGE>
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholders;
(b) by either the Company or the Shareholders, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that one or more of the
Shareholders do not timely deliver shareholder representation letters
satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholders as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholders to refund to the Company the audit expenses
as set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
28
<PAGE>
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholders.
The Corporation and the Shareholders each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholders' representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholders under this Section 9.1.(a) shall include direct damages only
(and not indirect or consequential damages). For purposes of this Agreement, the
term "Losses" means any and all deficiencies, judgments, settlements, demands,
claims, actions or causes of action, assessments, liabilities, losses, damages
(whether direct, indirect or consequential), interest, fines, penalties, costs
and expenses (including, without limitation, reasonable legal, accounting and
other costs and expenses incurred in connection with investigating, defending,
settling or satisfying any and all demands, claims actions, causes of action,
suits, proceedings, assessments, judgments or appeals, and in seeking
indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholders from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholders by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
29
<PAGE>
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholders, to:
Grace Leonce
12240 Indian Creek Court
Beltsville, Maryland 20705
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of
30
<PAGE>
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the parties dated May 16, 1997, which Agreement
will be of no further force or effect upon execution of this Agreement), both
written and oral, among the parties with respect to the subject matter hereto
and is not intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder. Subject to applicable law, this Agreement may be
amended, modified or supplemented only by written agreement of all parties
hereto with respect to any of the terms contained herein, and each party hereto
agrees to be bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any
31
<PAGE>
party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholders acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholders that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If
32
<PAGE>
an arbitrator should die, withdraw, or otherwise become incapable of serving, a
replacement shall be selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
By: /s/ Sean Leonce
- - - - ---------------------------- -------------------------------------
Name: Sean Leonce
Title: President
Witness: "SHAREHOLDERS"
/s/ Sean Leonce
- - - - ---------------------------- -----------------------------------------
Sean Leonce
Witness:
/s/ Samer Hassan
- - - - ---------------------------- -----------------------------------------
Samer Hassan
Witness:
/s/ Grace Leonce
- - - - ---------------------------- -----------------------------------------
Grace Leonce
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 14th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and the successor-in-interest to Dispatch Management Services LLC by
merger (the "Company"), Michael Studebaker (the "Business Contribution Member")
and DMS Corp. Subsidiary Number ___ a Delaware corporation to-be-formed (the
"Specific Company Subsidiary"). Unless defined herein, all capitalized terms
used in this Agreement shall have the meaning given them in the Operating
Agreement of Dispatch Management Services LLC dated December 1, 1996 by and
between the Members of Dispatch Management Services LLC, as amended (the
"Operating Agreement").
W I T N E S S E T H
WHEREAS, the Business Contribution Member owns the business trading as
Studebaker Messenger, which is in the business of providing time critical, on
demand, point-to-point delivery services (such business, and any other lines of
business related thereto, the "Business");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Business Contribution Member desires to sell to
the Company all the Business Contribution Member's right, title and interest in
and to the Assets (as defined in Section 1.2(a) below, and have the Company
assume the Assumed Liabilities (as defined in Section 1.2(b) below) for the
Purchase Price (as defined in Section 1.4 below);
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Assets and assumption of the Assumed
Liabilities will be consummated;
<PAGE>
WHEREAS, at Closing (as hereinafter defined) under this Agreement, the
Company will contribute to the Specific Company Subsidiary all of the Company's
right, title and interest in and to the Assets and have the Specific Company
Subsidiary assume the Assumed Liabilities, in exchange for 100% of the equity
ownership in the Specific Company Subsidiary;
WHEREAS, the Specific Company Subsidiary intends to enter into employment
agreements with certain employees of the Business Contribution Member and the
Specific Company Subsidiary (the "Back-Office Employees"), identified in Exhibit
A hereto, as well as non-competition agreements with the Business Contribution
Member and certain employees of the Business Contribution Member and the
Specific Company Subsidiary in the form attached hereto as Exhibit B (such
employment agreements and non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements");
WHEREAS, the parties intend that, as of Closing, the Business Contribution
Member will have taken all steps necessary for the Specific Company Subsidiary
to trade under the trade name previously used for the Business (which trade name
is specifically acquired by the Company hereunder);
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Business Contribution Member, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Business
Contribution Member shall be obliged to deliver to the Company, within thirty
(30) days after execution of this Agreement: (i) the audited financial
statements required pursuant to Section 1.4 below and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the
2
<PAGE>
common stock, par value $.01 per share, of the Company (the "Initial Public
Offering"), the Company will deliver to the Business Contribution Member a
disclosure document, together with a notice (the "Notice") specifying the date
by which the Business Contribution Member must execute and deliver a
satisfactory representation letter in order to consummate the sale of the Assets
and assumption of the Assumed Liabilities pursuant to the terms of this
Agreement.
Upon timely delivery from the Business Contribution Member of a
representation letter satisfactory to the Company, the parties will close in
escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place at the offices of Silver,
Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C.
20005 (or such other place as is mutually agreed upon by the parties) within
thirty (30) days (or such shorter period as is specified in the Notice) after
timely delivery of a satisfactory representation letter from the Business
Contribution Member.
In the event that the Business Contribution Member does not timely
deliver satisfactory representation letters (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.4 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Definitions.
(a) Definition of Assets. For purposes of this Agreement, the
term "Assets" shall mean and include the following assets of the Business
Contribution Member:
(i) Those agreed upon assets (including radio channels)
set forth on Exhibit C attached hereto;
(ii) All rights to the trade and brand names "Studebaker
Messenger", logos, and other Intellectual Property as defined in Section
2.11.(d) hereinbelow, customer lists, goodwill and other intangible assets; and
(iii) All rights, claims, and interests of the Business
Contribution Member, as of the Closing Date, under and with respect to agreed
upon contracts (including, but not limited to, leases) (the "Contracts"), as set
forth on Exhibit D attached hereto.
3
<PAGE>
To the extent that the assignment of the rights, claims and interests of
the Business Contribution Member under any of the Contracts requires the consent
of a third party (as set forth in Exhibit E hereto), and such third party's
consent to assignment is not secured prior to Closing hereunder, the parties
hereto shall use their best efforts to place the Specific Company Subsidiary in
a position to receive the benefits of the Business Contribution Member's rights,
claims and interest in such Contracts during the term of such Contracts. The
parties' efforts to this end shall be made in a lawful and commercially
reasonable manner.
(b) Definition of Assumed Liabilities. For purposes of this
Agreement, the term "Assumed Liabilities" shall mean and include:
(i) Those outstanding liabilities and obligations of the
Business Contribution Member, and only those liabilities and obligations, which
are set forth on Exhibit F attached hereto; and
(ii) Those liabilities and obligations of the Business
Contribution Member arising after the Closing Date under the express provisions
of the Contracts. For purposes of clarification, the Business Contribution
Member will be responsible for all taxes relating to the Business and/or the
Assets and/or the Assumed Liabilities payable or accrued for all periods up to
and including the Closing Date (whether or not such taxes were assessed before
or after the Closing Date).
1.3. Closing in Escrow Deliveries and Other Actions.
(a) Deliveries at Closing in Escrow. In addition to the
execution and delivery of documents as and when otherwise required by the terms
of this Agreement, at the Closing in Escrow the Company and the Business
Contribution Member shall, as appropriate, enter into, execute and deliver to
the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i) a bill of
sale, (ii) an instrument of assignment and assumption (the form and substance of
which shall be reasonably acceptable to the Company), and (iii) any other
instruments of conveyance or transfer which may be necessary in the sole
discretion of the Company, including, without limitation, any instruments of
assignment in connection with the Intellectual Property and the Contracts, each
in form and substance reasonably acceptable to the Company, pursuant to which
the Business Contribution Member shall convey, assign, transfer and deliver to
the Company all right, title and interest in, to and
4
<PAGE>
under the Assets, free and clear of any and all Encumbrances (as defined in
Section 2.3(a) below), and the Company shall assume the Assumed Liabilities from
the Business Contribution Member. At the Closing in Escrow, the Business
Contribution Member shall also cause to be delivered the opinion of its counsel
as to such matters as counsel to the Company may reasonably require, including
but not limited to such counsel's opinion that: the Business Contribution Member
is authorized to conduct its business in each jurisdiction in which it is doing
business; the Business Contribution Member has full power to enter into and
perform his or her respective obligations under this Agreement, as well the
Related Agreements to which he or she is a party; this Agreement, and the
Related Agreements to which the Business Contribution Member is a party,
constitutes a legal, valid and binding obligation of the Business Contribution
Member enforceable in accordance with their respective terms (except as
enforcement may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditor's rights, and principles of equity); and
the Business Contribution Member is not threatened with or affected by any
actions, proceedings or investigations wherein an unfavorable decision, ruling
or finding could have a materially adverse effect on the financial condition or
operation of the Business and/or the Assets, or could prevent, enjoin or
otherwise affect the transactions contemplated by this Agreement.
(b) Further Actions. On and after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
Without limiting the foregoing, the Business Contribution Member shall take
whatever steps are necessary (such as filings with the United States Patent and
Trademark Office) to transfer the Intellectual Property to the Specific Company
Subsidiary.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Assets, and assume the Assumed Liabilities, and the Business
Contribution Member will be obliged to sell the Assets, subject to the Assumed
Liabilities, at the purchase price specified in Section 1.4 below, on the
Closing Date specified in Section 1.5 below.
1.4. Purchase Price. The purchase price for the Assets, net of the
downward adjustment for the full amount of the Assumed Liabilities as listed on
Exhibit F attached hereto (the
5
<PAGE>
"Purchase Price"), shall be equal to $257,047, and subject to further adjustment
(if any) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.4 below).
The parties hereto hereby agree to allocate the Purchase Price among
the Assets in accordance with the manner set forth on Schedule 1.4 attached
hereto and in accordance with the applicable provisions of Section 1060 of the
Code (the "Price Allocation"). Accordingly, each party to this Agreement shall
adopt and utilize such Price Allocation for purposes of all tax returns filed by
them and shall not voluntarily take any position inconsistent therewith in
connection with any examination of any tax return, any refund claim, any
litigation proceeding or otherwise. Each of the Company and the Business
Contribution Member shall file on a timely basis a Form 8594 in accordance with
the requirements of Section 1060 of the Code and the provisions of this Section
1.4. In the event that the Price Allocation is disputed by any taxing authority,
the party receiving notice of the dispute shall promptly notify the other
parties hereto of such dispute and the parties hereto shall consult with each
other concerning resolution of the dispute.
Unless the Company gives the Business Contribution Member written
notice to the contrary, the Business Contribution Member shall deliver to the
Company, within thirty (30) days after execution of this Agreement: (i) audited
financial statements of the Business, including balance sheets dated as of
December 31, 1994, 1995 and 1996, and income statements and cash flow statements
for each of the three twelve month periods ended on such dates; (ii) unaudited
financial statements of the Business, including a balance sheet dated as of June
30, 1996, and an income statement and cash flow statement for the twelve month
period ended on June 30, 1996: and (iii) unaudited, reviewed financial
statements of the Business, including a balance sheet dated as of June 30, 1997
and an income statement and a cash flow statement for the six month period ended
June 30, 1997. The intent of providing the audited financial statements referred
to in the foregoing sentence is to resolve any auditing issues prior to
calculation of the Purchase Price, so that the Purchase Price may be quickly and
efficiently calculated. In the event that the closing of the Initial Public
Offering has not occurred on or before November 12, 1997, but does occur on or
before December 12, 1997, then in that event, in lieu of the unaudited, reviewed
financial statements of the Business for the six month period ended June 30,
1997, the Business Contribution Member shall deliver to the Company, within
thirty days after written request from the Company: (i) an updated set of
audited financial
6
<PAGE>
statements of the Business, including a balance sheet dated as of June 30, 1997,
and income statements and cash flow statements for the six month period ended
June 30, 1997; (ii) unaudited financial statements for the Business, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Business, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Business Contribution Member shall deliver to the Company,
within thirty days after written request from the Company, such additional
audited and/or unaudited, reviewed financial statements of the Business as the
Company may reasonably request.
All of the financial statements referred to in this Section 1.4
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.4,
within the prescribed time limits, shall be the sole responsibility of the
Business Contribution Member, provided that the Company will, upon the request
of the Business Contribution Member, advance such costs on behalf of the
Business Contribution Member. In the event that the Business Contribution Member
does not timely deliver a satisfactory representation letter and complete the
Closing in Escrow, the Business Contribution Member shall be responsible for
immediately refunding to the Company any such advanced costs; in the event that
all such representation letters are satisfactory and are timely received, and
the Closing in Escrow is completed, the Business Contribution Member shall be
relieved of his or her obligation to refund to the Company any such advanced
costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as partial payment of the
Purchase Price shall be equal to the aggregate dollar value of the stock
component of the Purchase Price divided by the Initial Public Offering price per
share as set forth on the cover page of the prospectus relating to the Initial
Public Offering. The Business Contribution
7
<PAGE>
Member acknowledges that the sale of the Company Stock will be restricted for a
period of time by virtue of a "lock-up" agreement which may be imposed by the
Company, and the Business Contribution Member shall execute such a "lock-up"
agreement, as may be required by the Company, by which the sale of the Company
Stock is restricted (perhaps prohibited) for a period of two (2) years from the
date of the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Business Contribution
Member ratably over the 8 quarter annual periods beginning January 1, 1998 and
ending December 31, 1999 provided that the Specific Company Subsidiary achieves
the targeted performance standards set forth in Exhibit G attached hereto. In
the event that the Specific Company Subsidiary fails to achieve the margin
requirement set forth in Exhibit G during any such calendar quarter, then for
each calendar quarter in which the Specific Company Subsidiary fails to achieve
such standards margin requirement, the cash portion of the Purchase Price shall
be reduced by one-eighth (1/8) of the Maximum Earn-Out. In the event that the
Corporation achieves the margin requirement during the relevant calendar
quarter, but fails to achieve the revenue requirement set forth in Exhibit G,
then for each such calendar quarter, the cash portion of the Purchase Price
shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out, multiplied
by: (ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar quarter and the revenue requirement for
such calendar quarter as set forth in Exhibit B, and the denominator of which is
the revenue required during such calendar quarter as set forth in Exhibit B. The
Maximum Earn-Out, less any reductions as set forth in this paragraph, is
hereinafter referred to as the "Earn-Out". The Earn-Out shall bear interest at
the rate of 7% per annum commencing as of the Closing Date (i.e., once the
Earn-Out is determined, the Shareholders will be due such amount plus interest
at the rate of 7% per annum on such amount, accrued from the Closing Date until
the date of payment of the Earn-Out to the Shareholders). The Earn-Out shall be
paid to the Business Contribution Member promptly following calculation of the
Specific Company Subsidiary's performance for the quarter ending December 31,
1999. The Company covenants and agrees to maintain sufficient cash, or
availability of cash (e.g., by way of a line of credit) in order to fund the
Earn-Out.
At the request of the Business Contribution Member made to the
Company in writing not later than the Closing in Escrow, the Company shall
(immediately after Closing) make a loan to
8
<PAGE>
the Business Contribution Member in an amount equal to up to 30% of the Purchase
Price. Said loan by the Company to the Business Contribution Member (the
"Business Contribution Member Loan") shall bear interest at a rate of seven
percent (7%) per annum, and shall be secured by all of the Company Stock paid as
part of the Purchase Price at Closing. The collateral security agreement
evidencing the collateralization of the Business Contribution Member Loan with
the Company Stock and the Earn-Out shall be on such terms as are reasonably
acceptable to the Company, which terms shall include, but shall not be limited
to, the retention of all of the Company Stock by the Company until full
repayment of the Business Contribution Loan. The Business Contribution Member
shall have the right to prepay the Business Contribution Member Loan (plus
accrued interest) at any time without penalty and shall have the right to direct
the Company to offset the balance due under the Business Contribution Member
Loan (plus accrued interest) against the Earn-Out as earned each quarter. The
Business Contribution Member Loan shall mature as of the date that the Earn-Out
is payable. In the event that the Business Contribution Member Loan is not
repaid in full upon maturity, the Company shall enjoy all rights of a secured
party under the Uniform Commercial Code then in effect in the State of Maryland,
provided that the Company's only recourse shall be first against the remaining
Earn-Out and then against the Company Stock it holds as collateral, and there
shall not be any recourse against the Business Contribution Member individually.
1.5. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Assets,
subject to the Assumed Liabilities, pursuant to this Agreement (the "Closing")
shall take place at the offices of Silver, Freedman & Taff, L.L.P., 1100 New
York Avenue, N.W., Suite 700E, Washington, D.C. 20005, contemporaneously with
the closing of the Initial Public Offering unless the Initial Public Offering
does not occur by March 31, 1998, in which case this Agreement shall be rendered
null and void, or unless another date, time or place is agreed to in writing by
the parties hereto (the day on which the Closing takes place being the "Closing
Date").
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the bill of sale, instruments of assignment and assumption,
transfer documents, and other documents and materials theretofore held in escrow
from the Closing in Escrow; (ii) the Business Contribution
9
<PAGE>
Member shall deliver to the Company updated certificates, dated the Closing
Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an updated
opinion of counsel as referred to in Section 1.3(a) above; and (iii) the Company
shall deliver the Purchase Price to the Business Contribution Member (less the
Maximum Earn-Out, which shall be payable to the Business Contribution Member
pursuant to the terms of Section 1.4 above, and with the Company Stock
collateralized against the Business Contribution Member Loan being delivered to
the Company as appropriate). At Closing, the Company, Business Contribution
Member and Specific Company Subsidiary shall also take all additional steps as
may be necessary or appropriate to deliver the Assets to the Specific Company
Subsidiary, have the Specific Company Subsidiary assume the Assumed Liabilities,
and put the Specific Company Subsidiary in physical possession and operating
control of the Business and all of the Assets.
2. Representations, Warranties and Covenants of the Business
Contribution Member.
The Business Contribution Member represents, warrants and covenants
to the Company as follows:
2.1. Power. The Business Contribution Member has all requisite power
and authority to own, lease and operate its properties (including, without
limitation, the Assets) and to carry on its business as now being conducted
(including, without limitation, the Business). The Business Contribution Member
is duly qualified to conduct business in each jurisdiction in which the business
it is conducting (including, without limitation, the Business), or the
operation, ownership or leasing of its properties (including, without
limitation, the Assets), makes such qualification necessary.
2.2. Authority and Enforceability.
Matters Relating to the Business Contribution Member. The
Business Contribution Member has all requisite power and authority to execute
and deliver this Agreement and each of the Related Agreements to which it is a
party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Business Contribution
Member. This Agreement and each of the
10
<PAGE>
Related Agreements to which the Business Contribution Member is a party has been
duly executed and delivered by the Business Contribution Member, and this
Agreement and each of the Related Agreements to which the Business Contribution
Member is a party constitute the legal, valid and binding obligations of the
Business Contribution Member, enforceable against the Business Contribution
Member in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights and remedies generally and
subject, as to enforceability, to general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
2.3. Title to Assets; Condition.
(a) The Business Contribution Member owns beneficially and of
record, and has good and marketable title to, the Assets, free and clear of any
Encumbrances. For purposes of this Agreement, the term "Encumbrances" shall mean
restrictions, conditions, covenants, liens, easements, charges, encroachments or
any other matter affecting fee simple title (other than the Assumed
Liabilities).
(b) Upon consummation of the transactions contemplated at the
Closing, the Company will acquire good and marketable title to the Assets, free
and clear of any Encumbrances. All tangible assets conveyed hereunder are in
good working condition and repair, except for reasonable wear and tear.
2.4. Sufficiency of Assets. The Assets include substantially all the
assets and properties used or employed by the Business Contribution Member in
the Business as presently conducted. Immediately after giving effect to the
transfer of the Assets at Closing by the Business Contribution Member, and the
consummation of the other transactions contemplated pursuant to this Agreement
to be effected at the Closing, the Company will (i) have all right, title, and
interest in and to, or will have a valid right to use, without liability to
third party(ies), the Assets; and (ii) have all assets, rights, Back-Office
Employees, subcontractors and other persons and items which are reasonably
necessary to carry on the business and operations of the Business after the
Closing Date in substantially the same manner as presently conducted by the
Business Contribution Member.
2.5. No Violations Resulting From Transactions. The execution and
delivery by the Business Contribution Member of this Agreement and each of the
Related Agreements to which
11
<PAGE>
he or she is a party, and the consummation of the transactions contemplated
hereby and thereby by the Business Contribution Member will not (a) except as
set forth in Exhibit E, require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, any third party, (b) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an Encumbrance, under or pursuant
to (i) any of the Contracts, or (ii) any other material agreements to which the
Business Contribution Member is a party, or (c) violate any law applicable to
the Business Contribution Member or by which any of the Assets is bound.
2.6. Compliance with Laws.
(a) The Business Contribution Member is, and at all times
during the past three years has been, to the best of the Business Contribution
Member's knowledge after due inquiry, in material compliance with all laws
applicable to the Business Contribution Member or to the conduct of the business
or operations of the Business Contribution Member or the Business or the use of
its properties (including any leased properties) and assets (including, without
limitation, the Assets); and
(b) The Business Contribution Member has not received, and
does not know of the issuance or threatened issuance by any governmental entity,
of any notices of violation or alleged violation of any law applicable to the
Business Contribution Member or the Business. The Business Contribution Member
has provided the Company with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Business Contribution Member or the Business is
currently subject (or which the Business Contribution Member or the Business was
subject to during the previous three years) or which are otherwise applicable to
the Business Contribution Member or the Assets or to the conduct of the
Business, and (ii) all correspondence from the date hereof with respect to any
of the matters referred to in clause (b) or clause (i) of this Section 2.6. The
Business Contribution Member is not aware of any proposed legislation or law
which is reasonably expected to be enacted and which, if so enacted, could
reasonably be expected to have a material adverse effect on the Business.
2.7. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Business Contribution Member, threatened that
questions the validity of this Agreement or the Related
12
<PAGE>
Agreements or any action taken or to be taken by the Business Contribution
Member in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit H sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Business
Contribution Member, threatened against or affecting the Business Contribution
Member, the Business or any of the Assets. To the knowledge of the Business
Contribution Member, no event has occurred and no circumstance, matter or set of
facts exist which would constitute a valid basis for the assertion by any third
party of any claim or Legal Proceeding, other than those listed on Exhibit H.
Except as set forth in Exhibit H, there is no outstanding or, to the knowledge
of the Business Contribution Member, threatened judgment, injunction, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Business Contribution Member, the Business or any of the
Assets.
2.8. Financial Advisors.
(a) Except as set forth on Exhibit I attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Business Contribution Member in connection with
the negotiations relating to or the transactions contemplated by this Agreement
or the Related Agreements; and
(b) Except as set forth on Exhibit I attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Business Contribution
Member. Such fees, commissions, like payments or expense reimbursements as are
described on Exhibit I attached hereto shall remain liabilities and expenses of
the Business Contribution Member exclusively, and are specifically excluded from
the Assumed Liabilities contemplated by this Agreement.
2.9. Financial Statements; Receivables. Attached hereto as Exhibit J
are true, correct and complete copies of the most recent unaudited financial
statements for the Business which,
13
<PAGE>
together with the financial statements (including the notes and exhibits
thereto), to be delivered to the Company pursuant to Section 1.4 herein (the
"Financial Statements") were and will be prepared in accordance with the books
and records of the Business, are and will be complete and correct in all
material respects, have and will have been prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"), applied consistently with the
past practices of the Business, except where otherwise specifically noted
therein, and present and will present fairly in all material respects the
financial position, results of operations and changes in financial position or
cash flows, whichever is applicable, of the Business as at the dates and for the
periods indicated (subject, in the case of the unaudited financial statements,
to normal year-end audit adjustments). Without limiting the foregoing, no
undisclosed liabilities or obligations of any nature (whether known or unknown,
or absolute, accrued, contingent or otherwise) shall exist as at Closing in
Escrow or the Closing not reflected in the Business's most recently dated
balance sheet supplied to the Company. The Business Contribution Member has paid
all federal, state and local income, profits, franchises, sales, use,
occupation, property, excise and payroll taxes, and all license fees and other
charges imposed upon it, and has timely filed all tax returns and related
documents required to be filed with any governmental authority. There are no
outstanding or proposed statements of deficiency in tax payments to any federal,
state, local or foreign government with respect to the Business Contribution
Member for any tax period. As of the dates such Financial Statements were and
will be prepared, all accounts receivable reflected on the Financial Statements
(i) have and will have arisen from bona fide transactions in the ordinary course
of the Business Contribution Member's business, consistent with its past
practices, and (ii) are good and collectible at the aggregate recorded amounts
thereof, net of any applicable reserves for returns or doubtful accounts which
are reflected in such Financial Statements (such reserves, the "Reserves"); such
Reserves are adequate and reasonable and were established in accordance with
GAAP.
2.10. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Assets or the Business.
(b) The Business Contribution Member has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with
14
<PAGE>
past practice.
2.11. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit K sets
forth a list of all Intellectual Property (as defined in Section 2.11.(d)
hereinbelow) which is owned by the Business Contribution Member, licensed by the
Business Contribution Member, licensed to the Business Contribution Member, or
otherwise used or able to be used in the Business (other than commonly-used
computer software which is generally available to the public and the use rights
to which were legally acquired by the Business Contribution Member either for
free or through established retail facilities) and indicates, with respect to
each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Business Contribution Member
owns or has the lawful right to use all Intellectual Property as currently used
or as necessary for the conduct of the Business as now conducted. After Closing,
the Specific Company Subsidiary will have the right to use all of the
Intellectual Property as currently used or as necessary for the conduct of the
Business as now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Business Contribution Member, the Business Contribution Member has full legal
and beneficial ownership (free and clear of any and all Encumbrances) of all of
the Intellectual Property, and the Business Contribution Member has not received
any notice or claim (whether written, oral or otherwise) challenging the
Business Contribution Member's ownership or rights in such Intellectual Property
or suggesting that any other entity has any claim of legal or beneficial
ownership with respect thereto; the Business Contribution Member has all legal
and other rights required to transfer the ownership of the Intellectual Property
to the Company at the Closing as contemplated hereby;
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and the Business Contribution Member has not received any notice or claim
(whether written oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other
15
<PAGE>
Intellectual Property used by the Business Contribution Member will conflict
with, infringe upon, violate or interfere with or constitute an appropriation of
any right, title or interest held by any other person or entity, and there have
been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Business Contribution
Member has not conducted its business (including, without limitation, the
Business), and has not used or enforced (or failed to use or enforce) any
Intellectual Property, in a manner that would result in the abandonment,
cancellation or unenforceability of any item of Intellectual Property, and the
Business Contribution Member has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted (including, without
limitation, the Business);
(v) Except as set forth in Exhibit K, the Business
Contribution Member has no liability or obligations to any third parties
incident to the Intellectual Property used or able to be used by the Business
Contribution Member in the conduct of its business (including, without
limitation, the Business) as heretofore conducted; and
(vi) The Business Contribution Member has timely met all
of its obligations to any third parties incident to the Intellectual Property
used or able to be used by the Business Contribution Member in the conduct of
its business (including, without limitation, the Business) as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Business Contribution Member has taken all
reasonable steps to (x) protect the Business Contribution Member's rights to the
Intellectual Property, and (y) to prevent the unauthorized use by any other
person or entity; and
(ii) The Business Contribution Member shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date. The
Business Contribution Member
16
<PAGE>
has not granted to any other Person or entity any rights or permissions to use
any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
Internet domain name or industrial design, any registrations thereof and pending
applications therefor (to the extent applicable), any other intellectual
property right (including, without limitation, any know-how, trade secret, trade
right, formula, conditional or proprietary report or information, customer or
membership list, any marketing data, and any computer program, software,
database or data right), and license or other contract (including without
limitation license(s) to use specific telephone numbers and/or radio
channels/frequencies) relating to any of the foregoing, and any goodwill
associated with any business owning, holding or using any of the foregoing.
2.12. Insurance. The Business Contribution Member currently
maintains, and as of the Closing in Escrow and the Closing Date will maintain,
valid insurance policies, which polices provide adequate coverage, within terms
of scope and amount of coverage, for the Assets and the operations conducted by
the Business. From and after Closing, the Specific Company Subsidiary will be
solely responsible for the insurance set forth in Exhibit L. In the event that
such insurance-related Assumed Liabilities as appear on Exhibit L hereto are
unable to be assumed by the Specific Company Subsidiary directly from and after
Closing, the Business Contribution Member hereby agrees to keep such insurance
policy(ies) as are reflected by such Assumed Liabilities in full force and
effect for 60 days after Closing, at the Specific Company Subsidiary's expense,
to allow the Specific Company Subsidiary to arrange its own such insurance
policy(ies). There are no pending material claims against such insurance by the
Business Contribution Member as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Business Contribution Member. During the
past two years, the Business Contribution Member has not been refused any
insurance coverage by any insurer from which the Business Contribution Member
has sought coverage.
2.13. Contracts. Each of the Contracts (i) is, to the best of the
Business Contribution Member's knowledge after due inquiry, valid and
enforceable in accordance with its
17
<PAGE>
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity); (ii) to the best of
the Business Contribution Member's knowledge after due inquiry, no Default (as
defined below) exists under any Contract either by the Business Contribution
Member or by any other party thereto; (iii) the Business Contribution Member is
not aware of the assertion by any third party of any claim of Default or breach
under any of the Contracts; and (iv) the Business Contribution Member is not
aware of any present intention on the part of any significant customer or
supplier or other business partner of the Business Contribution Member to either
(x) terminate or significantly change its existing business relationship with
the Business Contribution Member either now or in the foreseeable future, or (y)
fail to renew or extend its existing business relationship with the Business
Contribution Member at the end of the term of any existing contractual
arrangement such entity may have with the Business Contribution Member. For
purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any breach of or default under such Contract, (y) any event, other
than the normal passage of time, which would (either with or without notice or
lapse of time or both) give rise to any right of termination, cancellation or
acceleration or any obligation to repay with respect to such Contract, or (z)
any event, other than the normal passage of time, which would result in either a
significant increase in the obligations or liabilities of, or a loss of any
significant benefit of, the party in question under such Contract.
2.14. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Business Contribution Member in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading. The Business Contribution Member knows of no facts which
are reasonably likely to cause a material adverse effect on the Assets or the
Business.
18
<PAGE>
3. Additional Representations, Warranties and Covenants of the Business
Contribution Member.
3.1. Non-Competition and Other Covenants of the Business
Contribution Member, and Certain Employees of the Business
Contribution Member
The Business Contribution Member, and certain employees of the
Business Contribution Member noted on Exhibit B attached hereto, shall have, at
the Closing in Escrow, entered into agreements, the form of which is attached to
this Agreement as Exhibit B.
3.2. Confidentiality. The Business Contribution Member shall abide
by the terms of the Confidentiality Agreement between the Business Contribution
Member and the Company (or the Company's predecessor, Dispatch Management
Services LLC) executed on March 19, 1997. The Business Contribution Member and
the Specific Company Subsidiary each acknowledge and agree that the Company
shall have the right to disclose certain information concerning the Specific
Company Subsidiary, the Assets and/or the Business to third parties (which third
parties will in turn be bound by an agreement similar to the Confidentiality
Agreement), for such general corporate purposes as includes but is not limited
to obtaining financing and/or underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Business Contribution
Member as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of
19
<PAGE>
the transactions contemplated hereby and thereby have been duly authorized by
all necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, or (b) except as
set forth on Exhibit E, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party; (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Business Contribution
Member has been provided with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or to which the
Company was subject since its inception), and (ii) all correspondence through
the date hereof with respect to any of the matters referred to in clause (b) or
clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions
20
<PAGE>
contemplated hereby or thereby or which seeks to prohibit, enjoin or otherwise
challenge any of the transactions contemplated hereby or thereby. Exhibit H sets
forth an accurate and complete list, and a brief description (setting forth the
names of the parties involved, the court or other governmental or mediating
entity involved, the relief sought and the substantive allegations and the
status thereof), of each Legal Proceeding pending or, to the knowledge of the
Company, threatened against or affecting the Company. To the knowledge of the
Company, no event has occurred and no circumstance, matter or set of facts exist
which would constitute a valid basis for the assertion by any third party of any
claim or Legal Proceeding, other than those listed on Exhibit H. Except as set
forth in Exhibit H, there is no outstanding or, to the knowledge of the Company,
threatened, judgment, injunction, order or consent or similar decree or
agreement (including, without limitation, any consent or similar decree or
agreement with any governmental entity) against, affecting or naming the
Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Business Contribution Member by or on behalf of the Company in connection with
this Agreement, the Related Agreements or the transactions contemplated hereby
or thereby 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 statement
contained herein or therein, in light of the circumstances under which they were
made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Business Contribution Member covenants and agrees
that (except as expressly contemplated or permitted by this Agreement, or to the
extent that the Company shall otherwise consent in writing):
5.1. Conduct of the Business Until the Closing Date. The Business
Contribution Member shall be obligated to:
21
<PAGE>
(a) conduct the Business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of the Business and (ii) preserve the present
relationship of the Business Contribution Member with Persons having business
dealings with the Business Contribution Member;
(c) comply with all laws and with all contractual and other
obligations applicable to the Business Contribution Member;
(d) not subject any of the Assets to any Encumbrance;
(e) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of the
material properties of the Business (including but not limited to the Assets);
(f) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on the Business or the Assets,
and (ii) any Legal Proceeding commenced by or against the Business Contribution
Member or any Legal Proceeding commenced or threatened relating to the
transactions contemplated by this Agreement.
(g) not agree to do anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Business Contribution Member in this Agreement or the Related Agreements untrue
or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Change of Name. At the Closing, the Business Contribution
Member shall take all steps necessary to change its trade name to a name not
confusingly similar to the trade name being conveyed hereunder and to be
utilized post-Closing by the Specific Company Subsidiary.
6.2. Access to Information. The Business Contribution Member agrees
that, prior to the Closing Date, the Company shall be entitled (at its sole
expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Business and the Business Contribution Member and examination
of its books and records as the Company may reasonably request, and to make
extracts and copies of such books and records. Any
22
<PAGE>
such investigation and examination shall be conducted during regular business
hours and under reasonable circumstances, and the Business Contribution Member
shall cooperate fully therein. In order that the Company may have full
opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may reasonably request of the affairs of the
Business and the Business Contribution Member, the Business Contribution Member
shall use his or her respective best efforts to cause the Business Contribution
Member's employees, consultants, agents, accountants, attorneys and other
representatives to cooperate fully with such Company representatives in
connection with such review and examination.
6.3. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, the Business Contribution Member shall
not pursue, initiate, encourage or engage in any negotiations or discussions
with any third parties concerning the sale of the Business, the Assets, or any
part thereof or concerning the terms and conditions of this Agreement.
6.4. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
Contracts with the Business Contribution Member as are necessary for
consummation of the transactions contemplated by this Agreement and the Related
Agreements, and (iii) fulfill all conditions precedent applicable to such party
pursuant to this Agreement and the Related Agreements. In case at any time after
the Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.5. Notification of Certain Matters. The Business Contribution
Member shall give prompt notice to the Company of (a) any notice of, or other
communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Business and/or the Business Contribution Member to which it is a party
or is subject, (b) any notice or other communication from any third party
alleging that the consent of such
23
<PAGE>
third party is or may be required in connection with the transactions
contemplated by this Agreement or any of the Related Agreements, or (c) any
material adverse change in the properties (including but not limited to the
Assets), business operations, results of operations, financial condition or
prospects of the Business, other than changes resulting from general economic
conditions. In addition, the Business Contribution Member shall be required to
update the schedules and other information supplied pursuant to this Agreement
at such time as the information contained therein changes in any material
respect.
6.6 Working Capital as of the Closing Date. The Business
Contribution Member shall ensure that the Assets, less the Assumed Liabilities,
includes at least $32,131 working capital (defined as the excess of current
(liquid) assets over current liabilities) as of the Closing Date.
For purposes of determining whether the required working capital existed
as of the Closing Date, the Company will cause to be prepared, promptly
following the Closing, a balance sheet setting forth the Assets and Assumed
Liabilities as of the Closing Date. Such balance sheet shall be prepared in
accordance with GAAP, consistent with past practices of the Business
Contribution Member, and shall include full accrual of all tax liabilities of
the Business Contribution Member as of the Closing Date (including but not
limited to, accrued tax liabilities as if the tax year ended on the Closing
Date. In the event that less than the prescribed $32,131 working capital existed
as of the Closing Date, as determined by such balance sheet, the Business
Contribution Member shall forthwith pay the Company an amount equal to the
difference between the actual working capital as of the Closing Date and $32,131
working capital (the "Shortfall"). If the Business Contribution Member does not
pay the Shortfall to the Company within five (5) days after demand, then, in
addition to all other remedies which the Company may have, the Company may
deduct the amount \of the Shortfall from any of the obligations of the Company
to the Business Contribution Member (including, but not limited to, the Earn-Out
to which the Business Contribution Member may be entitled thereafter).
In the event that the Business Contribution Member shall
notify the Company in writing within five days after demand is made by the
Company for payment of the Shortfall of its decision to dispute the amount of
the Shortfall, the Company shall forthwith instruct Price Waterhouse LLP to
audit the balance sheet of the Business as of the Closing Date, and to calculate
the working capital therein in accordance with GAAP. Price Waterhouse LLP shall
then determine
24
<PAGE>
the amount of the Shortfall as set out in this paragraph 6.6, whose decision
shall be final and binding on the parties hereto. The Business Contribution
Member shall forthwith pay to the Company the amount of such Shortfall, together
with fifty percent (50%) of the cost of the audit conducted by Price Waterhouse
LLP. In the event Price Waterhouse LLP determines the Shortfall to have been
zero, the entire cost of such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Business Contribution Member set forth in this Agreement (with
regard to any supplements or updates thereto) shall be true and correct in all
respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and
25
<PAGE>
the Company shall have received a certificate from the Business Contribution
Member certifying to such effect.
(b) Performance of Obligations. The Business Contribution
Member shall have performed all obligations required to be performed under this
Agreement at or prior to the Closing in Escrow Date and the Closing Date, and
the Company shall have received a certificate from the Business Contribution
Member certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Assets or the Business.
(d) Contractual Consents. The Business Contribution Member
shall have given all notices to, and obtained all consents, approvals or
authorizations of or from, any individual, corporation or other party which may
be necessary to permit the consummation of the transactions contemplated hereby
(including, without limitation, any consents required under the Contracts, or
which may be required to permit the change of ownership of any of the Assets).
(e) Related Agreements. Each of the Related Agreements to
which the Business Contribution Member is a party shall have been duly executed
and delivered. In addition, the Related Agreements shall have been entered into
by the respective parties thereto.
7.3. Conditions to Obligations of the Business Contribution Member.
The obligations of the Business Contribution Member to effect the transactions
contemplated by this Agreement are subject to the satisfaction of the following
conditions (which are for the exclusive benefit of the Business Contribution
Member), any or all of which may be waived in whole or in part by the Business
Contribution Member.
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
26
<PAGE>
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the Business
Contribution Member;
(b) by either the Company or the Business Contribution Member,
if the closing of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Business Contribution
Member does not timely deliver a representation letter satisfactory to the
Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Business Contribution
Member as provided in Section 8.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of any party hereto or
any of its respective Affiliates, officers, directors or shareholders except (i)
for the obligation of the Business Contribution Member to refund to the Company
the audit expenses as set forth in Section 1.4 of this Agreement; (ii) for any
and all obligations under the confidentiality provisions contained in Section
3.2 of this Agreement; and (iii) to the extent that such termination results
from the willful breach by a party hereto of any of its representations or
warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non-
27
<PAGE>
breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Business Contribution Member. The
Business Contribution Member hereby agrees to indemnify, defend and hold
harmless the Company, the Specific Company Subsidiary, and their respective
officers, directors, employees and agents (collectively, the "Indemnitee") from
and against and in respect of any and all Losses (as defined below) to the
extent resulting from, arising out of, relating to, imposed upon or incurred by
the Indemnitee by reason of (i) the conduct of the Business prior to the Closing
Date (but only to the extent that the amount of such Loss was not a stated
liability on the Business' most recently dated balance sheet delivered to the
Company; (ii) any inaccuracy in or breach of any of the Business Contribution
Member's representations, warranties, covenants or agreements contained in this
Agreement, the Related Agreements or in any other agreement or document entered
into or delivered on or after the date hereof in connection with this Agreement
or any of the transactions contemplated hereby and thereby, (iii) any liability
or obligation of the Business Contribution Member other than an Assumed
Liability, and (iv) any non-compliance with any notice requirement, if any,
which may be contained in the Uniform Commercial Code as adopted by the State of
California relating to bulk sales. Provided, however, the indemnification by the
Business Contribution Member under this Section 9.1.(a) shall include direct
damages only (and not indirect or consequential damages). For purposes of this
Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Business Contribution Member from and
against and in respect of any and all Losses resulting from, arising out of,
relating to, imposed upon or incurred by
28
<PAGE>
the Business Contribution Member by reason of (i) any inaccuracy in or breach of
any of the Company's representations, warranties, covenants or agreements
contained in this Agreement or in any other agreement or document entered into
or delivered by the Company on or after the date hereof in connection with this
Agreement or any of the transactions contemplated hereby and/or thereby; or (ii)
any failure to discharge the Assumed Liabilities as required by their terms.
Provided, however, the indemnification by the Company under this Section 9.1.(b)
shall include direct damages only (and not indirect or consequential damages)
and shall be limited in the aggregate to the Purchase Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
29
<PAGE>
(b) if to the Business Contribution Member, to:
Michael Studebaker
Studebaker Messenger
411 Brannan Street, 2nd Floor
San Francisco, California 94107
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Asset Transfer Agreement between the Business Contribution Member and Dispatch
Management Services LLC dated July 16, 1997, which Agreement will be of no
further force or effect upon execution of this Agreement), both written and
oral, among the parties with respect to the subject matter hereto and is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder. Subject to applicable law, this Agreement may be amended,
modified or supplemented only by written agreement of all parties hereto with
respect to any of the terms contained herein, and each party hereto agrees to be
bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or
30
<PAGE>
similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Business Contribution Member acknowledges that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.3 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Specific Company Subsidiary shall be entitled, without
the necessity of proving actual damages, to injunctive relief in addition to
damages and all other remedies which may otherwise be available to the Company
and/or the Specific Company Subsidiary.
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.3 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American
31
<PAGE>
Arbitration Association ("AAA") and judgment on the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. It is
acknowledged by the Business Contribution Member that money damages are
inadequate to compensate the Company and/or the Specific Company Subsidiary for
a breach of the terms of this Agreement, and that the Company and/or the
Specific Company Subsidiary shall be entitled to specific performance of the
terms of this Agreement. The arbitrator may enter a default decision against any
party who fails to participate in the proceeding. The decision of the arbitrator
shall be final, conclusive, binding and non-appealable. The losing party shall
pay all costs and expenses of arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
32
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
Attest: DISPATCH MANAGEMENT SERVICES CORP.
_________________________ By: /s/ Linda Jenkinson
-------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
"BUSINESS CONTRIBUTION MEMBER"
Attest:
_________________________ /s/ Michael Studebaker
-------------------------------------
Name: Michael Studebaker
"SPECIFIC COMPANY SUBSIDIARY"
Attest: DMS CORP. SUBSIDIARY NO. __
_________________________ By: /s/ Linda Jenkinson
-------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
33
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 10th day of
September 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Delivery Incorporated, a Washington corporation
(the"Corporation"), and Gary Brose (the "Shareholder"). Unless defined herein,
all capitalized terms used in this Agreement shall have the meaning given them
in the Operating Agreement of Dispatch Management Services LLC dated December 1,
1996 by and between the Members of Dispatch Management Services LLC, as amended
(the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desires to sell all of his
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into a non-competition agreement with the
sole Shareholder and certain employees of the Corporation in the form attached
hereto as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver
satisfactory shareholder representation letters in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholder does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholder does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such terminations of
2
<PAGE>
employment, and the Company will reduce the cash portion of the purchase price
by the amount of such reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Silver, Freedman &
Taff, L.L.P., 1100 New York Avenue, N.W., 7th Floor, Washington, D.C. 20005 (or
such other place as is mutually agreed upon by the parties) within thirty (30)
days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event the Shareholder does not timely deliver a satisfactory
shareholder representation letter (as determined in the sole discretion of the
Company), this Agreement will be of no further force or effect, except for any
and all obligations under Sections 3.2 (confidentiality), 1.3 (reimbursement of
audit expenses) and 8.2 (effect of termination under Section 8.1), which
obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Silver, Freedman & Taff, L.L.P., as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholder's
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by the Shareholder
and/or third parties and heretofore licensed to or used by the Corporation; (v)
Certificates of Good Standing for the Corporation as issued by the Secretary of
State of the State of Washington; (vi) the certificates, dated the Closing in
Escrow Date, required pursuant to Sections
3
<PAGE>
7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of counsel to the
Shareholder and the Corporation as to such matters as counsel to the Company may
reasonably require, including but not limited to such counsel's opinion that:
(A) the Corporation is in good standing; (B) the Corporation is authorized to
conduct its business in each jurisdiction in which it is doing business; (C) the
Shareholder and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholder, and the Related Agreements to which the Shareholder is a party,
constitute the legal, valid and binding obligations of the Shareholder, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholder is threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to two-thirds (2/3) of the Corporation's net revenue
during the twelve calendar months ending June 30, 1997, subject to adjustment
(if any) as provided in Section 1.1 above, and subject to further adjustment (if
any) as a result of a reduction in the Maximum Earn-Out (as defined in this
Section 1.3 below).
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement:
4
<PAGE>
(i) audited financial statements of the Corporation, including balance sheets
dated as of December 31, 1994, 1995 and 1996, and income statements and cash
flow statements for each of the three twelve month periods ended on such dates;
(ii) unaudited financial statements of the Corporation, including a balance
sheet dated as of June 30, 1996, and an income statement and cash flow statement
for the twelve month period ended on June 30, 1996: and (iii) unaudited,
reviewed financial statements of the Corporation, including a balance sheet
dated as of June 30, 1997 and an income statement and a cash flow statement for
the six month period ended June 30, 1997. The intent of providing the audited
financial statements referred to in the foregoing sentence is to resolve any
auditing issues prior to calculation of the Purchase Price, so that the Purchase
Price may be quickly and efficiently calculated. In the event that the closing
of the Initial Public Offering has not occurred on or before November 12, 1997,
but does occur on or before December 12, 1997, then in that event, in lieu of
the unaudited, reviewed financial statements of the Corporation for the six
month period ended June 30, 1997, the Shareholder shall deliver to the Company,
within thirty days after written request from the Company: (i) an updated set of
audited financial statements of the Corporation, including a balance sheet dated
as of June 30, 1997, and income statements and cash flow statements for the six
month period ended June 30, 1997; (ii) unaudited financial statements for the
Corporation, including a balance sheet dated as of September 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
September 30, 1996; and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of September 30, 1997 and income
statements and cash flow statements for the three month period ended September
30, 1997. In the event that the closing of the Initial Public Offering has not
occurred on or before December 12, 1997, then upon written request from the
Company given on or before March 1, 1998, the Shareholder shall deliver to the
Company, within thirty days after written request from the Company, such
additional audited and/or unaudited, reviewed financial statements of the
Corporation as the Company may reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder. In the event that
the Shareholder does
5
<PAGE>
not timely deliver a satisfactory shareholder representation letter and complete
the Closing in Escrow, the Shareholder shall immediately refund to the Company
any such advanced costs; in the event the shareholder representation letter is
satisfactory and is timely received, and the Closing in Escrow is completed, the
Shareholder shall be relieved of his obligation to refund to the Company any
such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
Shareholder acknowledges that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholder shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholder ratably over
the 8 quarter annual periods beginning January 1, 1998 and ending December 31,
1999 provided that the Corporation achieves the targeted performance standards
set forth in Exhibit B attached hereto. In the event that the Corporation fails
to achieve the margin requirement set forth in Exhibit B during any calendar
quarter, then for each calendar quarter in which the Corporation fails to
achieve such margin requirement, the cash portion of the Purchase Price shall be
reduced by one eighth (1/8) of the Maximum Earn-Out. In the event that the
Corporation achieves the margin requirement during the relevant calendar
quarter, but fails to achieve the revenue requirement set forth in Exhibit B,
then for each such calendar quarter, the cash portion of the Purchase Price
shall be reduced by: (i) one eighth (1/8) of the Maximum Earn-Out, multiplied
by: (ii) a fraction, the numerator of which is the difference between the actual
revenue achieved during such calendar quarter and the revenue requirement for
such calendar quarter as set forth in Exhibit B, and the denominator of which is
the revenue required during such calendar quarter as set forth in Exhibit B. The
Maximum Earn-Out, less any reductions as set forth in this paragraph, is
hereinafter referred to as the "Earn-Out". The Earn-Out shall bear interest at
the rate of 7% per annum commencing as of the Closing Date (i.e., once the
Earn-Out is determined, the Shareholder will be due such amount plus interest at
the rate of 7% per annum on such amount, accrued from the Closing Date until the
date of payment of the
6
<PAGE>
Earn-Out to the Shareholder). The Earn-Out shall be paid to the Shareholder
promptly following calculation of the Corporation's performance for the quarter
ending December 31, 1999. The Company covenants and agrees to maintain
sufficient cash, or availability of cash (e.g., by way of a line of credit) in
order to fund the Earn-Out.
At the request of the Shareholder made to the Company in writing not later
than the Closing in Escrow, the Company shall (immediately after Closing) make a
loan to the Shareholder in an amount equal to up to 30% of the Purchase Price.
Said loan by the Company to the Shareholder (the "Shareholder Loan") shall bear
interest at a rate of seven percent (7%) per annum, and shall be secured by all
of the Company Stock paid as part of the Purchase Price at Closing. The
collateral security agreement evidencing the collateralization of the
Shareholder Loan with the Company Stock and the Earn-Out shall be on such terms
as are reasonably acceptable to the Company, which terms shall include, but
shall not be limited to, the retention of all of the Company Stock by the
Company until full repayment of the Shareholder Loan (including accrued
interest). The Shareholder shall have the right to prepay the Shareholder Loan
(plus accrued interest) at any time without penalty and shall have the right to
direct the Company to offset the balance due under the Shareholder Loan (plus
accrued interest) against the Earn-Out as earned each quarter. The Shareholder
Loan shall mature as of the date that the Earn-Out is payable. In the event that
the Shareholder Loan (including accrued interest) is not repaid in full upon
maturity, the Company shall enjoy all rights of a secured party under the
Uniform Commercial Code then in effect in the State of Maryland, provided that
the Company's only recourse shall be first against the remaining Earn-Out and
then against the Company Stock it holds as collateral, and there shall not be
any recourse against the Shareholder individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W., Suite 700E,
Washington, D.C. 20005, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
7
<PAGE>
At the Closing: (i) Silver, Freedman and Taff, L.L.P. shall deliver
to the Company the certificates, minute book, documents, and other materials
theretofore held in escrow from the Closing in Escrow; (ii) the Shareholder
shall deliver to the Company updated consents, waivers and authorizations as
referred to in Section 1.2(a)(iii) above, updated Certificates of Good Standing
as referred to in Section 1.2(a)(v) above, updated certificates, dated the
Closing Date, required pursuant to Sections 7.2(a) and 7.2(b) below, and an
updated opinion of counsel as referred to in Section 1.2(a)(vii) above; and
(iii) the Company shall deliver the Purchase Price to the Shareholder (less the
Maximum Earn-Out, which shall be payable to the Shareholder pursuant to the
terms of Section 1.3 above, and with the Company Stock collateralized against
the Shareholder Loan being delivered to the Company as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent, warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is a "C"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Washington, and has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted. The Corporation is duly qualified and in good standing to
conduct business in each jurisdiction in which the business it is conducting, or
the operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
8
<PAGE>
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 100,000 shares of $.01 par value
capital stock of which 50,000 shares are and will be as of the Closing in Escrow
Date and the Closing Date issued and outstanding. All issued and outstanding
shares of the capital stock of the Corporation have been duly authorized and
validly issued, are fully paid and non-assessable, and were issued in compliance
with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or outstanding, or any warrants, options, subscription rights, or any
other rights, agreements, or commitments of any nature relating to the issuance
of, or granting of, rights to acquire any shares of capital stock or such
securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
9
<PAGE>
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements to which the Shareholder is a party, or (d) violate
any law applicable to the Shareholder or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. Neither the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation in connection with
the consummation of the transactions contemplated hereby or thereby or which
seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets
10
<PAGE>
forth an accurate and complete list, and a brief description (setting forth the
names of the parties involved, the court or other governmental or mediating
entity involved, the relief sought and the substantive allegations and the
status thereof), of each Legal Proceeding pending or, to the knowledge of the
Corporation and/or the Shareholder, threatened against or affecting the
Corporation. To the knowledge of the Corporation and/or the Shareholder, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Exhibit E. Except as set forth in
Exhibit E, there is no outstanding or, to the knowledge of the Corporation
and/or the Shareholder, threatened, judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole account of the
Shareholder and shall be paid in full by him at the Closing in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where
11
<PAGE>
otherwise specifically noted therein, and present and will present fairly in all
material respects the financial position, results of operations and changes in
financial position or cash flows, whichever is applicable, of the Corporation as
at the dates and for the periods indicated (subject, in the case of the
unaudited financial statements, to normal year-end audit adjustments). Without
limiting the foregoing, no undisclosed liabilities or obligations of any nature
(whether known or unknown, or absolute, accrued, contingent or otherwise) shall
exist as at Closing in Escrow or the Closing not reflected in the most recently
dated balance sheet supplied to the Company. The Corporation has paid all
federal, state and local income, profits, franchises, sales, use, occupation,
property, excise and payroll taxes, and all license fees and other charges
imposed upon it, and has timely filed all tax returns and related documents
required to be filed with any governmental authority. There are no outstanding
or proposed statements of deficiency in tax payments to any federal, state,
local or foreign government with respect to the Corporation for any tax period.
As of the dates such Financial Statements were and will be prepared, all
accounts receivable reflected on the Financial Statements (i) have and will have
arisen from bona fide transactions in the ordinary course of the Corporation's
business, consistent with its past practices, and (ii) are good and collectible
at the aggregate recorded amounts thereof, net of any applicable reserves for
returns or doubtful accounts which are reflected in such Financial Statements
(such reserves, the "Reserves"); such Reserves are adequate and reasonable and
were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation.
(b) The Corporation has not entered into any transaction or
contract, or conducted its business, other than in the ordinary course
consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the
12
<PAGE>
Shareholder and/or the Corporation, licensed by the Shareholder and/or the
Corporation, licensed to the Shareholder and/or the Corporation, or otherwise
used or able to be used in the business conducted by the Corporation (other than
commonly-used computer software which is generally available to the public and
the use rights to which were legally acquired by the Corporation either for free
or through established retail facilities) and indicates, with respect to each
item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Corporation owns or has the
lawful right to use all of the Intellectual Property as currently used or as
necessary for the conduct of its business as now conducted. After Closing, the
Corporation will have the right to use all of the Intellectual Property as
currently used or as necessary for the conduct of the Corporation's business as
now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Shareholder nor the Corporation are in default
under any license agreements pertaining to the Intellectual Property used in the
Corporation's business and licensed to the Shareholder and/or the Corporation;
all such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
13
<PAGE>
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of Intellectual
Property, and the Corporation has not taken or failed to take any action that
would result in the forfeiture or relinquishment of any Intellectual Property
used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other
14
<PAGE>
contract (including without limitation license(s) to use specific telephone
numbers and/or radio channels/frequencies) relating to any of the foregoing, and
any goodwill associated with any business owning, holding or using any of the
foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
15
<PAGE>
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements, unemployment insurance,
employment screening, wage-hour, employment discrimination on any basis, equal
employment opportunity, individual
16
<PAGE>
employee rights, affirmative action, occupational health and safety, and
immigration and right to work requirements. Such compliance by the Corporation
includes, but is not limited to, Title VII of the Civil Rights Act of 1964, as
amended, including the Civil Rights Act of 1991; the National Labor Relations
Act of 1935, as amended; the Fair Labor Standards Act of 1938, as amended; the
Occupational Safety and Health Act of 1970, as amended; the Equal Pay Act of
1963, as amended; the Age Discrimination in Employment Act of 1967, as amended;
the Americans with Disabilities Act of 1990; the Family Medical Leave Act of
1993; the Immigration Reform and Control Act of 1986 (together with the
regulations promulgated thereunder, hereinafter collectively referred to as
"IRCA"); the Worker Adjustment and Retraining Notification Act; the Employee
Polygraph Protection Act; the Drug-Free Workplace Act of 1988; the Health
Insurance Portability and Accountability Act of 1996; the Code; the regulations
promulgated under each such act; and any and all other federal, state and local
laws, regulations and requirements of any nature applicable to the Corporation.
The Corporation further represents that it is not in arrears in the payment of
wages to any employee (except to the extent of its normal payroll practices),
and there are no claims, liabilities, demands or causes of action, realized or
unrealized, actual, potential or contingent, pursuant to statutory rights or in
tort, contract or otherwise, against the Corporation arising out of or in
connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholder's knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
17
<PAGE>
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Corporation nor the Shareholder is aware
of any present intention on the part of any significant customer or supplier or
other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
18
<PAGE>
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. The Shareholder and the certain employees
of the Corporation noted on Exhibit A attached hereto shall have at the Closing
in Escrow entered into agreements, the form of which is attached to this
Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 17,
1997. The Shareholder and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary action on the part of the Company. This Agreement and each of the
Related Agreements to which it is a party have been duly executed and delivered
by the Company, and constitute the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to
19
<PAGE>
enforceability, to general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements or any action taken or to be taken by the
Company in connection with the consummation of the transactions contemplated
hereby or thereby or which seeks to prohibit, enjoin or otherwise challenge any
of the transactions contemplated hereby or thereby. Exhibit E sets forth an
accurate and complete list, and a brief description (setting forth the names of
the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of each Legal Proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company. To the knowledge of the Company, no
event has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any
20
<PAGE>
third party of any claim or Legal Proceeding, other than those listed on Exhibit
E. Except as set forth in Exhibit E, there is no outstanding or, to the
knowledge of the Company, threatened, judgment, injunction, order or consent or
similar decree or agreement (including, without limitation, any consent or
similar decree or agreement with any governmental entity) against, affecting or
naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
21
<PAGE>
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholder
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholder shall use their
respective best efforts to cause the Corporation's officers, employees,
22
<PAGE>
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the Closing Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or the Related Agreements, each party hereto shall use their
respective best efforts to take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
23
<PAGE>
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $17,406 working capital (defined as the
excess of current (liquid) assets over current liabilities) as of the Closing
Date. For purposes of determining whether the Corporation had the required
working capital as of the Closing Date, the Company will cause to be prepared,
promptly following the Closing, a balance sheet of the Corporation as of the
Closing Date. Such balance sheet shall be prepared in accordance with GAAP, and
shall include full accrual of all assets and liabilities of the Corporation as
of the Closing Date (including, but not limited to, accrued tax liabilities as
if the tax year ended on the Closing Date). In the event that the Corporation
has less than the prescribed $17,406 working capital as of the Closing Date, as
determined by such balance sheet, the Shareholder shall forthwith pay the
Company an amount equal to the difference between the actual working capital as
of the Closing Date and $17,406 working capital (the "Shortfall"). If the
Shareholder does not pay the Shortfall to the Company within five (5) days after
demand, then, in addition to all other remedies which the Company may have, the
Company may deduct the amount of the Shortfall from any of the obligations of
the Company to the Shareholder (including, but not limited to, the Earn-Out to
which the Shareholder may be entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of his decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the balance sheet of the
Corporation as of the Closing Date, and to calculate the working capital therein
in accordance with GAAP. Price Waterhouse LLP shall then determine the amount of
the Shortfall as set out in this paragraph 6.5, whose decision shall be final
and binding on the parties hereto. The Shareholder shall forthwith pay to the
Company the amount of such Shortfall, together with fifty percent (50%) of the
cost of the audit conducted by Price Waterhouse LLP. In the event Price
Waterhouse LLP determines the Shortfall to have been zero, the entire cost of
such audit shall be borne by the Company.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
24
<PAGE>
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely
25
<PAGE>
result in, individually or in the aggregate, a material adverse effect on the
Corporation, its assets or its business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the Shareholder is a party shall have been duly executed and delivered by
the Shareholder. In addition, the Related Agreements shall have been entered
into by the respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
26
<PAGE>
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
(as defined in the Operating Agreement) are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholder to refund to the Company the audit expenses as
set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholder.
The Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or
27
<PAGE>
delivered on or after the date hereof in connection with this Agreement or any
of the transactions contemplated hereby and/or thereby. Provided, however, the
indemnification by the Corporation and the Shareholder under this Section
9.1.(a) shall include direct damages only (and not indirect or consequential
damages). For purposes of this Agreement, the term "Losses" means any and all
deficiencies, judgments, settlements, demands, claims, actions or causes of
action, assessments, liabilities, losses, damages (whether direct, indirect or
consequential), interest, fines, penalties, costs and expenses (including,
without limitation, reasonable legal, accounting and other costs and expenses
incurred in connection with investigating, defending, settling or satisfying any
and all demands, claims actions, causes of action, suits, proceedings,
assessments, judgments or appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
28
<PAGE>
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered personally
or by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
Delivery Incorporated
227 Ninth Avenue North
Seattle, Washington 98109
Attention: Gary Brose
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings (including but not limited to that certain Class C
Stock Transfer Agreement between the parties dated May 1997, which Agreement
will be of no further force or effect upon execution of this Agreement), both
written and oral, among the parties with respect to the subject matter hereto
and is not intended to confer upon
29
<PAGE>
any Person other than the parties hereto any rights or remedies hereunder.
Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto with respect to any
of the terms contained herein, and each party hereto agrees to be bound by any
such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Maryland, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
30
<PAGE>
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholder that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement has been executed, the names of the parties to this
Agreement and the terms hereof.
31
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
-------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
DELIVERY INCORPORATED
By: /s/ Gary Brose
- - - - ------------------------------ -------------------------------------
Name: Gary Brose
Title: President
Witness: "SHAREHOLDER"
/s/ Gary Brose
- - - - ------------------------------ -----------------------------------------
Gary Brose, Individually
32
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 12th day of
September, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), AFS Courier Systems, Inc., a Virginia corporation (the
"Corporation"), and Frank L. Mullins, (the "Shareholder"). Unless defined
herein, all capitalized terms used in this Agreement shall have the meaning
given them in the Operating Agreement of Dispatch Management Services LLC dated
December 1, 1996 by and between the Members of Dispatch Management Services LLC,
as amended (the "Operating Agreement").
W I T N E S S E T H
WHEREAS, the Shareholder owns all of the issued and outstanding shares of
capital stock of the Corporation (the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desire to sell all of their
respective right, title and interest in the Stock to the Company, and the
Company desires to purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties intend that, immediately following the execution of
this Agreement, the Company will enter into non-competition agreements with the
Shareholder and certain employees of the Corporation in the form attached hereto
as Exhibit A (such non-competition agreements, together with all other
agreements which are entered into by the parties hereto pursuant to this
Agreement or in connection with any of the transactions contemplated hereby, the
"Related Agreements"); and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the Shareholder, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder and
the Corporation shall be obliged to deliver to the Company, within thirty (30)
days after execution of this Agreement: (i) the audited and unaudited financial
statements required pursuant to Section 1.3 below; and (ii) the agreements
required pursuant to Section 3.1 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date by which the Shareholder must execute and deliver a
satisfactory shareholder representation letter in order to consummate the sale
of the Stock pursuant to the terms of this Agreement. At the Company's option,
the Notice shall include a requirement that the Shareholder purchase certain
assets of the Corporation (at then current book value), assume certain
liabilities of the Corporation, and cause certain employees of the Corporation
to be terminated from employment by the Corporation. If, prior to the Closing
Date (as defined in Section 1.4 below): (i) the Shareholder does not purchase
the (unwanted) assets specified by the Company in the Notice, then such assets
will be acquired by the Company without any adjustment to the Purchase Price (as
defined in Section 1.3 below); (ii) the Shareholder does not assume the
(unwanted) liabilities specified by the Company in the Notice, then the Company
will reduce the cash portion of the purchase price by the dollar amount of any
such liabilities (including early repayment costs, if any) of the Corporation
existing as at the Closing Date; and (iii) the Corporation has not terminated
the employment of the (unwanted) employees specified by the Company in the
Notice, then the Company will make a reasonable estimate of the costs and
expenses to be incurred in connection with such terminations of employment, and
the
2
<PAGE>
Company will reduce the cash portion of the purchase price by the amount of such
reasonable estimate.
Upon timely delivery from the Shareholder of a shareholder representation
letter satisfactory to the Company, the parties will close in escrow (the
"Closing in Escrow") pursuant to the terms and conditions of this Agreement.
Such Closing in Escrow shall take place at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Washington, D.C. 20036
(or such other place as is mutually agreed upon by the parties) within thirty
(30) days (or such shorter period as is specified in the Notice) after timely
delivery of a satisfactory shareholder representation letter from the
Shareholder.
In the event that the Shareholder does not timely deliver a
satisfactory shareholder representation letter (as determined in the sole
discretion of the Company), this Agreement will be of no further force or
effect, except for any and all obligations under Sections 3.2 (confidentiality),
1.3 (reimbursement of audit expenses) and 8.2 (effect of termination under
Section 8.1), which obligations will survive termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's and Corporation's Deliveries at Closing in
Escrow. At the Closing in Escrow, the Shareholder shall deliver the following to
the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P, as escrow agent: (i)
certificates representing all of the Stock with duly executed stock powers
conveying the Stock represented thereby to the Company, free and clear of all
liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company; (ii) the Corporation's corporate minute
book, including the Stock Certificate Book and all of the original share
certificates representing shares of the Corporation's capital stock at one time
issued (but no longer issued and outstanding) to former shareholders of the
Corporation; (iii) all consents, waivers, and authorizations necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement; (iv) agreements assigning to the Corporation all of the Shareholder's
and/or third parties' right, title and interest in and to all Intellectual
Property (as defined in Section 2.14(d) hereinbelow) owned by any of the
Shareholder and/or third parties and heretofore licensed to or used by the
Corporation; (v)
3
<PAGE>
Certificates of Good Standing for the Corporation as issued by the Secretaries
of State of Maryland, the District of Columbia, and Virginia; (vi) the
certificates, dated the Closing in Escrow Date, required pursuant to Sections
7.2(a) and 7.2(b) hereinbelow; and (vii) the opinion of counsel to the
Shareholder and the Corporation as to such matters as counsel to the Company may
reasonably require, including but not limited to such counsel's opinion that:
(A) the Corporation is in good standing; (B) the Corporation is authorized to
conduct its business in each jurisdiction in which it is doing business; (C) the
Shareholder and the Corporation have the full power to enter into and perform
their respective obligations under this Agreement; (D) this Agreement
constitutes the legal, valid and binding obligations of the Corporation and the
Shareholder, and the Related Agreements to which the Shareholder are a party,
constitute the legal, valid and binding obligations of the Shareholder, each
enforceable in accordance with their respective terms (except as enforcement may
be limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditor's rights, and principles of equity); and (E) neither the
Corporation nor the Shareholder are threatened with or affected by any actions,
proceedings or investigations wherein an unfavorable decision, ruling or finding
could have a material adverse effect on the financial condition or operation of
the Corporation, or could prevent, enjoin or otherwise affect the transactions
contemplated by this Agreement or the Related Agreements.
(b) Further Actions. On or after the Closing in Escrow, the
parties hereto shall enter into, execute and deliver such other and further
agreements, documents and instruments, as any of them may reasonably request,
for the purpose of effectuating the transactions contemplated by this Agreement.
(c) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the purchase price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to two-thirds (2/3) of the Corporation's net revenue
during the twelve calendar months ending June 30, 1997, subject to adjustment
(if any) as provided in Section 1.1 above,
4
<PAGE>
and subject to further adjustment (if any) as a result of a reduction in the
Maximum Earn-Out (as defined in this Section 1.3 below).
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of December 31, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; (ii) unaudited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1996, and an
income statement and cash flow statement for the twelve month period ended on
June 30, 1996: and (iii) unaudited, reviewed financial statements of the
Corporation, including a balance sheet dated as of June 30, 1997 and an income
statement and a cash flow statement for the six month period ended June 30,
1997. The intent of providing the audited financial statements referred to in
the foregoing sentence is to resolve any auditing issues prior to calculation of
the Purchase Price, so that the Purchase Price may be quickly and efficiently
calculated. In the event that the closing of the Initial Public Offering has not
occurred on or before November 12, 1997, but does occur on or before December
12, 1997, then in that event, in lieu of the unaudited, reviewed financial
statements of the Corporation for the six month period ended June 30, 1997, the
Shareholder shall deliver to the Company, within thirty days after written
request from the Company: (i) an updated set of audited financial statements of
the Corporation, including a balance sheet dated as of June 30, 1997, and income
statements and cash flow statements for the six month period ended June 30,
1997; (ii) unaudited financial statements for the Corporation, including a
balance sheet dated as of September 30, 1996, and an income statement and cash
flow statement for the twelve month period ended on September 30, 1996; and
(iii) unaudited, reviewed financial statements of the Corporation, including a
balance sheet dated as of September 30, 1997 and income statements and cash flow
statements for the three month period ended September 30, 1997. In the event
that the closing of the Initial Public Offering has not occurred on or before
December 12, 1997, then upon written request from the Company given on or before
March 1, 1998, the Shareholder shall deliver to the Company, within thirty days
after written request from the Company, such additional audited and/or
unaudited, reviewed financial statements of the
5
<PAGE>
Corporation as the Company may reasonably request.
All of the financial statements referred to in this Section 1.3
shall be prepared (or reviewed, as the case may be) by Price Waterhouse LLP. The
cost of providing all of the financial statements required by this Section 1.3,
within the prescribed time limits, shall be the sole responsibility of the
Shareholder, provided that the Company will, upon the request of the
Shareholder, advance such costs on behalf of the Shareholder. In the event that
the Shareholder does not timely deliver a satisfactory shareholder
representation letter and complete the Closing in Escrow, the Shareholder shall
immediately refund to the Company any such advanced costs; in the event that
such shareholder representation letter is satisfactory and is timely received,
and the Closing in Escrow is completed, the Shareholder shall be relieved of
his/her obligation to refund to the Company any such advanced costs.
The Company shall pay thirty percent (30%) of the Purchase Price in
cash (the "Maximum Earn-Out"), which is subject to reduction in accordance with
the terms of the next paragraph, and seventy percent (70%) of the Purchase Price
in (restricted) stock of the Company (the "Company Stock"), at the Closing. The
number of shares of Company Stock to be issued as payment of the Purchase Price
shall equal the aggregate dollar value of the stock component of the Purchase
Price divided by the initial public offering price per share as set forth on the
cover page of the Prospectus relating to the initial public offering. The
Shareholder acknowledges that the sale of the Company Stock will be restricted
for a period of time by virtue of a "lock-up" agreement which may be imposed by
the Company, and the Shareholder shall execute such a "lock-up" agreement, as
may be required by the Company, by which the sale of the Company Stock is
restricted (perhaps prohibited) for a period of two (2) years from the date of
the closing of the Initial Public Offering.
The Maximum Earn-Out shall be earned by the Shareholder ratably over
the 8 quarter annual periods beginning January 1, 1998 and ending December 31,
1999 provided that the Corporation achieves the targeted performance standards
set forth in Exhibit B attached hereto. In the event that the Corporation fails
to achieve the margin requirement set forth in Exhibit B during any calendar
quarter, then for each calendar quarter in which the Corporation fails to
achieve such margin requirement, the cash portion of the Purchase Price shall be
reduced
6
<PAGE>
by one eighth (1/8) of the Maximum Earn-Out. In the event that the Corporation
achieves the margin requirement during the relevant calendar quarter, but fails
to achieve the revenue requirement set forth in Exhibit B, then for each such
calendar quarter, the cash portion of the Purchase Price shall be reduced by:
(i) one eighth (1/8) of the Maximum Earn-Out, multiplied by: (ii) a fraction,
the numerator of which is the difference between the actual revenue achieved
during such calendar quarter and the revenue requirement for such calendar
quarter as set forth in Exhibit B, and the denominator of which is the revenue
required during such calendar quarter as set forth in Exhibit B. The Maximum
Earn-Out, less any reductions as set forth in this paragraph, is hereinafter
referred to as the "Earn-Out". The Earn-Out shall bear interest at the rate of
7% per annum commencing as of the Closing Date (i.e., once the Earn-Out is
determined, the Shareholder will be due such amount plus interest at the rate of
7% per annum on such amount, accrued from the Closing Date until the date of
payment of the Earn-Out to the Shareholder). The Earn-Out shall be paid to the
Shareholder promptly following calculation of the Corporation's performance for
the quarter ending December 31, 1999. The Company covenants and agrees to
maintain sufficient cash, or availability of cash (e.g., by way of a line of
credit) in order to fund the Earn-Out.
At the request of the Shareholder made to the Company in writing not later
than the Closing in Escrow, the Company shall (immediately after Closing) make a
loan to the Shareholder in an amount equal to up to 30% of the Purchase Price.
Said loan by the Company to the Shareholder (the "Shareholder Loan") shall bear
interest at a rate of seven percent (7%) per annum, and shall be secured by all
of the Company Stock paid as part of the Purchase Price at Closing. The
collateral security agreement evidencing the collateralization of the
Shareholder Loan with the Company Stock and the Earn-Out shall be on such terms
as are reasonably acceptable to the Company, which terms shall include, but
shall not be limited to, the retention of all of the Company Stock by the
Company until full repayment of the Shareholder Loan (including accrued
interest). The Shareholder shall have the right to prepay the Shareholder Loan
(plus accrued interest) at any time without penalty and shall have the right to
direct the Company to offset the balance due under the Shareholder Loan (plus
accrued interest) against the Earn-Out as earned each quarter. The Shareholder
Loan shall mature as of the date that the Earn-
7
<PAGE>
Out is payable. In the event that the Shareholder Loan (including accrued
interest) is not repaid in full upon maturity, the Company shall enjoy all
rights of a secured party under the Uniform Commercial Code then in effect in
the State of New York, provided that the Company's only recourse shall be first
against the remaining Earn-Out and then against the Company Stock it holds as
collateral, and there shall not be any recourse against the Shareholder
individually.
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place at the offices of
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W.,
Washington, D.C. 20036, contemporaneously with the closing of the Initial Public
Offering unless the Initial Public Offering does not occur by March 31, 1998, in
which case this Agreement shall be rendered null and void, or unless another
date, time or place is agreed to in writing by the parties hereto (the day on
which the Closing takes place being the "Closing Date").
At the Closing: (i) Akin, Gump, Strauss, Hauer & Feld, L.L.P shall
deliver to the Company the certificates, minute book, documents, and other
materials theretofore held in escrow from the Closing in Escrow; (ii) the
Shareholder shall deliver to the Company updated consents, waivers and
authorizations as referred to in Section 1.2(a)(iii) above, updated Certificates
of Good Standing as referred to in Section 1.2(a)(v) above, updated
certificates, dated the Closing Date, required pursuant to Sections 7.2(a) and
7.2(b) below, and an updated opinion of counsel as referred to in Section
1.2(a)(vii) above; and (iii) the Company shall deliver the Purchase Price to the
Shareholder (less the Maximum Earn-Out, which shall be payable to the
Shareholder pursuant to the terms of Section 1.3 above, and with the Company
Stock collateralized against the Shareholder Loan being delivered to the Company
as appropriate).
2. Representations, Warranties and Covenants of the Corporation and the
Shareholder.
The Corporation and the Shareholder hereby jointly and severally
represent,
8
<PAGE>
warrant and covenant to the Company as follows:
2.1. Organization, Standing and Power. The Corporation is an "S"
Corporation duly organized, validly existing and in good standing under the laws
of the State of Virginia, and has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as now being
conducted. The Corporation is duly qualified and in good standing to conduct
business in each jurisdiction in which the business it is conducting, or the
operation, ownership or leasing of its properties, makes such qualification
necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and each of the Related Agreements to which they are a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of their respective obligations hereunder and thereunder. This Agreement
constitutes the legal, valid and binding obligations of the Shareholder and the
Corporation, and each of the Related Agreements to which the Shareholder is a
party constitute the legal, valid and binding obligations of the Shareholder,
each enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of 10,000 shares of $10.00 par
value capital stock of which 10,000 shares are and will be as of the Closing in
Escrow Date and the Closing Date issued and outstanding. All issued and
outstanding shares of the capital stock of the Corporation have been duly
authorized and validly issued, are fully paid and non-assessable, and were
issued in compliance with all federal and applicable state securities laws.
2.4 Title to Stock. The Shareholder owns all of the issued and
outstanding shares of the capital stock of the Corporation, free and clear of
any and all claims, liens, restrictions, pledges, charges, options, security
interests, encumbrances or other rights of third parties, including any imposed
by law. There are no other shares of capital stock or other equity or debt
securities of the Corporation, of any kind or class whatsoever, authorized,
issued or
9
<PAGE>
outstanding, or any warrants, options, subscription rights, or any other rights,
agreements, or commitments of any nature relating to the issuance of, or
granting of, rights to acquire any shares of capital stock or such securities of
the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has good, insurable and marketable title to all of the assets set
forth in the Financial Statements (as defined in Section 2.11 hereinbelow).
Except as disclosed on Exhibit C, none of the Corporation's assets is subject to
any restriction, mortgage, pledge, lien, security interest, lease, charge,
encumbrance, objection or joint ownership, other than liens for current real or
personal property taxes not yet due and payable. The Corporation's assets are in
good operating condition and repair, ordinary wear and tear excepted.
2.6. Sufficiency of Assets. The assets set forth in the Financial
Statements (as defined in Section 2.11 hereinbelow) include all the assets and
properties used or employed in the business presently conducted by the
Corporation. Immediately after the consummation of the transactions contemplated
by this Agreement to be effected at the Closing, the Corporation will (i) have
all right, title, and interest in and to, or will have a valid right to use,
without liability to third party(ies), such assets and properties; and (ii) have
all assets, rights, employees, subcontractors and other persons and items which
are reasonably necessary to carry on the business and operations of the
Corporation after the Closing Date in substantially the same manner as presently
conducted by the Corporation.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and each of
the Related Agreements to which they are a party, and the consummation of the
transactions contemplated hereby and thereby by the Shareholder and the
Corporation will not (a) conflict with or violate any provision of the articles
or certificate of incorporation or by-laws of the Corporation, (b) except as set
forth in Exhibit D, require any consent, waiver, approval, authorization,
permission, or filing with or notification to, any third party, (c) result in or
constitute a default, or require any consent or approval of or notice to any
person or entity, or result in the creation of an encumbrance, under or pursuant
to (i) any of the contracts to which the Corporation is a party (including but
not limited to contracts of insurance and leases as applicable), or (ii) any
other material agreements
10
<PAGE>
to which the Shareholder is a party, or (d) violate any law applicable to the
Shareholder or the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) or clause
(i) of this Section 2.8. None of the Shareholder nor the Corporation is aware of
any proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation.
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by the Shareholder or the Corporation in connection with
the consummation of the transactions contemplated hereby or thereby or which
seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Corporation and/or the
Shareholder, threatened against or affecting the Corporation. To the knowledge
of the Corporation and/or the Shareholder, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or,
11
<PAGE>
to the knowledge of the Corporation and/or the Shareholder, threatened,
judgment, injunction, order or consent or similar decree or agreement
(including, without limitation, any consent or similar decree or agreement with
any governmental entity) against, affecting or naming the Corporation.
2.10. Financial Advisors.
(a) Except as set forth on Exhibit F attached hereto, no
person or entity has acted directly or indirectly as a broker, finder or
financial advisor for or to the Shareholder and/or the Corporation in connection
with the negotiations relating to or the transactions contemplated by this
Agreement or the Related Agreements; and
(b) Except as set forth on Exhibit F attached hereto, no
person or entity is entitled to any fee or commission or like payment, or
expense reimbursement, in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of the Corporation and/or
the Shareholder hereunder or thereunder. The Shareholder hereby agrees that all
such fees, commissions or like payments, or expense reimbursement as shall
appear on Exhibit F attached hereto shall be for the sole joint and several
account of the Shareholder and shall be paid in full by him/her at the Closing
in Escrow.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
G are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which, together with the financial statements
(including the notes and exhibits thereto) to be delivered pursuant to Section
1.3 herein (the "Financial Statements") were and will be prepared in accordance
with the books and records of the Corporation, are and will be complete and
correct in all material respects, have and will have been prepared in accordance
with U.S. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and present and will present fairly in all material
respects the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated (subject, in the case of the unaudited
financial statements, to normal year-end audit adjustments). Without limiting
the foregoing, no undisclosed liabilities or obligations of any nature (whether
known or unknown, or absolute, accrued, contingent or
12
<PAGE>
otherwise) shall exist as at Closing in Escrow or the Closing not reflected in
the most recently dated balance sheet supplied to the Company. The Corporation
has paid all federal, state and local income, profits, franchises, sales, use,
occupation, property, excise and payroll taxes, and all license fees and other
charges imposed upon it, and has timely filed all tax returns and related
documents required to be filed with any governmental authority. There are no
outstanding or proposed statements of deficiency in tax payments to any federal,
state, local or foreign government with respect to the Corporation for any tax
period. As of the dates such Financial Statements were and will be prepared, all
accounts receivable reflected on the Financial Statements (i) have and will have
arisen from bona fide transactions in the ordinary course of the Corporation's
business, consistent with its past practices, and (ii) are good and collectible
at the aggregate recorded amounts thereof, net of any applicable reserves for
returns or doubtful accounts which are reflected in such Financial Statements
(such reserves, the "Reserves"); such Reserves are adequate and reasonable and
were established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder has not been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
(a) There has been no event, condition or state of facts of
any character that has had or is reasonably likely to have a material adverse
effect on the Corporation. (b) The Corporation has not entered into any
transaction or contract, or conducted its business, other than in the ordinary
course consistent with past practice.
2.14. Intellectual Property.
(a) List of Intellectual Property; Sufficiency. Exhibit H sets
forth a list of all Intellectual Property (as defined in Section 2.14.(d)
hereinbelow) which is owned by the Shareholder and/or the Corporation, licensed
by the Shareholder and/or the Corporation, licensed to the Shareholder and/or
the Corporation, or otherwise used or able to be used in the business conducted
by the Corporation (other than commonly-used computer software which is
generally available to the public and the use rights to which were legally
acquired by the Corporation either
13
<PAGE>
for free or through established retail facilities) and indicates, with respect
to each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Corporation owns or has the
lawful right to use all of the Intellectual Property as currently used or as
necessary for the conduct of its business as now conducted. After Closing, the
Corporation will have the right to use all of the Intellectual Property as
currently used or as necessary for the conduct of the Corporation's business as
now conducted.
(b) Title; Validity; Pending Applications; Infringements, Etc.
(i) Except for Intellectual Property licensed to the
Shareholder and/or the Corporation, the Corporation has full legal and
beneficial ownership (free and clear of any and all encumbrances) of all of the
Intellectual Property, and neither the Corporation nor the Shareholder has
received any notice or claim (whether written, oral or otherwise) challenging
the Corporation's ownership or rights in such Intellectual Property or
suggesting that any other entity has any claim of legal or beneficial ownership
with respect thereto. Neither the Shareholder nor the Corporation are in default
under any license agreements pertaining to the Intellectual Property used in the
Corporation's business and licensed to the Shareholder and/or the Corporation;
all such license agreements are valid and in full force and effect, and shall
continue in full force and effect as to the Corporation after Closing.
(ii) All of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its use,
and neither the Corporation nor the Shareholder has received any notice or claim
(whether written, oral or otherwise) challenging the validity or enforceability
of any such Intellectual Property;
(iii) Neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Corporation will
conflict with, infringe upon, violate or interfere with, or constitute an
appropriation of, any right, title or interest held by any other person or
entity, and there have been no claims made with respect thereto;
(iv) No other person or entity is infringing in any
respect on any part of the Intellectual Property. The Corporation has not
conducted its business, and has not used or enforced (or failed to use or
enforce) any Intellectual Property, in a manner that would
14
<PAGE>
result in the abandonment, cancellation or unenforceability of any item of
Intellectual Property, and the Corporation has not taken or failed to take any
action that would result in the forfeiture or relinquishment of any Intellectual
Property used in the conduct of its business as now conducted;
(v) Except as set forth in Exhibit H, the Corporation
has no liability or obligations to any third parties incident to the
Intellectual Property used or able to be used by the Corporation in the conduct
of its business as heretofore conducted; and
(vi) The Corporation has timely met all of its
obligations to any third parties incident to the Intellectual Property used or
able to be used by the Corporation in the conduct of its business as heretofore
conducted, and such obligations have been and will be correctly and adequately
disclosed in the Financial Statements.
(c) Protection and Maintenance of Intellectual Property.
(i) The Corporation has taken all reasonable steps to
(x) protect its rights to the Intellectual Property, and (y) to prevent the
unauthorized use by any other person or entity; and
(ii) The Corporation shall use all reasonable efforts to
maintain, or cause to be maintained, the Intellectual Property in full force and
effect through the Closing and, without limitation, has renewed or has made, and
will make within any applicable renewal period ending on or prior to the Closing
Date, application to renew all of the Intellectual Property subject to
expiration on or prior to the Closing Date. Neither the Corporation or the
Shareholder has granted to any other Person or entity any rights or permissions
to use any of the Intellectual Property.
(d) Definition of Intellectual Property. For purposes of this
Agreement, the term "Intellectual Property" means any patent, copyright,
trademark, trade name, service mark, service name, brand mark, brand name, logo,
corporate name, Internet domain name or industrial design, any registrations
thereof and pending applications therefor (to the extent applicable), any other
intellectual property right (including, without limitation, any know-how, trade
secret, trade right, formula, conditional or proprietary report or information,
customer or membership list, any marketing data, and any computer program,
software, database or data right), and license or other contract (including
without limitation license(s) to use specific
15
<PAGE>
telephone numbers and/or radio channels/frequencies) relating to any of the
foregoing, and any goodwill associated with any business owning, holding or
using any of the foregoing.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
which polices provide adequate coverage, within terms of scope and amount of
coverage, for its assets, properties and operations. There are no pending
material insurance claims by the Corporation as to which the applicable insurers
have denied coverage. In addition, there exist no material claims under such
insurance that have not been properly filed by the Corporation. During the past
two years, the Corporation has not been refused any insurance coverage by any
insurer from which the Corporation has sought coverage.
2.16. Leases. Except as set forth on Exhibit I, the Corporation is
not a lessee or tenant of any real or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as set forth in Exhibit J, the
Corporation is not bound by any severance pay requirements or agreements, or any
other agreement, handbook, manual, or benefit book referring to, relating to, or
involving its employees.
2.18. Employee Benefit Plans. Except as set forth on Exhibit K
hereto, the Corporation does not maintain or contribute to, and it has no
liability or obligation with respect to any formal or informal stock option,
profit sharing, pension, retirement, bonus, stock bonus, thrift-savings,
incentive, benefit, welfare, cafeteria, medical insurance, dental insurance,
life insurance, accidental death and dismemberment insurance, disability
insurance or other similar plan, policy or arrangement (collectively referred to
herein as the "Plans"). The Corporation is not in default under the terms of any
of the Plans. The Corporation has made all contributions to each of the Plans
required by the terms of the respective Plans, as well as all contributions
required to be made in order to satisfy all requirements of law. Each of the
Plans has sufficient assets to satisfy (under reasonable and permitted actuarial
assumptions) its obligations on a termination basis, and the level of
contributions required pursuant to the terms of each Plan is sufficient to
satisfy (under reasonable and permitted actuarial assumptions) the obligations
of such Plan on a continuing basis for benefits accrued to date.
16
<PAGE>
2.19. Compliance With ERISA. The Corporation's Plans are currently
in compliance in all respects with the Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder (collectively, "ERISA").
Except as set forth on Exhibit L hereto, no employee benefit plan and no trust
created thereunder has ever been terminated by the Corporation. No liability to
the Pension Benefit Guaranty Corporation ("PBGC") has been or is expected to be
incurred by the Corporation with respect to the Plans. Neither the Corporation
nor any of the Plans has ever experienced an accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code of
1986, as amended (the "Code")), whether or not waived, with respect to any
employee benefit plan and no such accumulated funding deficiency currently
exists. Except as set forth on Exhibit L hereto, the Corporation is not
required, and has not been required in the past, to make any payments or
contributions under the terms of any "multi-employer plan" (as defined in
Section 3(37) of ERISA and Section 414(f) of the Code) or by any collective
bargaining agreement with respect to any employee benefit plan. Neither the
Corporation nor any of the Plans has ever incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) within the meaning
of Section 4201 and Section 4204 of ERISA with respect to any multi-employer
plan. The Corporation and the trustees or the administrators of the Plans have
provided continuation of coverage notices to employees and their dependents as
required by the Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended ("COBRA"), and has complied with all such continuation of coverage
requirements. The execution and delivery of this Agreement will not involve a
prohibited transaction within the meaning of ERISA or Section 4975 of the Code.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal, state and local laws, statutes,
regulations, orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation with respect to its employees and workplaces (hereinafter
collectively referred to as the "Applicable Employment Standards"), including,
but not limited to, employment, employment practices, fringe benefits, terms and
conditions of employment, termination of employment, severance or separation
pay, workers' compensation, disability, entitlements,
17
<PAGE>
unemployment insurance, employment screening, wage-hour, employment
discrimination on any basis, equal employment opportunity, individual employee
rights, affirmative action, occupational health and safety, and immigration and
right to work requirements. Such compliance by the Corporation includes, but is
not limited to, Title VII of the Civil Rights Act of 1964, as amended, including
the Civil Rights Act of 1991; the National Labor Relations Act of 1935, as
amended; the Fair Labor Standards Act of 1938, as amended; the Occupational
Safety and Health Act of 1970, as amended; the Equal Pay Act of 1963, as
amended; the Age Discrimination in Employment Act of 1967, as amended; the
Americans with Disabilities Act of 1990; the Family Medical Leave Act of 1993;
the Immigration Reform and Control Act of 1986 (together with the regulations
promulgated thereunder, hereinafter collectively referred to as "IRCA"); the
Worker Adjustment and Retraining Notification Act; the Employee Polygraph
Protection Act; the Drug-Free Workplace Act of 1988; the Health Insurance
Portability and Accountability Act of 1996; the Code; the regulations
promulgated under each such act; and any and all other federal, state and local
laws, regulations and requirements of any nature applicable to the Corporation.
The Corporation further represents that it is not in arrears in the payment of
wages to any employee (except to the extent of its normal payroll practices),
and there are no claims, liabilities, demands or causes of action, realized or
unrealized, actual, potential or contingent, pursuant to statutory rights or in
tort, contract or otherwise, against the Corporation arising out of or in
connection with any event, fact, circumstance or occasion relating to any
applicant for employment, the employment of any employee or the separation from
employment of any employee.
2.21. Licenses. The Corporation and its employees and agents have
all licenses, permits, orders, approvals and authorizations necessary for the
conduct of its business as presently conducted. The Corporation and its
employees and agents have all licenses, permits, orders, approvals and
authorizations necessary for the operation of the real and personal property
presently leased to, owned or operated by the Corporation. None of the permits
issued to the Corporation will be adversely affected by the consummation of the
transactions contemplated by this Agreement. No suspension or cancellation of
any such licenses, permits, orders, approvals or authorizations is pending or,
to the best of the Corporation's and/or the Shareholder's
18
<PAGE>
knowledge, threatened.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Each of the contracts to which the Corporation is a
party (the "Contracts") (i) is valid and enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity; (ii) no Default (as
defined below) exists under any Contract either by the Corporation or by any
other party thereto; (iii) neither the Corporation nor the Shareholder is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Corporation nor the Shareholder is aware
of any present intention on the part of any significant customer or supplier or
other business partner of the Corporation to either (x) terminate or
significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
For purposes of this Agreement, the term "Default" means, with respect to any
Contract, (x) any material breach of, or material default under, such Contract,
(y) any event, other than the normal passage of time, which would (either with
or without notice or lapse of time or both) give rise to any right of
termination, cancellation or acceleration of, or any obligation to repay, with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
Copies of all written contracts, and a description of all oral contracts,
to which the Corporation is a party, are attached hereto as Exhibit M.
2.24. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Company by or on behalf of the Corporation and/or the Shareholder in connection
with this Agreement, the Related Agreements or the transactions contemplated
hereby or thereby contains or will contain any untrue statement
19
<PAGE>
of a material fact or omits or will omit to state a material fact necessary to
make the statement contained herein or therein, in light of the circumstances
under which they were made, not misleading.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder and
Certain Employees of the Corporation. Each of the Shareholder and the certain
employees of the Corporation noted on Exhibit A attached hereto shall have at
the Closing in Escrow entered into agreements, the form of which is attached to
this Agreement as Exhibit A.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on March 21,
1997. The Shareholder and the Corporation both acknowledge and agree that the
Company shall have the right to disclose certain information concerning the
Corporation to third parties (which third parties will in turn be bound by an
agreement similar to the Confidentiality Agreement), for such general corporate
purposes as includes but is not limited to obtaining financing and/or
underwriting, and for general marketing purposes.
4. Representations and Warranties of the Company
The Company represents and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and each of the
Related Agreements to which it is a party and to perform fully its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each
of the Related Agreements to which it is a party and the
20
<PAGE>
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary action on the part of the Company. This Agreement
and each of the Related Agreements to which it is a party have been duly
executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and each of the Related Agreements to
which it is a party and the consummation of the transactions contemplated hereby
and thereby by the Company, will not (a) conflict with or violate any provision
of the Certificate of Incorporation or By-laws of the Company, (b) except as set
forth on Exhibit D, require any consent, waiver, approval, authorization or
permission of, or filing with or notification to, any third party, (c) result in
or constitute a default, or require any consent or approval of or notice to any
person or entity under or pursuant to any of the contracts to which the Company
is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or the Related Agreements
21
<PAGE>
or any action taken or to be taken by the Company in connection with the
consummation of the transactions contemplated hereby or thereby or which seeks
to prohibit, enjoin or otherwise challenge any of the transactions contemplated
hereby or thereby. Exhibit E sets forth an accurate and complete list, and a
brief description (setting forth the names of the parties involved, the court or
other governmental or mediating entity involved, the relief sought and the
substantive allegations and the status thereof), of each Legal Proceeding
pending or, to the knowledge of the Company, threatened against or affecting the
Company. To the knowledge of the Company, no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Legal Proceeding, other
than those listed on Exhibit E. Except as set forth in Exhibit E, there is no
outstanding or, to the knowledge of the Company, threatened, judgment,
injunction, order or consent or similar decree or agreement (including, without
limitation, any consent or similar decree or agreement with any governmental
entity) against, affecting or naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any Related Agreement or any information supplied to the
Shareholder by or on behalf of the Company in connection with this Agreement,
the Related Agreements or the transactions contemplated hereby or thereby
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 statement contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation, jointly and
severally, covenant and agree that (except as expressly contemplated or
permitted by this Agreement, or to the extent that the Company shall otherwise
consent in writing):
22
<PAGE>
5.1. Conduct of the Business Pending the Closing Date. The
Corporation shall:
(a) conduct its business only in the ordinary course,
consistent with past practice;
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its Articles of Incorporation or By-laws;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock;
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties;
(i) maintain its present fire and extended coverage insurance
or equivalent coverage on all of its assets and on all real and personal
property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets,
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement or the Related Agreements
untrue or incorrect in any material respect.
23
<PAGE>
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder and the Corporation
agree that, prior to the Closing Date, the Company shall be entitled (at its
sole expense), through its officers, employees and representatives (including,
without limitation, its legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of the Corporation and examination of its books and records as the
Company may reasonably request, and to make extracts and copies of such books
and records. Any such investigation and examination shall be conducted during
regular business hours and under reasonable circumstances, and the Shareholder
and the Corporation shall cooperate fully therein. In order that the Company may
have full opportunity to make such physical, business, accounting and legal
review, examination or investigation as it may reasonably request of the affairs
of the Corporation, the Corporation and the Shareholder shall use their
respective best efforts to cause the Corporation's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Company representatives in connection with such review
and examination.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Corporation as are necessary for consummation of the
transactions contemplated by this Agreement and the Related Agreements, and
(iii) fulfill all conditions precedent applicable to such party pursuant to this
Agreement and the Related Agreements. In case at any time after the
24
<PAGE>
Closing Date any further action is necessary or desirable to carry out the
purposes of this Agreement or the Related Agreements, each party hereto shall
use their respective best efforts to take or cause to be taken all such
necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall give prompt notice to the Company of (a) any notice of, or
other communication relating to, a default under any contract material to the
financial condition, properties, business operations, or results of operations
of the Corporation to which it is a party or is subject, (b) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement or any of the Related Agreements, or (c) any material adverse change
in the properties, business operations, results of operations, financial
condition or prospects of the Corporation, other than changes resulting from
general economic conditions. In addition, the Corporation and the Shareholder
shall be required to update the schedules and other information supplied
pursuant to this Agreement at such time as the information contained therein
changes in any material respect.
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation has at least $12,551.00 working capital (defined as
the excess of current (liquid) assets over current liabilities) as of the
Closing Date. For purposes of determining whether the Corporation had the
required working capital as of the Closing Date, the Company will cause to be
prepared, promptly following the Closing, a balance sheet (the "Closing Balance
Sheet") of the Corporation as of the Closing Date. The Closing Balance Sheet
shall be prepared in accordance with GAAP, and shall include full accrual of all
assets and liabilities of the Corporation as of the Closing Date (including, but
not limited to, accrued tax liabilities as if the tax year ended on the Closing
Date). In the event that the Corporation has less than the prescribed $12,551.00
working capital as of the Closing Date, as determined by the Closing Balance
Sheet, the Shareholder shall forthwith pay the Company an amount equal to the
difference between the actual working capital as of the Closing Date and
$12,551.00 working capital (the "Shortfall"). If the Shareholder does not pay
the Shortfall to the Company within five (5) days after demand, then, in
addition to all other remedies which the Company may have, the Company may
deduct the amount of the Shortfall from any of the obligations of the
25
<PAGE>
Company to the Shareholder (including, but not limited to, the Earn-Out to which
the Shareholder may be entitled thereafter).
In the event that the Shareholder shall notify the Company in writing
within five days after demand is made by the Company for payment of the
Shortfall of their decision to dispute the amount of the Shortfall, the Company
shall forthwith instruct Price Waterhouse LLP to audit the Closing Balance Sheet
of the Corporation, and to calculate the working capital therein in accordance
with GAAP. Price Waterhouse LLP shall then determine the amount of the Shortfall
as set out in this paragraph 6.5, whose decision shall be final and binding on
the parties hereto. The Shareholder shall forthwith pay to the Company the
amount of such Shortfall, together with fifty percent (50%) of the cost of the
audit conducted by Price Waterhouse LLP. In the event Price Waterhouse LLP
determines the Shortfall to have been zero, the entire cost of such audit shall
be borne by the Company.
In the event that the Corporation has more than the prescribed $12,551.00
working capital as of the Closing Date, as determined by the Closing Balance
Sheet, the Company shall forthwith pay the Shareholder an amount equal to the
difference between the actual working capital as of the Closing Date and
$12,551.00 working capital.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing in Escrow Date and the Closing Date of the
following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their best efforts to have any such order, injunction, legal restraint or
26
<PAGE>
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions (which are for the
exclusive benefit of the Company, any or all of which may be waived in whole or
in part by the Company):
(a) Representations and Warranties. The representations and
warranties of the Corporation and the Shareholder set forth in this Agreement
(without regard to any supplements or updates thereto) shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively, and the Company shall have received a
certificate from the Shareholder and the Corporation (signed by the Shareholder
and a senior executive officer of the Corporation) certifying to such effect.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business.
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
(e) Related Agreements. Each of the Related Agreements to
which the
27
<PAGE>
Shareholder is a party shall have been duly executed and delivered by such
party. In addition, the Related Agreements shall have been entered into by the
respective parties thereto.
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
(c) Related Agreements. Each of the Related Agreements shall
have been duly executed and delivered by the parties thereto.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the closing
of the Initial Public Offering does not occur by March 31, 1998;
(c) by the Company in the event that the Anti-Dilution Rights
set forth in Section 10(a) of the Plan and Agreement of Merger of Dispatch
Management Services LLC, Kiwi Express Software, L.L.C., and Dispatch Management
Services Corp., dated as of September 8, 1997, are not preserved; or
(d) by the Company in the event that the Shareholder does not
timely
28
<PAGE>
deliver a shareholder representation letter satisfactory to the Company.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
the obligation of the Shareholder to refund to the Company the audit expenses as
set forth in Section 1.3 of this Agreement; (ii) for any and all obligations
under the confidentiality provisions contained in Section 3.2 of this Agreement;
and (iii) to the extent that such termination results from the willful breach by
a party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement. In the event that
termination results from the willful breach by a party hereto of any of its
representations or warranties, or of any of its covenants or agreements, as set
forth in this Agreement, the breaching party shall be liable to the
non-breaching party for all direct damages (but not indirect or consequential
damages) incurred as a result of such willful breach.
9. Indemnification.
9.1. Indemnification.
(a) Indemnification by the Corporation and the Shareholder.
The Corporation and the Shareholder each hereby agree to jointly and severally
indemnify, defend and hold harmless the Company and its respective officers,
directors, employees and agents (collectively, the "Indemnitee") from and
against and in respect of any and all Losses (as defined below) to the extent
resulting from, arising out of, relating to, imposed upon or incurred by the
Indemnitee by reason of: (i) the conduct of business by the Corporation prior to
the Closing Date (but only to the extent that the amount of such Loss was not a
stated liability on the Corporation's most recently dated balance sheet
delivered to the Company); and (ii) any inaccuracy in or breach of any of the
Corporation's or the Shareholder's representations, warranties, covenants or
agreements contained in this Agreement, the Related Agreements or in any other
agreement or document entered into or delivered on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Corporation and
the Shareholder under this Section 9.1.(a) shall include
29
<PAGE>
direct damages only (and not indirect or consequential damages). For purposes of
this Agreement, the term "Losses" means any and all deficiencies, judgments,
settlements, demands, claims, actions or causes of action, assessments,
liabilities, losses, damages (whether direct, indirect or consequential),
interest, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in connection
with investigating, defending, settling or satisfying any and all demands,
claims actions, causes of action, suits, proceedings, assessments, judgments or
appeals, and in seeking indemnification therefor).
(b) Indemnification by the Company. The Company hereby agrees
to indemnify, defend and hold harmless the Shareholder from and against and in
respect of any and all Losses resulting from, arising out of, relating to,
imposed upon or incurred by the Shareholder by reason of any inaccuracy in or
breach of any of the Company's representations, warranties, covenants or
agreements contained in this Agreement or in any other agreement or document
entered into or delivered by the Company on or after the date hereof in
connection with this Agreement or any of the transactions contemplated hereby
and/or thereby. Provided, however, the indemnification by the Company under this
Section 9.1.(b) shall include direct damages only (and not indirect or
consequential damages) and shall be limited in the aggregate to the Purchase
Price.
9.2. Notice. If any claims in respect of Losses shall be asserted
against any party hereto or any of their respective successors in respect of
which such entity proposes to demand indemnification from any of the other
parties hereto under Section 9.1 hereof, the party seeking such indemnification
shall notify the other such parties in a reasonably prompt manner; provided that
failure to give such reasonably prompt notice shall not release, waive or
otherwise affect any party's obligations with respect thereto except to the
extent such party can demonstrate it was actually and materially prejudiced as a
result thereof.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing.
10.2. Notices. Any notice or communication required or permitted
hereunder
30
<PAGE>
shall be in writing and either delivered personally or telecopied or sent by
overnight courier, or by certified or registered mail, postage prepaid, and
shall be deemed to be given, dated and received when so delivered personally or
by courier or telecopied, or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such Person may subsequently designate by written notice given
hereunder:
(a) if to Company, to:
Dispatch Management Services Corp.
65 West 36th Street
Suite 300
New York, NY 10018
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
Frank L. Mullins
10604 Springmann Drive
Fairfax, VA 22030
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
(together with the Related Agreements and any other documents and instruments
referred to herein) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereto and is not intended to confer upon any
Person other than the parties hereto any rights or remedies
31
<PAGE>
hereunder. Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto with respect to any
of the terms contained herein, and each party hereto agrees to be bound by any
such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of New York, without giving effect to
the principles of conflicts of law thereof.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise. Without limiting the
foregoing, the Corporation and the Shareholder acknowledge that the failure to
comply with any of the provisions of Sections 3.1, 3.2. and 6.2 hereof will
result in irreparable harm for which there is no adequate remedy at law and that
the Company and/or the Corporation shall be entitled, without the necessity of
proving actual damages, to injunctive relief in addition to damages and all
other remedies which may otherwise be available to the Company and/or the
Corporation.
32
<PAGE>
10.9. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
10.10. Arbitration. Other than the Company's right to institute
legal action for a breach of the confidentiality, non-competition and
non-solicitation covenants set forth in Sections 3.1, 3.2 and 6.2 hereinabove,
any issue, controversy, dispute or claim arising out of or relating to this
Agreement or its alleged breach that cannot be resolved by mutual agreement
shall be resolved exclusively by arbitration by a single arbitrator in either
the District of Columbia or New York City, at the option of the Company, in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") and judgment on the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. It is acknowledged by the
Corporation and the Shareholder that money damages are inadequate to compensate
the Company and/or the Corporation for a breach of the terms of this Agreement,
and that the Company and/or the Corporation shall be entitled to specific
performance of the terms of this Agreement. The arbitrator may enter a default
decision against any party who fails to participate in the proceeding. The
decision of the arbitrator shall be final, conclusive, binding and
non-appealable. The losing party shall pay all costs and expenses of
arbitration.
The arbitrator shall be selected by consent of the parties, if possible.
If the parties fail to reach agreement upon appointment of the arbitrator within
ten days after a demand for arbitration is made, the arbitrator shall be
selected from a list of proposed arbitrators submitted by AAA. The selection
process shall be that which is set forth in the AAA commercial arbitration rules
then prevailing, except that (1) the number of preemptory strikes shall not be
limited, and (2) if the parties fail to select the arbitrator from three lists,
AAA shall have the power to make an appointment. If an arbitrator should die,
withdraw, or otherwise become incapable of serving, a replacement shall be
selected and appointed in a like manner.
10.11 Disclosure to Third Parties. The Company shall have the right
to disclose to third parties, in whatever manner the Company may determine, the
fact that this Agreement
33
<PAGE>
has been executed, the names of the parties to this Agreement and the terms
hereof.
34
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
--------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
AFS COURIER SYSTEMS, INC.
By: /s/ Frank L. Mullins
- - - - -------------------------------- --------------------------------
Name: Frank L. Mullins
Title: President
Witness: "SHAREHOLDER"
/s/ Frank L. Mullins
- - - - -------------------------------- --------------------------------------
Frank L. Mullins
35
SHARE PURCHASE AGREEMENT
by and among
ALICE REBECCA CLARK; ROY CLARK; TRUSTEES OF THE ROY CLARK (LIFE INTEREST)
SETTLEMENT 1997; TRUSTEES OF THE ALICE REBECCA CLARK (DISCRETIONARY) SETTLEMENT
1997; MATTHEW CLARK; SIMON CLARK;
BROOKSIDE SYSTEMS AND PROGRAMMING LIMITED
and
DISPATCH MANAGEMENT SERVICES LLC
Sale of all of the Outstanding Stock of
Brookside Systems and Programming Limited t/a Fleetway Systems
20 August 1997
<PAGE>
Table of Contents
Article and Section Page
- - - - ------------------- ----
1. DEFINITIONS 1
1.01 Definitions 1
2. SALE AND PURCHASE OF SHARES 4
3. CLOSING; PAYMENTS 5
3.01 The Closing and the Closing Date 5
30.2 Loan 5
3.03 Payment of Purchase Price 5
3.04 Payment of Costs 5
3.05 Deliveries at the Closing 5
3.06 Additional Actions at Closing 6
4. TERMINATION 6
4.01 Termination 6
4.02 Effect of Termination 7
5. ADDITIONAL UNDERTAKINGS PRIOR TO CLOSING 7
5.01 Business in Ordinary Course 7
5.02 Delivery of Monthly Financial Statements and 9
Supplemental Disclosure Schedules
5.03 Breaches 10
5.04 Consummation of Agreement 10
5.05 Access to Information 10
5.06 Non-solicitation Pending Closing 11
5.07 Additional Agreements 11
5.08 Notification of Certain Matters 11
5.09 Initial Public Offering Documents 11
ii
<PAGE>
Article and Section Page
- - - - ------------------- ----
6. CONDITIONS PRECEDENT TO CLOSING 12
6.01 Conditions to Obligations of All Parties 12
6.02 Conditions to Obligations of Buyer 12
6.03 Conditions to Obligations of Seller 13
7. REPRESENTATIONS AND WARRANTIES OF SELLERS 13
AND THE COMPANY
7.01 Company Organization; Qualification and Shares 13
7.02 Seller Power and Authority; 15
Ownership
7.03 Subsidiaries 16
7.04 Financial Information 16
7.05 Absence of Material Changes 16
7.06 Licenses 17
7.07 Tax Matters 17
7.08 Compliance with Laws 18
7.09 Litigation 19
7.10 Properties; Contracts; Leases and Other 19
Agreements
7.11 Employee Matters; Benefit Plans 21
7.12 Title to and Condition of Properties; 22
Intellectual Property
7.13 Insurance 24
7.14 Environmental Matters 24
7.15 No Undisclosed Liabilities or Obligations 24
7.16 Product Warranties 25
7.17 Distributions 25
7.18 Related Party Transactions 25
7.19 Investment Purpose 25
7.20 Statements and Disclosures True and Correct 25
8. REPRESENTATIONS AND WARRANTIES OF BUYER 25
8.01 Organization 25
8.02 Authorization; No Violations of Laws or Agreements 25
8.03 Investment Purposes Only 26
iii
<PAGE>
Article and Section Page
- - - - ------------------- ----
9. ADDITIONAL UNDERTAKINGS SUBSEQUENT TO CLOSING 26
9.01 Assistance of Sellers 26
9.02 Tax Returns 26
10. INDEMNIFICATION 26
10.01 Seller's Indemnity 26
10.02 Limitation on Sellers' and Company's Liability 27
10.03 Other Limitations 28
10.04 Notice to Sellers; Access; Defense 30
11. RESTRICTIVE COVENANTS 30
11.01 Covenant Not to Compete 30
11.02 Non-Disclosure 31
11.03 Non-Solicitation 32
11.04 Injunctive Relief 32
11.05 Extension of Restrictive Period 33
11.06 Judicial Reformation 33
12. MISCELLANEOUS 33
12.01 Entire Agreement; No Third Party 33
Beneficiaries; Modification
12.02 Governing Law 33
12.03 Severability 34
12.04 Binding Agreement 34
12.05 Specific Performance 34
12.06 Fees and Expenses 34
12.07 Publicity 34
12.08 Sellers' Consents 35
12.09 Notices 35
12.10 Survival 35
12.11 Waivers 35
12.12 Risk of Loss 35
12.13 Interpretation 36
12.14 Assignment 36
12.15 Counterparts 36
iv
<PAGE>
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT ("Agreement"), is made as of the 20th day of
August, 1997, by and among ALICE REBECCA CLARK, ROY CLARK, MATTHEW CLARK and
SIMON CLARK, adult individuals, TRUSTEES OF THE ROY CLARK (LIFE INTEREST)
SETTLEMENT 1997, and TRUSTEES OF THE ALICE REBECCA CLARK (DISCRETIONARY)
SETTLEMENT 1997 (individually a "Seller" and collectively, "Sellers"); BROOKSIDE
SYSTEMS AND PROGRAMMING LIMITED, t/a Fleetway Systems, a limited company formed
under the laws of England and Wales (the "Company"), and DISPATCH MANAGEMENT
SERVICES LLC, a limited liability company formed under the laws of the State of
Nevada, United States of America ("Buyer").
Background
Buyer is in the business of providing time critical, on-demand,
point-to-point delivery services. The Company is in the business of developing
and marketing software to the courier industry. Sellers collectively own all of
the outstanding shares of the Company. Buyer and Sellers have agreed that Buyer
shall purchase all of the outstanding ordinary shares of the Company from
Sellers on the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
1. Definitions.
1.01 Definitions. The following terms shall have the meanings set
forth below when capitalized herein:
(a) "Affiliate" shall mean, as to any Person, any other Person
controlled by, under the control of, or under common control with, such Person.
As used in this definition, "control" shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise), provided that, in any event, any Person
which owns or holds directly or indirectly 5% or more of the voting securities
or 5% or more of the partnership or other equity interests of any other Person
will be deemed to control such other Person.
(b) "Benefit Plans" shall mean any profit sharing, group insurance,
medical and/or hospitalization, stock option, pension, retirement, bonus,
deferred compensation, stock bonus or stock purchase plan, or collective
bargaining agreements, contracts or other arrangements under which pensions,
deferred compensation or other retirement benefits are being paid or may become
payable by the Company, or any other employee welfare or benefit agreements,
plans or arrangements, or any employee benefit plans or deferred compensation,
bonus, stock or incentive plans, or other employee benefit or fringe benefit
programs, established for the benefit of the Company's former or current
officers, directors or employees, including each trust or other agreement with
any custodian or any trustee for funds held under any such agreement, plan or
agreement.
1
<PAGE>
(c) "Books and Records" shall mean all books and records of the
Company for the period prior to the Closing Date, including customer lists,
reports, plans, projections and advertising and marketing materials and
financial and accounting books and records;
(d) "Business Day" shall mean any day other than a Saturday, Sunday or
a statutory or public holiday in England and Wales or the United State of
America.
(e) "Buyer Operating Agreement" means the Dispatch Management Services
LLC Operating Agreement dated December 1, 1996 and the attachments thereto.
(f) "Closing" shall mean the transfer by Sellers to Buyer of the
Shares in exchange for the Purchase Price pursuant to Article 3.
(g) "Closing Date" shall mean the date on which the Closing is
completed.
(h) "Company" shall mean Brookside Systems and Planning Limited, a
company incorporated in England and Wales (registered number 1484511) whose
registered office is at c/o Brewer Clark & Partners, 19 High Street, Marlow,
Buckinghamshire, England SL71AU.
(i) "Company Confidential Information" shall mean all documentation,
know-how and information relating to the Company's past, present and future
business which is unique to the Company, and including without limitation (i)
proprietary computer software, (ii) business methods, (iii) practices, (iv)
marketing strategies and plans, (v) financial information, (vi) projections
(vii) operations manuals, (viii) bulletins, (ix) directories, (x) memoranda,
(xi) production processes, (xii) devices, (xiii) techniques, (xiv) data bases,
(xv) tables, (xvi) calculations, (xvii) letters, (xviii) internal specifications
and testing procedures, (xix) price and fee lists, pricing methodologies and
bidding procedures, (xx) suppliers and customers, including customer lists, and
materials relating to the Company's relationship with its suppliers and
customers, (xxi) information provided to the Company by its customers; (xxii)
billing and collection practices and procedures and (xxiii) any other
confidential information which is not generally known to the public, which if
misused or disclosed, could have a reasonable possibility of adversely affecting
the Company's business.
(j) "Disclosure Documents" shall mean all agreements and documents
referred to in any of the Disclosure Schedules, together with all other
agreements and documents disclosed by Sellers or the Company to Buyer during
Buyer's due diligence investigation conducted prior to the Closing Date.
(k) "Disclosure Schedules" shall mean the Disclosure Schedules
attached to this Agreement, as supplemented as provided herein.
(l) "Encumbrance" shall mean a mortgage, charge, pledge, lien, option,
restriction, right of first refusal, right of preemption, third party right or
interest other encumbrance or security interest of any kind or similar right or
any other matter affecting title.
(m) "Environmental Laws" shall mean all environmental, health and
safety laws and regulations in all jurisdictions in which the Company has done
business or owned, leased or operated property.
2
<PAGE>
(n) "Financial Statements" shall mean (i) the Company's audited
balance sheets made up as of 31st March 1997 and the audited profit and loss
account of the Company in respect of the financial year of the Company ending on
31st March 1997, including, in each case, the notes thereto and the Directors'
Report and Auditor's Report, and (ii) the Company's unaudited balance sheet and
profit and loss account as of 31st July 1997 and for the four (4) months then
ended.
(o) "GAAP" shall mean, at any particular time, generally accepted
accounting principles in the United Kingdom consistently applied on a going
concern basis, using consistent audit scope and materiality standards and, with
respect to interim financial statements, subject to normal year-end adjustments.
(p) "Initial Public Offering" shall mean an offering of equity
securities of the Resulting Entity following the Reorganization Event, which
offering is made pursuant to an effective registration statement under the
Securities Act of 1933 of the United States of America.
(q) "Intellectual Property" shall mean (i) any patent, copyright,
trademark, registered design, trade name, service mark, service name, brand
mark, brand name, logo, corporate name, Internet domain name or industrial
design, any registrations thereof and pending applications therefor (to the
extent applicable), (ii) any other intellectual property right (including,
without limitation, any know-how, trade secret, trade right, formula,
conditional or proprietary report or information, customer or membership list,
any marketing data, and any computer program, software, database or data right),
(iii) any rights under licenses, consents, orders, statutes or otherwise
(including without limitation license(s) to use specific telephone numbers)
relating to any of the foregoing, owned or used by the Company, and any goodwill
associated with any of the foregoing. Intellectual Property shall include
without limitation those items set forth on Disclosure Schedule 7.12(c).
(r) "Monthly Financial Statements" shall mean the Company's unaudited
profit and loss account as of and for the period ending with the end of each
calendar month, commencing April, 1997.
(s) "Person" shall mean an individual, corporation, partnership,
limited company, joint venture, trust or unincorporated organization, joint
stock company or other similar organization, government or any political
subdivision thereof, or any other legal entity.
(t) "Proprietary Information" shall mean, with respect to Buyer and
its Affiliates, all information with respect to such Person disclosed or
provided in connection with the transactions contemplated hereby or (in the
context of Sellers' obligations under Section 11.02(b) hereof) otherwise known
to Sellers, which is not generally known to the public or to competitors of
Buyer and its Affiliates.
(u) "Purchase Price" shall mean the sum of (pounds)1,800,000.
(v) "Receivables" shall mean the accounts receivable of the Company as
of the close of business on the Business Day prior to the Closing Date.
(w) "Related Agreements" shall mean (i) employment agreements to be
3
<PAGE>
entered into between the Company and the Sellers and certain of the Company's
employees, as described in Section 3.06 below, (ii) the waivers of rights
described in Section 3.06 below, (iii) the Standstill Agreements, and (iv) all
other agreements called for by the terms hereof.
(x) "Reorganization Event" shall have the meaning ascribed to it in
the Buyer Operating Agreement.
(y) "Reserves" shall mean those reserves for bad debts, self-insured
risks, risk management and unspecified uninsured liabilities, established and
maintained by the Company and reflected in the Financial Statements and the
Monthly Financial Statements.
(z) "Resulting Entity" shall mean the corporation formed as the
successor to Buyer pursuant to the Reorganization Event.
(aa) "Securities" shall mean equity securities of the Resulting Entity
of the same class as the securities sold in the Initial Public Offering, which
equity securities shall be registered under the Securities Act of 1933 and shall
be the class of equity securities of the Resulting Company traded
over-the-counter, in a recognized securities exchange or on NASDAQ.
(ab) "Shares" shall mean all of the outstanding Capital Ordinary
Shares of (pounds)1 each of the Company described in Section 7.01(d) and on
Disclosure Schedule 7.01(d).
(ac) "Standstill Agreements" shall mean the agreements to be entered
into between each Seller and the Resulting Entity, in form substantially
identical to the agreements between the Resulting Entity and other holders of
Securities, pursuant to which each Seller agrees not to sell (except under
specific circumstances set forth therein) the Securities held by such Seller for
a period of two years.
(ad) "Subscription" shall mean the subscription by Buyer in cash for
200,000 Subscription Shares at a subscription price of (pounds)1 per share.
(ae) "Subscription Shares" shall mean Deferred Shares of 1p each in
the capital of the Company, having the rights set forth in the Articles of
Association of the Company (a copy of which is attached hereto as Exhibit
1.01(ae).
(af) "Taxes Act" shall mean the Income and Corporations Taxes Act 1988
(ag) "VATA" shall mean, in the United Kingdom, the Value Added Tax Act
1994 and, in a jurisdiction outside of the United Kingdom, any equivalent
legislation.
2. SALE AND PURCHASE OF SHARES. Subject to the terms and conditions of this
Agreement, at the Closing, Seller shall sell, assign and transfer to Buyer, and
Buyer will purchase from Seller, the Shares, free and clear of all liens, claims
and other encumbrances, in exchange for payment of the Purchase Price as
provided herein.
4
<PAGE>
3. CLOSING; PAYMENTS.
3.01 The Closing and the Closing Date. Subject to the termination
provisions below, the Closing shall take place at the offices of Bretherton
Price Elgood, 11 Guilford Street, London, England WC1N 1DT on such date as the
parties may agree but in default of agreement thirty (30) days following closing
by the Resulting Entity on the Initial Public Offering, provided that if that
date is not a Business Day, Closing shall take place on the next Business Day.
3.02 Subscription. Upon execution of this Agreement, Buyer shall make
the Subscription in cash and the Company shall issue the Subscription Shares to
Buyer.
3.03 Payment of Purchase Price. The Purchase shall be paid to Sellers,
pro rata based on the number of Shares sold by each Seller: (i) (pounds)540,000
in immediately available funds at Closing, and (ii) the remainder by delivery to
Sellers of Securities having a Sterling value of (pounds) 1,260,000, based upon
the bona fide offering price to the public in the Initial Public Offering and a
conversion rate between US Dollars and (pounds)Sterling equal to the average of
the mid-market exchange rate between the (pounds)Sterling and the US Dollar for
each Business Day in the period commencing on the closing date on the Initial
Public Offering and ending on the Business Day three (3) Business Days prior to
the Closing Date. Prior to Closing, Sellers shall notify Buyer in writing as to
the amounts of cash and Securities to be distributed to each Seller.
3.04 Payment of Costs. Sellers and Buyer shall be responsible for
their respective fees, costs and expenses, legal or otherwise, incurred with
respect to the sale of the Shares and other transactions described herein.
3.05 Deliveries at the Closing.
(a) In addition to the Purchase Price, Buyer shall deliver to
Sellers at the Closing evidence reasonably satisfactory to Sellers of Buyer's
performance of its pre-Closing obligations hereunder.
(b) At the Closing, Sellers shall deliver to Buyer:
(i) Certificates evidencing the Shares, together with the
relative share certificates;
(ii) the written resignations of all officers and directors
of the Company other than Alice Rebecca Clark and Roy Clark,
effective as of a date no later than the Closing Date;
(iii) the Company's certificate of incorporation and
articles of association, each certified by the Company's
Secretary as of the Closing Date, together with the common
seal (if any) of the Company and each register, minute book
and other book required to be kept by the Company under the
Companies Act 1985 made up to the day before Closing;
(v) A copy of resolutions of the directors of the Company,
5
<PAGE>
approving the execution of this Agreement and consummation
of the transactions contemplated hereby, certified by the
Company's Secretary as of the Closing Date;
(vi) the opinion of Sellers' counsel, in form satisfactory
to Buyer;
(vii) the Books and Records;
(viii) the Related Agreements, executed by the parties
thereto;
(ix) all other documents required under this Agreement; and
(x) evidence reasonably satisfactory to Buyer of Sellers'
and the Company's performance of their respective
pre-Closing obligations hereunder.
(c) The parties shall execute such additional documents, make
such additional deliveries and pay such additional amounts as shall be necessary
and appropriate to consummate the transactions described herein.
3.06 Additional Actions at Closing. (a) Each Seller shall, at the
Closing, enter into an employment agreement with the Company in substantially
the form of Exhibit 3.06 hereto, and shall execute and deliver at Closing
assignments of all rights to the Intellectual Property in form satisfactory to
the Company.
(b) Each Seller shall use his or her best efforts to ensure that,
at Closing, the Company's directors hold a meeting of the board of directors of
the Company at which the directors (i) vote in favor of the registration of
Buyer or its nominee as a member of the Company in respect of the Shares
(subject to the production of properly stamped transfers); (ii) appoint Persons
nominated by Buyer as directors of the Company, effective immediately; (iii)
approve and authorise the Company's execution and delivery of the Related
Agreements to which it is a party; (iv) and authorise that, subject to the
receipt of duly stamped transfers, Buyer or its nominee shall be entered in the
register of members of the Company as the holder of the entire issued share
capital of the Company.
(c) Each employee of the Company who has not previously assigned
to the Company all rights to Intellectual Property shall, at or prior to
Closing, execute and deliver to the Company an assignment of all rights to
Intellectual Property.
4. TERMINATION.
4.01 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of Buyer, Sellers and the Company
(b) by (i) either (A) Buyer, if there has been material breach of
any representation, warranty, covenant or agreement on the part of Sellers or
the Company, which
6
<PAGE>
breach has not been cured following receipt by Sellers or the Company of notice
of such breach, or (B) Sellers and the Company, if there has been a material
breach of any representation, warranty, covenant or agreement on the part of
Buyer, which breach has not been cured following receipt by Buyer of notice of
such breach, or (ii) either Buyer or Sellers, if any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the transactions contemplated by this Agreement shall have become final and
non-applicable;
(c) By Buyer in its sole discretion immediately upon written
notice to Sellers if Buyer reasonably determines on the basis of its
investigation of the Company and its business, or the contents of any document
provided to Buyer, that any representation or warranty of Sellers or the Company
set forth herein is untrue, and that as a result there has been or is likely to
be a materially adverse consequence having regard to the business and finances
of the Company; or
(d) by either Buyer or Sellers if Closing has not occurred as of
April 30, 1998 other than as a result of the failure of the party seeking to
terminate to fulfill its obligations hereunder.
4.02 Effect of Termination. In the event of termination of this
Agreement as provided in Section 4.01, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of any party
hereto or any of its respective Affiliates, officers, directors or shareholders
except (i) for any and all obligations under the confidentiality provisions
contained in this Agreement, and (ii) to the extent that such termination
results from the willful breach by a party hereto of any of its representations
or warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non- breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach,
together with all reasonable costs of enforcing the provisions of this Section
4.02.
5. ADDITIONAL UNDERTAKINGS PRIOR TO CLOSING.
5.01 Business in Ordinary Course. From the date of execution of this
Agreement through the Closing Date or earlier termination of this Agreement, and
except as expressly authorized herein:
(a) The Company shall not declare or pay any dividend or make any
other distribution to shareholders, whether in cash, shares or other property.
(b) Except for the application by the Company of the proceeds of
the Subscription (which shall be applied by the Company as it in its entire
discretion shall determine), the Company shall continue to carry on the
Company's business, and discharge or incur obligations and liabilities, only in
the usual, regular and ordinary course of business, as heretofore conducted;
and, by way of amplification and not limitation, the Company will not, without
the prior written
7
<PAGE>
consent of Buyer (which consent shall not be unreasonably withheld):
(1) issue any of its capital shares or any options, warrants
or other rights to subscribe for or purchase such capital shares or any
securities convertible into or exchangeable for any such capital shares;
(2) directly redeem, purchase or otherwise acquire any of
its common or other capital shares;
(3) effect a reclassification, recapitalization, split-up,
exchange of shares, readjustment or other similar change in or to any capital
shares or otherwise reorganize or recapitalize;
(4) grant any increase (other than ordinary and normal
increases consistent with past practices) in the compensation payable or to
become payable to officers or salaried employees, grant any stock options or,
except as required by law, adopt or make any change in any bonus, insurance,
pension or other Benefit Plan, agreement, payment or arrangement made to, for or
with any of such officers or employees;
(5) borrow or agree to borrow any amount of funds except in
the ordinary course of business, or directly or indirectly guarantee or agree to
guarantee obligations of others;
(6) enter into any agreement, contract or commitment having
a term in excess of three (3) months, except in the ordinary course of business;
(7) place on any of its assets or properties any mortgage,
pledge, charge or other encumbrance, except as otherwise authorized hereunder;
(8) cancel or accelerate any material indebtedness owing to
it or any claims which it may possess or waive any material rights of
substantial value;
(9) sell or otherwise dispose of any real property or any
material amount of any tangible or intangible personal property;
(10) commit any act or fail to do any act which will cause a
breach of an agreement, contract or commitment and which will have a material
adverse effect on the Company's business, financial condition or earnings;
(11) violate any law, statute, rule, governmental regulation
or order, which violation might have a material adverse effect on the Company's
business, financial condition or earnings;
(12) purchase any real or personal property or make any
other capital expenditure where the amount paid or committed thereof is in
excess of (pounds)5,000 per item or expenditure; or
(13) amend its certificate of incorporation or articles of
association or enter into any agreement to merge or consolidate with, or sell a
significant portion of its assets to, any other Person.
8
<PAGE>
(c) Sellers and the Company shall not, without the prior written
consent of Buyer, engage in any transaction or take any action that would render
untrue in any material respect any of the representations and warranties of
Sellers and the Company contained in this Agreement, as if such representations
and warranties were given as of the date of such transaction or action.
(d) Sellers and the Company shall promptly notify Buyer, in
writing, of the occurrence of any matter or event known to and directly
involving the Company that is materially adverse to the business, operations,
properties, assets or condition (financial or otherwise) of the Company.
(e) Neither Sellers nor the Company shall solicit or encourage,
or hold discussions or negotiations with or provide any information to, any
Person in connection with any proposal from any Person for the acquisition of
all or any portion of the business, Shares or other securities or a material
portion of the assets of the Company. Sellers and the Company shall promptly
advise Buyer of receipt of any such proposal or inquiry concerning any possible
such proposal, and the substance of such proposal or inquiry.
(f) No later than twenty (20) Business Days following the date
hereof, Sellers shall deliver to Buyer the Disclosure Schedules.
(g) Sellers shall provide to Buyer, not less than five (5) days
prior to the Closing, certified searches of applicable dockets and lien records
showing all Encumbrances affecting the Company or its assets, and any tax liens.
(h) Sellers shall provide to Buyer, not more than two (2)
Business Days prior to the Closing Date, wire instructions regarding the cash
portion of the Preliminary Base Purchase Price.
5.02 Delivery of Monthly Financial Statements and Supplemental
Disclosure Schedules. (a) Sellers shall cause the Company to prepare and deliver
the Monthly Financial Statements to Buyer within twenty-five (25) days following
the last day of each calendar month (commencing with 31st August 1997) ending
prior to the Closing Date.
(b) Sellers may deliver one or more supplements to the Disclosure
Schedules ("Supplemental Disclosure Schedules"), provided that no Supplemental
Disclosure Schedules may be delivered later than ten (10) days prior to the
Closing Date, and provided further that no representation or warranty of Sellers
and the Company shall be deemed modified by such Supplemental Disclosure
Schedules unless Buyer accepts such Supplemental Disclosure Schedules in
writing. Upon Closing, Buyer shall be deemed to have accepted all Supplemental
Disclosure Schedules provided to Buyer at least ten (10) days prior to the
Closing Date.
5.03 Breaches. Sellers and the Company shall, in the event any of them
has knowledge of the occurrence, or impending or threatened occurrence, of any
event or condition which would cause or constitute a breach (or would have
caused or constituted a breach had such event occurred or been known prior to
the date hereof) of any of their representations or agreements contained or
referred to herein, give prompt written notice thereof to Buyer, and use their
collective
9
<PAGE>
best efforts to prevent or promptly remedy the same.
5.04 Consummation of Agreement. Sellers and the Company shall perform
and fulfill all conditions and obligations on their part to be performed or
fulfilled under this Agreement and to effect the transaction in accordance with
the terms and provisions hereof. Sellers and the Company shall furnish to Buyer
in a timely manner all information, data and documents in the possession of
Sellers and the Company requested by Buyer as may be required to obtain any
necessary regulatory or other approvals of the transaction and shall otherwise
cooperate fully with Buyer to carry out the purpose and intent of this
Agreement.
5.05 Access to Information. (a) Sellers and the Company agree that,
prior to the Closing Date, Buyer shall be entitled (at its sole expense),
through its officers, employees and representatives (including, without
limitation, its legal advisors and accountants), to make such investigation of
the properties, businesses and operations and financial condition of the Company
and examination of its books and records as Buyer may reasonably request, and to
make extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and Sellers and the Company shall cooperate fully
therein. In order that Buyer may have full opportunity to make such physical,
business, accounting and legal review, examination or investigation as it may
reasonably request of the affairs of the Company, Sellers and the Company shall
use their respective best efforts to cause the Company's officers, employees,
consultants, agents, accountants, attorneys and other representatives to
cooperate fully with such Buyer representatives in connection with such review
and examination; provided always that the provisions of this Subsection shall
not require Sellers or the Company to disclose the identity or location of any
customer of the Company and Sellers shall be entitled to edit, extract or
withhold any document which necessarily or by implication identifies a customer.
(b) Buyer agrees that, prior to the Closing Date, Sellers shall
be entitled (at their sole expense), themselves or through their representatives
(including, without limitation, legal advisors and accountants), to make such
investigation of the properties, businesses and operations and financial
condition of Buyer and examination of its books and records as they may
reasonably request, and to make extracts and copies of such books and records.
Any such investigation and examination shall be conducted during regular
business hours and under reasonable circumstances, and Buyer shall cooperate
fully therein. In order that Sellers may have full opportunity to make such
physical, business, accounting and legal review, examination or investigation as
they may reasonably request of the affairs of Buyer, Buyer shall use its best
efforts to cause its officers, employees, consultants, agents, accountants,
attorneys and other representatives to cooperate fully with Sellers in
connection with such review and examination.
5.06 (a) Non-solicitation Pending Closing. After execution of this
Agreement, and through the later of the Closing Date or 30 April 1998, neither
Sellers nor the Company shall pursue, initiate, encourage or engage in any
negotiations or discussions with any third parties concerning the sale of the
Shares or the assets of the Company. In the event that any
10
<PAGE>
Person contacts Sellers or the Company concerning such a transaction, they shall
promptly notify Buyer in writing of such contact, specifying the identity of the
other Person and the circumstances of the contact.
(b) From and after execution of this Agreement and for a period
of two (2) years thereafter, Buyer shall not engage any employee of the Company
whether as an employee, consultant, director or in any other capacity, without
the consent of the Company, provided that this clause shall cease and be of no
further effect as and from Closing.
5.07 Additional Agreements. Each of the parties hereto agrees to use
their respective best efforts to (i) take, or cause to be taken, all appropriate
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Related Agreements, (ii)
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities, third parties and parties to
contracts with the Company as are necessary for consummation of the transactions
contemplated by this Agreement and the Related Agreements, and (iii) fulfill all
conditions precedent applicable to such party pursuant to this Agreement and the
Related Agreements. In case at any time after the Closing Date any further
action is necessary or desirable to carry out the purposes of this Agreement or
the Related Agreements, each party hereto shall use their respective best
efforts to take or cause to be taken all such necessary action.
5.08 Notification of Certain Matters. Sellers and the Company shall
give prompt notice to Buyer of (a) any notice of, or other communication
relating to, a default under any Contract material to the financial condition,
properties, business operations, or results of operations of the Company to
which it is a party or is subject, (b) any notice or other communication from
any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement or
any of the Related Agreements, or (c) any material adverse change in the
properties, business operations, results of operations, financial condition or
prospects of the Company, other than changes resulting from general economic
conditions.
5.09 Initial Public Offering Documents. As soon as practicable
following the filing thereof with the Unites States Securities and Exchange
Commission, Buyer shall provide to Sellers a copy of the registration statement
filed with respect to the Initial Public Offering, each pre-effective amendment
thereto and the effective registration statement (exclusive of exhibits). Within
five (5) days following Sellers written request, Buyer will provide to Sellers a
copy of any exhibit to such registration statement.
11
<PAGE>
6. CONDITIONS PRECEDENT TO CLOSING.
6.01 Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement shall be subject to the
satisfaction prior to the Closing Date of the following conditions:
(a) All authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by, any
governmental entity, requisite to the transactions contemplated hereby, shall
have been filed, occurred or have been obtained, as the case may be.
(b) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the transactions
contemplated by this Agreement shall be in effect; provided that prior to
invoking this condition, each party shall use their best efforts to have any
such order, injunction, legal restraint or prohibition vacated.
6.02 Conditions to Obligations of Buyer. The obligations of Buyer to
effect the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions (which are for the exclusive benefit of
Buyer, any or all of which may be waived in whole or in part by Buyer):
(a) The representations and warranties of Sellers and the Company
set forth in this Agreement, as qualified by the Disclosure Schedules and those
Supplemental Disclosure Schedules which have been accepted in writing by Buyer,
shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of a specified, earlier date) as of the Closing Date as though made on and as of
the Closing Date, except as otherwise contemplated by this Agreement, and Buyer
shall have received a certificate from Sellers certifying to such effect. All
representations and warranties of Sellers and the Company shall be deemed
reaffirmed and made by each of them as of the Closing Date. Notwithstanding the
foregoing, if Buyer has actual knowledge at the Closing that any representation
or warranty of Sellers or the Company is not true and correct as of the Closing
Date, and Buyer elects to Close notwithstanding such knowledge, such
representation or warranty shall be deemed modified as of the Closing Date to
reflect such knowledge.
(b) Sellers and the Company shall each have performed all
obligations required to be performed by each such party under this Agreement at
or prior to the Closing Date, and Buyer shall have received a certificate of
Sellers certifying to such effect.
(c) Since the date of this Agreement, there shall have been no
change, occurrence or circumstance resulting in, or which could reasonably
likely result in, individually or in the aggregate, a material adverse effect on
the Company or its business.
(d) Sellers and the Company shall have given all notices to, and
obtained all consents, approvals or authorizations of or from, any individual,
corporation or other party which may be necessary to permit the consummation of
the transactions contemplated
12
<PAGE>
hereby.
(e) Each of the Related Agreements shall have been duly executed
and delivered by the respective parties thereto.
6.03 Conditions to Obligations of Sellers. The obligations of Sellers
to effect the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions (which are for the exclusive benefit of
Sellers, any or all of which may be waived in whole or in part by Sellers):
(a) Except to the extent such representations and warranties
speak as of a specified date, the representations and warranties of Buyer set
forth in this Agreement shall be true and correct in all respects as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except as otherwise contemplated by this Agreement.
(b) Buyer shall have performed all obligations required to be
performed by it under this Agreement at or prior to the Closing Date.
(c) The Securities shall be shares of common stock of the
Resulting Entity which are covered by an effective registration statement under
the Securities Act of 1933, of the same class as the securities sold in the
Initial Public Offering and of a class which is listed for trading on a
recognized stock exchange or the NASDAQ market. The Resulting Entity shall not
have issued a class of equity securities senior in rights to the class of which
the Securities are part.
7. REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY. Sellers and
the Company hereby jointly and severally represent and warrant to Buyer as
follows:
7.01 Company Organization; Qualification and Shares.
(a) The Company is a limited company duly incorporated under the
Companies Act 1985 and validly existing and in good standing continuously since
incorporation, and has the corporate power to own all of its property and
assets, to incur all of its liabilities and to carry on its business as now
being conducted.
(b) The Company is duly qualified and in good standing in each
jurisdiction in which the nature or conduct of the Company's business or the
character or location of its properties makes such qualification necessary. A
list of all such jurisdictions appear on Disclosure Schedule 7.01(b).
(c) The names of the directors and officers of the Company,
together with the offices they hold, are set forth on Disclosure Schedule
7.01(c). Attached to Disclosure Schedule 7.01(c) are true and correct copies of:
(1) the certificate of incorporation and memorandum of association of the
Company, together with all amendments thereto, certified by the
13
<PAGE>
Company's Secretary within thirty (30) days of the Closing Date; and (2) the
articles of association of the Company, together with all amendments thereto,
certified by the Secretary of the Company.
(d) The authorized share capital of the Company is
(pounds)201,000, divided into (i) One Hundred Ninety Nine Thousand (199,000)
Ordinary Shares of (pounds)1 each, of which One Thousand (1,000) shares are duly
and validly issued and outstanding, are fully paid and non-assessable, are
wholly owned (legally and beneficially) by Sellers and to which Sellers have
good and marketable title, free and clear of all Encumbrances except as
disclosed in Disclosure Schedule 7.01(d), and (ii) Two Hundred Thousand
(200,000) Deferred Shares of 1p each, which upon issuance to Buyer pursuant to
the Subscription will be duly and validly issued and outstanding, fully paid and
non-assessable. There are no agreements, arrangements or understandings to
create any Encumbrance on the Shares or unissued shares in the capital of the
Company. Each Seller owns that number of Shares set forth in Disclosure Schedule
7.01(d).
(e) None of the outstanding Shares has been issued in violation
of any preemptive rights of the current or past shareholders of the Company.
With respect to the sale of the Shares to Buyer or Buyer's nominee, each Seller
hereby irrevocably and unconditionally waives and releases any and all rights of
pre-emption which each Seller may have over, or other rights to acquire, any of
the ordinary shares (including the Shares) in the Company, whether pursuant to
the Articles of Association of the Company or otherwise, and acknowledges that
Buyer and Buyer's nominee may rely upon such waiver and release.
(f) Except as may be disclosed in Disclosure Schedule 7.01(f),
each certificate representing Shares issued by the Company in replacement of any
certificate theretofore issued by it which was claimed by the record holder
thereof to have been lost, stolen or destroyed was issued by the Company only
upon receipt of an indemnity in respect of lost certificate to indemnify the
Company against any claim that may be made against it on account of the alleged
loss, theft or destruction of any such certificate or the issuance of such
replacement certificate.
(g) There are no issued or outstanding options, warrants, rights
to subscribe for, calls, or commitments of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for, shares in the
capital of the Company, or contracts, commitments, understandings or
arrangements by which the Company is or may be obligated to issue additional
shares in its capital or options, warrants or rights to purchase or acquire any
additional shares in its capital Other than this Agreement, there is no
agreement, arrangement or obligation requiring the creation, allotment, issue,
transfer, redemption or repayment of, or the grant to any Person of the right
(conditional or not) to require the allotment, issue, transfer, redemption or
repayment of, a share in the capital of the Company.
(h) Except as set forth on Disclosure Schedule 7.01(h), the
Company has not conducted business under any name other than its own.
(i) The Company has all requisite power and authority to execute
and deliver this Agreement and each of the Related Agreements to which it is a
party and to perform fully its obligations hereunder and thereunder. The
execution and delivery of this Agreement, the Related Agreements and the
consummation of the transactions contemplated hereby and
14
<PAGE>
thereby have been duly authorized by all necessary corporate action on the part
of the Company. This Agreement and each of the Related Agreements to which the
Company is a party has been duly executed and delivered by the Company, and this
Agreement and each of the Related Agreements to which the Company is a party
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity
(regardless of whether enforceability is considered in a proceeding at law or in
equity). There is no claim, action, suit or proceeding (including, without
limitation, current investigations by governmental agencies) pending against the
Company seeking to enjoin the execution and delivery of this Agreement or
consummation of the transactions contemplated hereby.
7.02 Seller Power and Authority; Ownership. (a) Each Seller is an
adult individual with full power and authority to own his or her properties
(including without limitation Shares), to manage his or her fiscal affairs and
to enter into this Agreement and each of the Related Agreements to which they
are a party and to agree to the transactions contemplated hereby and thereby and
to perform all of their respective obligations hereunder and thereunder. No
Seller is subject to any legal disability which would prevent him or her from
performing under this Agreement, and no order has been entered appointing a
receiver for any Seller or his or her assets. There is no claim, action, suit or
proceeding (including, without limitation, current investigations by
governmental agencies) pending against any Seller seeking to enjoin the
execution and delivery of this Agreement or consummation of the transactions
contemplated hereby. This Agreement and each of the Related Agreements to which
Sellers are parties constitute the legal, valid and binding obligations of
Sellers, enforceable against Sellers in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).
(b) Except as set forth in Disclosure Schedule 7.02(b), no
consent or approval is required from any third party for the sale of the Shares.
The consummation by Sellers of the transactions contemplated by this Agreement
shall not violate any statute, rule, regulation or ruling of any court or
governmental authority applicable to any Seller, the Company, the Shares or any
of the assets of the Company.
(c) The Company is not in default under, or in violation of any
provision of, its certificate of incorporation, articles of association, or any
promissory note, indenture or any evidence or indebtedness or security thereof,
lease, contract, purchase or other commitment or any other agreement which is
material to the Company.
7.03 Subsidiaries. Except as set forth on Disclosure Schedule 7.03,
the Company does not directly or indirectly own any shares of, or any other
interest in, any other company, partnership, joint venture or business entity.
15
<PAGE>
7.04 Financial Information. (a) Attached hereto as Disclosure Schedule
7.04(a) are true and complete copies of the Financial Statements. The Financial
Statements have been prepared in accordance with the books and records of the
Company and GAAP (except as may be disclosed therein), and fairly present the
financial position and the results of operations, changes in shareholders'
equity and cash flows of the Company as of the dates and for the periods
indicated. To the best of the knowledge, information and belief of the Company
and Sellers, the Financial Statements provide adequately for all bad and
doubtful debts, material liabilities (actual, contingent, deferred or otherwise)
and material financial commitments existing as of the dates thereof. Except as
expressly reflected therein, the profit and loss statements included in the
Financial Statements have not been materially affected by any extraordinary,
exceptional or non-recurring item.
(b) To the best of the knowledge, information and belief of the
Company and Sellers, the Company has no material uninsured liability or
obligation required to be reflected or disclosed in the Financial Statements
under GAAP which is not so reflected or disclosed, and the Company has no
material liability or obligation as of the respective dates of the Financial
Statements not required to be reflected or disclosed in the Financial
Statements.
(c) As of the dates the Financial Statements were prepared, all
accounts receivable reflected on the Financial Statements (i) have arisen from
bona fide transactions in the ordinary course of the Company's business,
consistent with its past practices, (ii) to the best of the knowledge,
information and belief of the Company and Sellers, are good and collectible at
the aggregate recorded amounts thereof, net of any applicable Reserves, and are
owned by the Company free and clear of all Encumbrances.
(d) No change in accounting policies has been made in preparing
the accounts of the Company for each of the three (3) financial years ended 31st
March 1997 except as stated in the Financial Statements.
(d) Sellers and the Company shall be deemed to have made the
foregoing representations and warranties under this Section 7.04 with respect to
the Monthly Financial Statements upon their delivery to Buyer.
7.05 Absence of Material Changes. Since March 31, 1997, (i) there have
not been any material adverse changes in the aggregate, in the general affairs,
condition, business, properties, prospects, assets, financial position, results
of operations or net worth of the Company; (ii) the business affairs of the
Company have since such date been conducted in the usual and ordinary course of
business, (iii) after the close of business on such date, no transaction has
taken place or material contract entered into other than in the usual and
ordinary course of business as heretofore conducted, and (iv) to the best of the
knowledge, information and belief of the Company and Sellers, there has been no
action, course of conduct or occurrence which if it had taken place after
execution of this Agreement would constitute a breach of Section 5.01 hereof,
except as set forth on Disclosure Schedule 7.05.
7.06 Licenses. The Company has all licenses, permits and other
authorizations required for the operation of its businesses in all
jurisdictions. All such licenses,
16
<PAGE>
permits and authorizations are set forth on Disclosure Schedule 7.06.
7.07 Tax Matters. (a) The Company is resident only in the United
Kingdom for tax purposes and has never been resident in any other jurisdiction
for tax purposes.
(b) The Company has filed with the appropriate governmental
agencies all income, franchise, excise, VATA, real and personal property and
other tax returns and reports required to be filed by or on behalf of the
Company. All such tax returns for the last three (3) years are listed on
Disclosure Schedule 7.07. To the best of the knowledge, information and belief
of the Company and Sellers, all such returns fairly reflect the information
required to be presented therein, and the Company has not paid any penalty,
surcharge, fine or interest in connection with any alleged underpayment of
taxes..
(c) To the best of the knowledge, information and belief of
Sellers and the Company, no return (or item in a return) is currently subject to
dispute or is yet to be determined by, or us subject to agreement with, any
taxing authority. The Company is not, and does not expect to be, involved in a
dispute in relation to any tax matters, and to the best of the knowledge,
information and belief of Sellers and the Company no taxing authority has
investigated or indicated that it intends to investigate the Company's tax
matters.
(d) The Company has paid all taxes that have become due and
payable to (or claimed to be due and payable by) any taxing authority. The
Company has made full provision or reserve in the Financial Statements for all
taxes for which the Company is or may be accountable with respect to income,
profits or gains earned, accrued or received on or before the dates thereof,
including distributions made on or before such dates or provided for in the
Financial Statements and full and proper provision has been made in the
Financial Statements for deferred tax in accordance with SSAP 15 and in the
aggregate do not materially fail to provide for potential tax liabilities. All
estimated tax payments which have become due and payable prior to the date of
this Agreement have been paid. The Company has properly operated the
Pay-As-You-Earn system and has complied with each reporting obligation in
connection with benefits provided for its directors, officers and employees. All
deductions and payments required to be made under statute in respect of National
Insurance and Social Security contributions (including employer's contributions)
have been duly made and proper acceptable records have been maintained in
respect of all such deductions and payments.
(e) Except as set forth in Disclosure Schedule 7.07(e), the
Company has not made a repayment of share capital to which ss.210 of the Taxes
Act applies or issued share capital as paid up other than by the receipt of new
consideration within the meaning of Part VI of the Taxes Act.
(f) To the best of Sellers' and the Company's knowledge,
information and belief, all documents by virtue of which the Company has any
right which are required to be stamped have been stamped and all duty, interest
and penalties on those documents have been paid, and the Company has no
unsatisfied liability to stamp duty reserve tax or interest or penalties on
stamp duty reserve tax.
17
<PAGE>
(g) The Company is registered for purposes of the VATA, has made,
given, obtained and kept up-to-date, full and accurate records, invoices and
documents appropriate or required for VATA purposes, is not in arrears with
payment or returns due under the VATA and has not been required by any taxing
authority to give security under the VATA. During the past three (3) years, the
Company has not been in default with respect to any accounting period (as those
terms are used in ss.59(1) of the VATA. The Company has made no claim for bad
debt relief under ss.36 or ss.22 of the VATA. All value added tax payable on the
import of goods and all excise duties payable to a taxing authority in respect
of any asset imported or owned by the Company have been paid.
(h) The Company is and always has been a close company for the
purposes of the Taxes Act. Except as set forth in Disclosure Schedule 7.07(h),
the Company has not made any distribution as defined in ss.418 of the Taxes Act
or any loan or advance in accordance with ss.ss.419 and 420 of the Taxes Act and
has not written off or released or agreed to release or write off any part of
such loan or advance.
(i) To the best of the Sellers' and the Company's knowledge,
information and belief, no event, transaction, act or omission has occurred
which could result in the Company becoming liable for any tax which is primarily
or directly chargeable against or attributable to a Person other than the
Company or which is charged by reference to the income or gains of another
Person.
(j) The assets of the Company and the Shares are not, and will
not in consequence of an event occurring on or before the Closing Date (whether
or not in combination with an event occurring after the Closing Date) become,
subject to an Inland Revenue charge as mentioned in ss.237 of the Inheritance
Tax Act 1984. No Person has, or could in consequence of an event occurring on or
before the Closing Date (whether or not in combination with an event occurring
after the Closing Date) obtain, the power under ss.212 of the Inheritance Tax
Act 1984 to raise inheritance tax by the sale or mortgage of, or by a terminable
charge on, an asset of the Company.
(k) The Company has not entered into any transaction designed in
whole or in part for the avoidance of taxes.
7.08 Compliance with Laws. (a) To the best of the knowledge,
information and belief of the Company and Sellers, the Company is, and at all
times during the past twelve (12) months has been, in material compliance with
all laws applicable to the Company or to the conduct of the business or
operations of the Company or the use of its properties (including any leased
properties) and assets; and
(b) the Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity, of any notices of
violation or alleged violation of any law applicable to the Company. The Company
will provide Buyer with true and complete copies of (i) all injunctions,
judgments, orders or consent or similar decrees or agreements of any
governmental entity to which the Company is currently subject (or which the
Company was subject to during the previous three years) or which are otherwise
applicable to the
18
<PAGE>
Company, and (ii) all correspondence from the date hereof with respect to any of
such matters, all of which are set forth in Disclosure Schedule 7.08. Neither
the Company nor Sellers are aware of any proposed legislation or law which is
reasonably expected to be enacted and which, if so enacted, could reasonably be
expected to have a material adverse effect on the Company.
7.09 Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Company and/or Sellers, threatened that questions
the validity of this Agreement or the Related Agreements or any action taken or
to be taken by the Company or Sellers in connection with the consummation of the
transactions contemplated hereby or thereby or which seeks to prohibit, enjoin
or otherwise challenge any of the transactions contemplated hereby or thereby.
Disclosure Schedule 7.09 sets forth an accurate and complete list, and a brief
description (setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Legal Proceeding pending or, to the
knowledge of the Company and/or Sellers, threatened against or affecting the
Company. To the knowledge of the Company and/or Sellers, no event has occurred
and no circumstance, matter or set of facts exist which would constitute a valid
basis for the assertion by any third party of any claim or Legal Proceeding,
other than those listed on Disclosure Schedule 7.09. Except as set forth in
Disclosure Schedule 7.09, there is no outstanding or, to the knowledge of the
Company and/or Sellers, threatened judgment, injunction, judgment, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Company.
7.10 Properties; Contracts; Leases and Other Agreements. (a) The
Company does not own any real estate except as set forth on Disclosure Schedule
7.10(a).
(b) All leasehold interests for real property and any material
personal property used by the Company are held pursuant to lease agreements
which are valid and enforceable in accordance with their terms, the agreements
for which are listed on Disclosure Schedule 7.10(b). To the knowledge of Sellers
and the Company, all such properties comply in all material respects with all
applicable private agreements, zoning requirements and other governmental laws
and regulations relating thereto and there are no condemnation proceedings
pending or, to the knowledge of Sellers or the Company, threatened with respect
to such properties. Any additional business offices maintained by the Company
during the past two (2) years are also listed by location on Disclosure Schedule
7.10(b).
(c) Except as set forth on Disclosure Schedule 7.10(c), and
excluding trade accounts payable incurred in the ordinary course of business and
payable to Persons other than Affiliates of the Company, the Company does not
have any liabilities for borrowed funds, extensions of credit or other advances
that are subject to repayment, whether pursuant to a written agreement, oral
understanding or course of conduct, and whether reflected on the Financial
Statements as indebtedness, accounts payable or otherwise, and any such
liability set forth on Disclosure Schedule 7.10(c) may be prepaid at any time
without premium or penalty.
(d) Except as set forth in Disclosure Schedule 7.10(d), the
Company is
19
<PAGE>
not a party to any agreements, contracts or commitments relating to the
acquisition of the assets or capital shares of any other business enterprise.
(e) Except as set forth in Disclosure Schedule 7.10(f), the
Company is not a party to any agreement, loan, contract, lease or hire, hire
purchase, credit sale or conditional sale agreement, guaranty, letter of credit,
line of credit or commitment not referred to elsewhere in this Agreement which:
(1) involves payments by the Company of more than
(pounds)10,000;
(2) involves payments based on profits of the Company;
(3) relates to the future purchase of goods or services in
excess of the Company's requirements at current levels or for normal operating
purposes;
(4) was not made in the ordinary course of business; or
(5) materially affects the Company's business or financial
condition of the Company.
(f) The purchase of the Shares hereunder shall not result in
Buyer or any of its subsidiaries becoming obligated under any contractual
arrangements with anyone other than Sellers as described herein.
(g) All material contracts and agreements to which the Company is
a party ("Contracts") (i) are valid and enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity); (ii) to
the best of the knowledge, information and belief of the Company and Sellers, no
Default (as defined below) exists under any Contract either by the Company or by
any other party thereto; (iii) neither the Company nor any of Sellers is aware
of the assertion by any third party of any claim of Default or breach under any
of the Contracts; and (iv) neither the Company nor any of Sellers is aware of
any present intention on the part of any significant customer or supplier or
other business partner of the Company to either (x) terminate or significantly
change its existing business relationship with the Company either now or in the
foreseeable future, or (y) fail to renew or extend its existing business
relationship with the Company at the end of the term of any existing contractual
arrangement such entity may have with the Company. For purposes of this
Agreement, the term "Default" means, with respect to any Contract, (x) any
breach of or default under such Contract, (y) any event, other than the normal
passage of time, which would (either with or without notice or lapse of time or
both) give rise to any right of termination, cancellation or acceleration or any
obligation to repay with respect to such Contract, or (z) any event, other than
the normal passage of time, which would result in either a significant increase
in the obligations or liabilities of, or a loss of any significant benefit of,
the party in question under such Contract.
(h) Except as set forth in Disclosure Schedule 7.10(h), neither
the
20
<PAGE>
Company, nor, to the best of the knowledge, information and belief of the
Company and Sellers, any other party, is in default, technical or otherwise, of
any real estate lease, equipment lease, loan or credit agreement, or any other
contract or agreement to which the Company is a party.
7.11 Employee Matters; Benefit Plans. (a) Except as may be disclosed
in Disclosure Schedule 7.11(a):
(1) To the best of the knowledge, information and belief of
the Company and Sellers, the Company is and has been in material compliance with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, including, without limitation, any
such laws respecting employment discrimination and occupational safety and
health requirements, and the Company is not engaged in any unfair labor
practices;
(2) there is no material unfair labor practice complaint
against the Company pending or to the knowledge of the Company, threatened;
(3) there is no labor dispute, strike, slowdown or stoppage
actually pending, or to the knowledge of the Company, threatened against or
directly relating to the Company; and
(4) the Company has not experienced any material work
stoppage or other material labor difficulty during the past year.
(b) Except as described and attached to Disclosure Schedule
7.11(b), the Company is not a party to any agreement for the employment,
retention or engagement, or with respect to the severance, of any officer,
employee, agent or consultant.
(c) Except as set forth in Disclosure Schedule 7.11(c), the
Company does not maintain, contribute to or participate in any Benefit Plan,
whether as sponsor, adopting employer or otherwise.
(d) All Benefit Plans have in all material respects been
operated, administered and maintained in accordance with the terms thereof and
in compliance with the requirements of all applicable laws.
(e) All contributions to, and payments from, the Benefit Plans,
which may have been required to be made in accordance with the Benefit Plans
have been timely made. All such contributions to the Benefit Plans, and all
payments under the Benefit Plans, are properly accrued and reflected on the
respective Financial Statements.
(f) All reports, returns and similar documents with respect to
the Benefit Plans required to be filed with any governmental agency or
distributed to any Benefit Plan participant have been duly and timely filed or
distributed.
(g) Each of the Benefit Plans has been administered at all times,
and in all material respects, in accordance with its terms. There are no pending
investigations by any governmental agency involving the Benefit
21
<PAGE>
Plans, no termination proceedings involving the Benefit Plans, and no threatened
or pending claims (except for claims for benefits payable in the normal
operation of the Benefit Plans), suits or proceedings against any Benefit Plan
or asserting any rights or claims to benefits under any Benefit Plan which could
give rise to any liability, nor, to the best of the Sellers' or the Company's
knowledge, are there any facts which could give rise to any liability in the
event of any such investigation, claim, suit or proceeding.
7.12 Title to and Condition of Properties; Intellectual Property.
(a) Except as described in Disclosure Schedule 7.12(a), the
Company is the sole owner and has good, valid and marketable title to all of the
tangible assets used primarily in connection with the operation of the Company's
business, free and clear of all claims, liabilities, security interests,
mortgages, leases, restrictive covenants, licenses, liens, Encumbrances and
rights to possession of third parties, of every type and nature.
(b) Except as disclosed in Disclosure Schedule 7.12(b), each item
of equipment of the Company is in good and workable condition, reasonable wear
and tear excepted, of a quality and quantity usable in the ordinary course of
the Company's business.
(c) Disclosure Schedule 7.12(c) sets forth a list of all
Intellectual Property which is owned by the Company, licensed by the Company,
licensed to the Company, or otherwise used or able to be used in the Company's
business (other than commonly-used computer software which is generally
available to the public and the use rights to which were legally acquired by the
Company either for free or through established retail facilities) and indicates,
with respect to each item of Intellectual Property listed thereon, the owner
thereof and, if applicable, the name of the licensor and licensee thereof and
the terms of such license or other contract relating thereto. The Company owns
or has the lawful right to use all Intellectual Property as currently used or as
necessary for the conduct of the Company's business as now conducted. After
Closing, the Company will have the right to use all of the Intellectual Property
as currently used or as necessary for the conduct of the Company's business as
now conducted.
(d) (i) Except for Intellectual Property licensed to the Company,
and subject to the terms of licenses with its customers, the Company has
full legal and beneficial ownership (free and clear of any and all
Encumbrances) of all of the Intellectual Property , and neither the Company
nor Sellers have received any notice or claim (whether written, oral or
otherwise) challenging the Company's ownership or rights in such
Intellectual Property or suggesting that any other entity has any claim of
legal or beneficial ownership with respect thereto; the Company has all
legal and other rights required to transfer the ownership of the
Intellectual Property to the Company at the Closing as contemplated hereby;
(ii) To the best of the knowledge, information and belief of
Sellers and the Company, all of the Intellectual Property is legally valid
and enforceable without any qualification, limitation or restriction on its
use;
(iii) Neither the Company nor Sellers has received any notice or
claim (whether written oral or otherwise) challenging the validity or
enforceability of any such
22
<PAGE>
Intellectual Property;
(iv) To the best of the knowledge, information and belief of
Sellers and the Company, neither the use of any of the Intellectual
Property nor any other Intellectual Property used by the Company will
conflict with, infringe upon, violate or interfere with or constitute an
appropriation of any right, title or interest held by any other Person or
entity, and there have been no claims made with respect thereto;
(v) To the best of the knowledge, information and belief of
Sellers and the Company, no other Person or entity is infringing in any
respect on any part of the Intellectual Property.
(vi) The Company has not conducted its business, and has not used
or enforced (or failed to use or enforce) any Intellectual Property, in a
manner that would result in the abandonment, cancellation or
unenforceability or any item of Intellectual property, and the Company has
not taken or failed to take any action that would result in the forfeiture
or relinquishment of any Intellectual Property used in the conduct of its
business as now conducted;
(vii) Except as set forth in Disclosure Schedule 7.12(d), the
Company has no liability or obligations to any third parties incident to
the Intellectual Property used or able to be used by the Company in the
conduct of its business as heretofore conducted; and
(viii) the Company has timely met all of its obligations to any
third parties incident to the Intellectual Property used or able to be used
by the Company in the conduct of its business as heretofore conducted, and
such obligations have been correctly and adequately disclosed in the
Financial Statements.
(e) The Company has taken all reasonable steps to (i) protect the
Company's rights to the Intellectual Property, and (ii) to prevent the
unauthorized use by any other Person or entity. The Company shall use all
reasonable efforts to maintain, or cause to be maintained, the Intellectual
Property in full force and effect through the Closing and, without limitation,
has renewed or has made, and will make within any applicable renewal period
ending on or prior to the Closing Date, application to renew all of the
Intellectual Property subject to expiration on or prior to the Closing Date.
Neither the Company nor any of Sellers has granted to any other Person or entity
any rights or permissions to use any of the Intellectual Property.
(f) Except as set forth in Disclosure Schedule 7.12(f), the
Company is not a party to any confidentiality or other agreement which
materially restricts its use or disclosure of information.
7.13 Insurance. All material insurable properties owned or held by the
Company, and all insurable risks related to its business, are adequately insured
by insurers which are to the best of Sellers' and the Company's knowledge
financially sound and reputable, in such amounts and against fire and other
risks insured against by extended coverage and public liability insurance,
fidelity bonds, professional liability insurance and errors and omissions
insurance, as is
23
<PAGE>
customary in the home health care industry. Disclosure Schedule 7.13 lists all
policies of insurance, including but not limited to general comprehensive and
products liability coverage, owned or held by the Company. All current premiums
and any other obligations under such insurance have been paid and all such
policies are valid and enforceable and in full force and effect on the date
hereof. The Company has not received any notice of cancellation or of premium
increase under any such policies within the last ninety (90) days.
7.14 Environmental Matters. (a) Except as may be disclosed in
Disclosure Schedule 7.14(a), the Company has not received any notice from any
Person or entity that the Company or the operation or condition of any property
ever owned, leased or operated by it are or were in violation of any
Environmental Laws, or that the Company is responsible (or potentially
responsible) for remedying, or the cleanup of, any pollutants, contaminants or
hazardous or toxic wastes, substances or materials at, on or beneath any such
property.
(b) Except as may be disclosed in Disclosure Schedule 7.14(b),
the conduct or operation of the Company or any condition of any property
presently or previously owned, leased or operated by the Company does not
violate and has not violated Environmental Laws in any respect material to the
business of the Company; and no condition or event has occurred with respect to
any of them or any such property that, with notice or the passage of time, or
both, would constitute a violation material to the business of the Company under
Environmental Laws or obligate (or potentially obligate) the Company to remedy,
stabilize, neutralize or otherwise alter the environmental condition of any such
property where the aggregate cost of such actions would be material to the
Company.
7.15 No Undisclosed Liabilities or Obligations. The Company has no
material liability or obligation, known or unknown, asserted or unasserted,
absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and
due or to become due (and there is no past or present fact, situation,
circumstance, condition or other basis for any present or future action, suit or
proceeding, hearing, charge, complaint, claim or demand against the Company
giving rise to any such liability), except:
(a) for liabilities or obligations accrued for or reserved
against on the Final Balance Sheet;
(b) for liabilities or obligations of the same type incurred in
the ordinary course of business of the Company since the date of the most recent
balance sheet included in the Financial Statements which are specifically
accrued for or reserved against on the Final Balance Sheet; and
(c) as may be disclosed in Disclosure Schedule 7.15(c).
7.16 Product Warranties. Except for a condition or warranty implied by
law or as described in Disclosure Schedule 7.16, the Company does not give any
condition or warranty, or made a representation, with respect to goods or
services supplied or agreed to be supplied by it, which could result in a
material liability to the purchaser thereof., and no claims have been made
against the Company in the last three (3) years alleging any defect in products
or services provided
24
<PAGE>
by the Company.
7.17 Distributions. Except as disclosed in Disclosure Schedule 7.16,
since March 31, 1997, the Company has not paid or declared any dividend or made
any other distributions to shareholders or taken any action which, if taken
after the date of this Agreement, would require the prior written consent of
Buyer pursuant to this Agreement.
7.18 Related Party Transactions. Except as set forth on Disclosure
Schedule 7.18 or on any other Disclosure Schedule, there have been no
transactions, or contractual relationships during the two (2) fiscal years ended
March 31, 1997 or between March 31, 1997 and the date hereof, and no agreement
or understanding to enter into or consummate any transactions or contractual
relationships, between the Company on the one hand and any Seller or the
Company's officers, directors, employees, representatives, or agents, or (b) any
family member (by blood or marriage) or Affiliate of any of the foregoing,
directly or indirectly, on the other hand.
7.19 Investment Purpose. (a) The Securities are being acquired
pursuant to the terms and subject to the conditions of this Agreement for
Sellers' own accounts for investment purposes only and not with a view to any
public resale, public distribution or public offering thereof within the meaning
of the securities laws of the United States of America or any state securities
or "blue sky" laws; and
(b) The Securities issued to Sellers will not be registered under
the securities laws of the United States of America or any state securities or
"blue sky" laws, or any similar laws of any other jurisdiction, and such
Securities may not be sold or otherwise disposed of except in compliance with
applicable law, or in reliance upon an exemption therefrom.
7.20 Statements and Disclosures True and Correct. The information
contained in this Agreement, including the representations and warranties of
Sellers and the Company, the Disclosure Schedules, and Disclosure Documents, are
true and correct in all material respects. All copies of Disclosure Documents
are true and correct copies of the originals.
8. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents and
warrants to Sellers as follows:
8.01 Organization. Buyer is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Nevada, and has the power to purchase and own the capital shares of the Company
being purchased hereunder.
8.02 Authorization; No Violation of Laws or Agreements. Buyer has full
power and authority, and has taken all requisite action, to enter into and
perform under this Agreement and all other agreements and documents contemplated
by or related to this Agreement to which Buyer is a party. Nothing in the
certificate of organization or operating agreement of Buyer, as amended, or any
other agreement, instrument, decree, proceeding, law or regulation (except as
specifically referred to in or contemplated by this Agreement) by or to which
Buyer is bound or subject would prohibit or inhibit Buyer from consummating this
Agreement on the terms and conditions herein
25
<PAGE>
contained. Upon execution and delivery, this Agreement and any agreement or
document to be executed by Buyer pursuant hereto shall constitute a legal, valid
and binding obligation of Buyer in accordance with its terms.
8.03 Investment Purposes Only. Buyer is purchasing the Shares for
investment purposes only and not with a view toward sale or distribution. Buyer
shall make no further sale or transfer of the Shares except in accordance with
applicable state and federal securities laws and regulations.
9. ADDITIONAL UNDERTAKINGS SUBSEQUENT TO CLOSING. The parties agree that
subsequent to the Closing:
9.01 Assistance of Sellers. (a) Sellers shall render all reasonable
assistance to Buyer to effect an orderly transition of ownership and control of
the Company as contemplated hereunder, and shall disclose to Buyer full
information about the Company's business, customers and suppliers of the
Company.
(b) Buyer and Sellers shall execute and deliver such other
agreements, documents and instruments as any of them may reasonably request for
the purpose of effectuating the transactions contemplated by this Agreement.
9.02 Tax Returns. Sellers shall cause to be promptly prepared the
Company's income tax returns for periods ending prior to the Closing Date, and
shall deliver same to Buyer, allowing adequate time for Buyer to review and file
such returns by their respective due dates.
10. INDEMNIFICATION.
10.01 Sellers' Indemnity. Subject to the provisions of Sections 10.02
and 10.03 below, Sellers and the Company shall jointly and severally indemnify,
defend, and hold harmless Buyer against and in respect of any and all claims,
demands, losses, costs, expenses, obligations, liabilities, damages, recoveries,
and deficiencies, including interest, penalties, and reasonable attorneys' fees,
(but not including any adjustments or credits expressly provided for in this
Agreement) that it shall incur or suffer which arise, result from, or relate to
any breach of, or failure by Sellers and the Company to perform, any of their
representations, warranties, covenants or agreements in this Agreement or in any
schedule, certificate, exhibit, or other instrument furnished or to be furnished
by Seller (collectively, the "Warranties").
26
<PAGE>
10.02 Limitation on Sellers' Liability.
(a) Sellers shall be under no liability under the Warranties in
the event that Closing does not take place whether under the provisions of
Sections 4.01, 6.01, 6.02, or otherwise.
(b) Notwithstanding anything to the contrary in Article 7 of this
Agreement the liability of the Sellers in respect of any claim under the
Warranties (a "Relevant Claim") shall be limited by the following provisions of
this Section and in the event of any inconsistency between the following
provisions of this Section and the provisions of Article 7 the following
provisions of this Section shall prevail.
(c) Sellers shall not be liable in respect of any claim under the
Warranties to the extent that the matter or matters giving rise to such claim
are fully and fairly disclosed in the Disclosure Schedules.
(d) The liability of Sellers in respect of any Relevant Claim
shall be limited as follows:
(i) the aggregate maximum liability of Sellers in respect of all
and any Relevant Claims shall in no event exceed an amount equal to the
aggregate of the following:
(A) the Purchase Price payable for the Shares hereunder; and
(B) the aggregate amount of any costs charges and expenses
incurred by Buyer following the acquisition by Buyer of the
Shares in bringing or enforcing any claims in respect of breach
of the warranties or indemnities given by Sellers under this
Agreement.
(ii) Sellers shall not be liable in respect of any Relevant Claim
where the amount of such claim does not exceed (pounds)1000.00.
(iii) Sellers shall not be liable in respect of all and any
Relevant Claims unless and until the aggregate cumulative liability of
Sellers in respect of all and any such Relevant Claims (ignoring for these
purposes all and any relevant claims in respect of which Sellers do not
have any liability pursuant to the provisions of Section 10.04(b) exceeds
the Relevant Amount (as defined below) in which event the Seller shall be
liable for the entire amount of such liability.
(ii) The "Relevant Amount" referred to above shall mean
(pounds)200,000.
(v) No disclosure in the Disclosure Schedule and none of the
limitations and provisions contained in this Section shall apply in the
case where a Seller has been fraudulent or has willfully concealed material
information from Buyer in connection with any Warranties.
(vi) The Sellers shall not be liable in respect of any Relevant
Claim
27
<PAGE>
unless it shall have been made no later than eighteen (18) months following
the Closing Date.
(vii) No Relevant Claim shall be deemed to have been properly
made unless notice of such claim was made in writing to Sellers specifying
in reasonable detail (to the extent only that such information is available
to the Buyer and that such information is necessary to enable Sellers to
identify the matter giving rise to the Claim) the nature of the Relevant
Claim.
(viii) Any Relevant Claim in respect of which notice shall have
been given in accordance with Subsection (vii) shall be deemed to have been
irrevocably withdrawn and lapsed (not having been previously satisfied
settled or withdrawn) if proceedings in respect of such claim have not been
issued and served on Sellers not later than the expiry of the period six
(6) months after the date of such notice.
(ix) Where Buyer and/or the Company is entitled (whether by right
of indemnity, reimbursement or any other means) to recover from any other
Person (not being any employee or officer of the Company but including its
or their insurers) any sum in respect of any matter giving rise to a
Relevant Claim then (subject first to being indemnified and secured to the
reasonable satisfaction of Buyer against all costs, expenses, tax or other
liabilities which may be thereby incurred) Buyer shall take and shall take
all reasonable steps to enforce such recovery (keeping Sellers fully
informed of the progress of any action taken) and account to Sellers for
any net amounts they recover (provided not exceeding the amount previously
paid by Sellers and after first taking account of any liability or loss of
Buyer or the Company in respect of which Seller in not liable by reason of
the provisions of Subsection (a) through (d) above).
10.03 Other Limitations. Sellers shall have no liability (or such
liability shall be reduced) in respect of any Relevant Claim:
(a) if and to the extent that a specific provision or Reserve for
or in respect of the liability or other matter giving rise to such claim has
been made in the Financial Statements or the Monthly Financial Statements;
(b) if and to the extent that such claim occurs or is increased
as a result of any change in legislation after the date of this Agreement (or
any legislation (not in force at the date of this agreement) which takes effect
retrospectively or the withdrawal after the date of this Agreement of any
published concession or published general practice as at the date hereof
previously made by the Inland Revenue or other taxing or revenue raising
authority;
(c) if and to the extent that such claim occurs or is increased
as a result of any increase in the rate of taxation in force at the date of this
Agreement, or variation in the method of applying or calculating the rate of
taxation;
(d) if and to the extent that such claim occurs or is increased
as a result of any increase in the rate of taxation in force at the date of this
Agreement, or any variation in the method of applying or calculating the rate of
taxation;
28
<PAGE>
(e) if and to the extent that any breach of the Warranties occurs
as a result of or is otherwise attributable to Buyer or the Company (acting
otherwise than by or on the instructions of or with the consent of Sellers)
disclaiming any part of the benefit of capital or other allowances against
taxation claimed or proposed to be claimed;
(f) where the claim is attributable to the Company ceasing to be
entitled to the small companies' rate of corporation tax;
(g) where the claim is for stamp duty or stamp duty reserve tax
arising out of the Agreement or on Closing;
(h) if and to the extent that such claim is attributable to any
voluntary act or transaction carries out or effected after Closing by or on
behalf of Buyer or the Company (not being an act or transaction in the ordinary
course of its business or by or on the instructions or with the consent of
Sellers) (including, for the avoidance of doubt, a cessation of trade);
(i) if and to the extent that such claim would not have arisen or
would have been reduced or eliminated but for the failure or omission on the
part of Buyer or the Company to make any claim election surrender or disclaimer
or give notice or consent under the provision of any enactment or regulation
relating to taxation after Closing the making giving or doing of which was taken
into account in computing a specific provision for taxation in the Financial
Statements;
(j) if and to the extent that such claim results from or is
increased or extended by the change of the accounting reference date of the
Company on or after Closing or by any change in the accounting policies employed
by the Company in the preparation of its accounts (including the variation of
the accounting bases upon which Company the values its assets) after Closing;
(k) and to the extent that such claim has been or is compensated
by the amount of any other provision for bad or doubtful debts or any liability
for taxation made in the Financial statements;
(l) where the claim arises directly or indirectly as a result of
the payment of any unusual or abnormal dividend by the Company occurring after
Closing;
(m) if and to the extent that the claim could have been relieved
by the availability of any relief, allowance, repayment or credit in respect of
any tax or deduction in computing income, profits or gains for the purposes of
any tax ("the Relief") which existed at 31st March 1997 and which was not taken
into account in computing the provision or reserve for taxation (excluded
deferred tax) in the Financial Statements or (as the case may be) in determining
that no such provision should be made;
10.04 Notice to Sellers; Access; Defense. (a) The Buyer shall upon it
becoming aware of any matter or event ("the Matter") which it is aware might
give rise to a Relevant Claim as soon as reasonably practicable thereafter give
notice in writing to Sellers of the Matter;
29
<PAGE>
(b) Buyer shall provide and shall procure that the Company will
provide to the Sellers and Sellers' professional advisers reasonable access to
premises and personnel and to any relevant assets documents and records within
their power possession or control for the purpose of investigating the Matter
and enable the Sellers to take such action as referred to in Section 5.12.3
below and shall allow the Sellers and its advisers to take copies of any
relevant documents or records;
(c) Subject as provided below, Buyer shall and shall use its best
endeavors to procure that the Company will allow Sellers (using professional
advisors nominated by Sellers and approved by Buyer such approval not to be
unreasonably withheld) to take such action and institute and conduct such
proceedings on behalf of Buyer or the Company as Sellers may reasonably request
to dispute resist appeal compromise defend remedy or mitigate the matter to
enforce against any third party the rights of the Company in relation to the
Matter; PROVIDED THAT Sellers first shall have irrevocably and unconditionally
satisfied in full any amounts due to Buyer or the Company in respect of such
matter and PROVIDED FURTHER THAT before being entitled to take or require any
action enforcement Sellers shall also fully indemnify and secure Buyer and the
Company against all costs, expenses, tax or other liabilities incurred as a
result of any action taken by the Seller pursuant to this Subsection;
(c) Buyer shall not and shall use all reasonable endeavors to
procure that the Company shall not through the direction of Buyer admit
liability in respect of or compromise or settle the Matter without the prior
written consent of Sellers (such consent not to be unreasonably withheld or
delayed) PROVIDED THAT if Sellers do not within twenty-one (21) days of first
being given notice thereof aforesaid request Buyer or the Company to take any
action aforesaid in connection with the claim concerned then Buyer and/or the
Company shall not be prevented from freeing or paying or settling such claim or
taking such other action in connection therewith as it may in its absolute
discretion decide by virtue only of Sellers failing to make such request.
11. RESTRICTIVE COVENANTS.
11.01 Covenant Not to Compete. (a) Each Seller hereby agrees that he,
she or it will not, for a period of three (3) years after the Closing Date,
within those jurisdictions listed on Disclosure Schedule 7.01(b), engage in any
business which competes with the Company's business, directly or indirectly, or
have an interest, whether as partner, stockholder, beneficiary of a trust or in
any other capacity or manner whatsoever, in any enterprise which shall so
engage.
(b) For purposes of this Section 11.01, a Person will be deemed
to be directly or indirectly engaged in such business or line of business if he,
she or it is engaged, or if he, she or it is actively negotiating or preparing
to engage, in an endeavor or enterprise as a proprietor, partner, manager,
member, joint venturer, stockholder, director, officer, creditor, agent, trustee
or trust beneficiary or employee, or otherwise controls such endeavor or
enterprise.
(c) Nothing in the foregoing shall prohibit a Person from
providing services to the Company, Buyer or its Affiliates or from investing in
the securities of any
30
<PAGE>
corporation having securities listed on a recognized securities exchange,
provided that such investment does not exceed 5% of any class of securities of
any corporation, provided that such ownership represents a passive investment
and that neither such Person nor any group of Persons including him, her or it,
in any way, either directly or indirectly, manages or exercises control of any
such corporation, guarantees any of its financial obligations, otherwise takes
any part in its business, other than exercising his, her or its rights as a
shareholder, or seeks to do any of the foregoing.
(d) Each Seller represents (i) that his or her experience and
capabilities are such that the restrictions contained herein will not prevent
him or her from obtaining employment or otherwise earning a living at the same
general economic benefit as reasonably required by him or her and (ii) that he
or she has, prior to the execution of this Agreement, reviewed this Agreement
thoroughly with his or her legal counsel or has knowingly waived the opportunity
to do so.
11.02 Non-Disclosure. (a) The Company Confidential Information is the
property of the Company and the Proprietary Information is the property of
Buyer, and the disclosure to the other party does not result in the other party
obtaining any property rights therein. Buyer, on the one hand, and Sellers and
the Company, on the other hand, will use such Company Confidential Information
and Proprietary Information (collectively, the "Information") solely to perform
their respective obligations hereunder and for due diligence purposes and keep
the Information of the other party confidential at all times, and prior to
Closing will abide by the following:
(i) Information will be disclosed only to employees or consultants of each
party for the purposes set forth herein, and each party will be
responsible for any breach of this agreement by those persons to whom
such party provided Information.
(ii) In the event that a Closing does not occur, each party will promptly
return to the other party all Information of the other party which is
in tangible form, on computer disks, or on microfilm, and shall retain
no copies thereof. All such Information which is in computer memory
shall be erased, and the erasing party shall confirm such erasure in
writing. In addition, each party promptly will destroy all memoranda,
notes, and other writings it (and each of its employees, attorneys,
lenders and accountants) have prepared based upon the Information of
the other party and will provide written certification that this
material has been destroyed.
(iii) The requirement of confidentiality set forth above does not apply to
any Information which (A) at the time of disclosure is generally
available to and known by the public (other than as a result of a
disclosure made directly or indirectly by a party to this agreement or
any of its agents, servants, employees or advisors), (B) was made
available to a party hereto on a nonconfidential basis from a source
other than another party hereto or its advisors, provided that the
source is not and was not bound by a confidentiality agreement, or (C)
was
31
<PAGE>
independently acquired or developed without violating any obligations
under this Section.
(b) Following Closing, Sellers and their respective
representatives agree to hold confidential and not disclose to any third party
all Proprietary Information concerning Buyer disclosed to Sellers during the
course of the negotiation and investigation pertaining to this Agreement, except
as may be necessary to enforce the rights of Sellers under this Agreement.
Sellers shall not use any Proprietary Information subject to the foregoing
restriction for any purpose whatsoever without the written consent of Buyer.
Each Seller agrees that the disclosure or use of Proprietary Information by an
Affiliate of such Seller, by the spouse or member of the immediate family of an
Individual Seller (whether or not residing with such Seller), or by any entity
of which such Seller or any such family member is a proprietor, equity owner,
creditor, Affiliate or otherwise significant participant, in a manner which
would have violated this Section if committed by such Seller, shall be deemed a
violation of this Agreement.
(c) If the Closing occurs, then for a period of three (3) years
following the Closing, Sellers shall not disclose to any third-party, or use
directly or indirectly for their own benefit or for the benefit of any
Affiliate, the Company Confidential Information.
11.03 Non-Solicitation. Sellers shall not, for a period of three (3)
years after the Closing, solicit, entice or induce any Person who is then or
during the prior twelve (12) months was an employee or agent of Buyer or any of
its Affiliates to become employed or retained by any other Person, firm or
corporation or to leave their employment or relationship with Buyer or any of
its Affiliates, or approach any such employee for such purpose or authorize or
knowingly approve the taking of such actions by any other Person, or do any
other act that may result in the impairment of the relationship between any such
employee or agent and Buyer, the Company or any of Buyer's Affiliates; provided
(for the avoidance of doubt) that Sellers and key employees of the Company shall
be entitled to be shareholders and/or directors of Fleetway
_____________("Fleetway") for the sole purpose of providing services to Buyer
and its Affiliates under the terms of the Conversion Assistance Agreement dated
20 August 1997 between Fleetway and Buyer.
11.04 Injunctive Relief. The parties hereto acknowledge that the
restrictions contained in this Article 11 are reasonable and necessary to
protect the legitimate business interests of the other parties and that each
party would not have entered into this Agreement in the absence of such
restrictions. By reason of the foregoing each party agrees that if he, she or it
violates any of the provisions of this Article 11, the non-breaching party would
sustain irreparable harm and, therefore, irrevocably and unconditionally agree
that in addition to any other remedies which the non-breaching party may have
under this Agreement or otherwise, all of which remedies shall be cumulative the
non-breaching party shall be entitled to apply to any court of competent
jurisdiction for preliminary and permanent injunctive relief and other equitable
relief. Each party also irrevocably and unconditionally consents to the service
of any process, pleadings, notices or other papers in a manner permitted by the
notice provisions hereof.
11.05 Extension of Restrictive Period. If a Seller violates any of the
above restrictive covenants and Buyer brings legal action for injunctive or
other relief, Buyer shall not, as
32
<PAGE>
a result of the time involved in obtaining such relief, be deprived of the
benefit of the full period of the restrictive covenant as to such Seller.
Accordingly, the restrictive covenant shall be deemed to have the duration
specified above, computed from the date such relief is granted or the violation
ceases, but reduced by the time expired between the date the period of
restriction began to run and the date of the first violation of the covenant by
the offending party.
11.06 Judicial Reformation. If any court shall determine that the
scope, duration or geographical limits of any restriction contained herein is
unenforceable, it is the intention of the parties that the particular
restrictive covenant shall not thereby be terminated, but shall be deemed
amended to the extent required to render it valid and enforceable, such
amendment to apply only with respect to the operation of this section and in the
jurisdiction of the court which has made such adjudication.
12. MISCELLANEOUS.
12.01 Entire Agreement; No Third Party Beneficiaries; Modification.
This Agreement (together with the Related Agreements and any other documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereto and is not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
Subject to applicable law, this Agreement may be amended, modified or
supplemented only by written agreement of all parties hereto with respect to any
of the terms contained herein, and each party hereto agrees to be bound by any
such amendment, modification or supplement.
12.02 Governing Law. All issues relating to this Agreement and its
formation, performance and enforcement shall be governed by and construed in
accordance with the substantive laws of the State of Delaware and the United
States of America without reference to their rules governing conflict of laws.
Each of the parties hereto irrevocably: (a) submits in any legal proceeding
relating to this Agreement to the in personam jurisdiction of any state or
United States court of competent jurisdiction sitting in the State of Delaware;
(b) waives any objection that it may now or hereafter have to the venue of such
proceeding in any such court or that such proceeding was brought in an
inconvenient court; (c) waives any rights it may have with respect to service or
process arising from the "Convention on the Service Abroad of Judicial and Extra
Judicial Documents in Civil or Commercial Matters," as amended, or any laws,
treaties or conventions of similar purpose; (d) agrees to service of process in
any legal proceeding by mailing of copies thereof by United States registered or
certified mail, postage prepaid, reliable overnight delivery service charged
prepaid, by telex or by facsimile transmission; and (e) agrees that nothing
herein shall affect any other party's right to effect service of process in any
other manner permitted by law, and that any party shall have the right to bring
any legal proceedings (including a proceeding for enforcement of a judgment
entered by any of the aforementioned courts) against any other party in any
other court or jurisdiction in accordance with applicable law. Each of the
parties hereto agrees that final judgment (with all right of appeal having
expired or been waived) against
33
<PAGE>
any other party or parties in any such action, suit or proceeding shall be
conclusive and may be enforced in any jurisdiction by suit on the judgment, a
certified copy of which shall be conclusive evidence of the fact and amount of
the recovery arising from such judgment.
12.03 Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
averse to any party. In the event that the enforceability of any non-competition
or similar covenants contained herein or in any Related Agreement is called into
question as the result of time, geographical or other applicable limitations
specified in such covenants, such time, geographical or other applicable
limitations shall be deemed modified to the minimum extent necessary to render
the applicable provisions of such covenants enforceable.
12.04 Binding Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, including any representative appointed to administer or liquidate their
respective estates in any way whatsoever.
12.05 Specific Performance. The parties hereto acknowledge that
irreparable damage would result if any of the covenants of this Agreement were
not specifically enforced, and they therefore consent that the rights and
obligations of the parties under this Agreement may be enforced by a decree of
specific performance issued by a court of competent jurisdiction. Such remedy
shall, however, not be exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
12.06 Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement , the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, shall be paid by the party incurring such costs
and expenses.
12.07 Publicity. Buyer, Sellers and the Company shall cooperate with
each other in the development and distribution of all news releases and other
public disclosures concerning this Agreement. Prior to the Closing, neither
Sellers nor the Company shall issue any news releases or make any other public
disclosure without the prior consent of Buyer, and Buyer shall not issue any
news releases or other public disclosure without the prior consent of Sellers,
unless such is required by law (including without limitation any form, rule or
regulation of the United States Securities and Exchange Commission) upon the
written advice of counsel or is in response to published newspaper or other mass
media reports regarding the transaction contemplated hereby, in which such
latter event the parties shall consult with each other regarding such responsive
public disclosure.
12.08 Sellers' Consents. Wherever in this Agreement the consent or
approval of the Sellers is required, each Seller hereby expressly agrees that
the consent of Sellers who held a majority of the Shares prior to Closing shall
be sufficient and shall be legally binding on all Sellers, who shall be deemed
to have given such approval or consent.
34
<PAGE>
12.09 Notices. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been duly given when delivered
by hand (which shall include delivery by a courier firm providing receipted
evidence of delivery, or three (3) days after when sent by United States
registered or certified mail, return receipt requested, postage prepaid,
addresses as follows:
If to the Company or Sellers:
C/o Bretherton Price Elgoods
123 Promenade
Cheltenham, England GL50 1NW
Attention: John Workman
If to Buyer:
C/o Shaiman, Rovin & Silverman, P.C.
1628 John F. Kennedy Boulevard
Suite 1700
Philadelphia, PA 19103
USA
Attention: Lawrence D. Rovin
or to such other address as either party hereto may from time to time give
written notice of to the other.
12.10 Survival. All representations, warranties, indemnifications,
covenants and undertakings set forth herein shall survive the Closing and shall
remain binding on the parties hereto. Sellers acknowledge that their
representations and warranties in this Agreement shall not be affected or
mitigated by any due diligence investigation conducted by Buyer or its
representatives prior to the Closing, or any knowledge of Buyer obtained in any
fashion.
12.11 Waivers. The wa14iver by a party of a breach or violation of any
condition or provision of this Agreement shall not operate nor be construed as a
waiver by such party of any subsequent breach or violation.
12.12 Risk of Loss. The parties hereto agree and acknowledge that the
risk of loss with respect to the assets of the Company and the Company's
business remains with Sellers prior to completion of the Closing.
35
<PAGE>
12.13 Interpretation.
(a) The Article and Section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(b) When used herein, the masculine shall include the feminine
and neuter, the singular shall include the plural and vice versa.
(c) Any reference herein to the best of a party's knowledge,
information and belief shall include all knowledge, information belief or
awareness which that Person would have if that Person had made all usual and
reasonable inquiries.
12.14 Assignment. Buyer shall have the right, in its sole discretion,
to assign its interests and obligations in and under this Agreement to any
Affiliate of Buyer, upon notice to Seller, provided that Buyer shall remain
primarily liable hereunder; provided that Sellers shall receive Securities of
the Resulting Entity in partial payment of the Purchase Price notwithstanding
such assignment.
12.15 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original Agreement for all
purposes, and all of which when taken together shall constitute one Agreement
among each of the parties hereto on the dates respectively indicated in the
signatures of the parties, notwithstanding that all of the parties are not
signatories to the original or the same counterpart, such Agreement to be
effective as of the date hereof. Executed signature pages to any counterpart
instrument may be detached and affixed to a single counterpart, with such single
counterpart with multiple executed signature pages affixed thereto constituting
the original counterpart instrument. All of those counterpart pages shall be
read as though one, and they shall have the same force and effect as if all the
signers had executed a single signature page.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
the day and year first above written.
WITNESS:
/s/ Alice Rebecca Clark
- - - - ------------------------ ------------------------------------
Alice Rebecca Clark
/s/ Roy Clark
- - - - ------------------------ ------------------------------------
Roy Clark
/s/ Matthew Clark
- - - - ------------------------ ------------------------------------
Matthew Clark
/s/ Simon Clark
- - - - ------------------------ ------------------------------------
Simon Clark
36
<PAGE>
TRUSTEES OF THE ROY CLARK (LIFE INTEREST) SETTLEMENT 1997
/s/ Alice Rebecca Clark
- - - - ------------------------ ------------------------------------
Alice Rebecca Clark
/s/ Roy Clark
- - - - ------------------------ ------------------------------------
Roy Clark
/s/ John Workman
- - - - ------------------------ ------------------------------------
John Workman
TRUSTEES OF THE ALICE REBECCA CLARK (DISCRETIONARY) SETTLEMENT 1997
/s/ Alice Rebecca Clark
- - - - ------------------------ ------------------------------------
Alice Rebecca Clark
/s/ Roy Clark
- - - - ------------------------ ------------------------------------
Roy Clark
/s/ John Workman
- - - - ------------------------ ------------------------------------
John Workman
DISPATCH MANAGEMENT SERVICES LLC BROOKSIDE SYSTEMS AND
PROGRAMMING LIMITED
By:/s/ Linda Jenkinson By:/s/ Alice Rebecca Clark
------------------------- --------------------------------------
Linda M. Jenkinson Alice Rebecca Clark, Managing Director
Chief Executive Officer
37
AGREEMENT
This Agreement (the "Agreement") is entered into as of the 6th day of
October, 1997, by and among Dispatch Management Services Corp., a Delaware
corporation and successor in interest to Dispatch Management Services LLC by
merger (the "Company"), Bridge Wharf Investments Limited, a limited liability
company incorporated under the laws of England (the"Corporation"), and Riverbank
Limited (acting in its capacity as the sole trustee of the Mrs. E. Sieff
Settlement), a trust corporation incorporated under the laws of the British
Virgin Islands (the "Shareholder").
W I T N E S S E T H
WHEREAS, the Shareholder wishes to sell to the Company the entire issued
share capital of the Corporation;
WHEREAS, prior to the Closing in Escrow Date, the Shareholder will own or
have options over all of the issued and outstanding shares of capital stock of
the Corporation, (collectively, the "Stock");
WHEREAS, subject to the conduct of the due diligence examination to begin
following the execution of this Agreement, and further subject to the terms and
conditions set forth herein, the Shareholder desires to sell all of its right,
title and interest in the Stock to the Company, and the Company desires to
purchase the Stock;
WHEREAS, upon the satisfactory completion of the due diligence
examination, the delivery of the financial statements, schedules, disclosure
documents, questionnaires and other information required by this Agreement, and
approval of the same by the Company, the parties hereto will close in escrow
pursuant to the terms and conditions set forth herein;
WHEREAS, upon satisfaction of the conditions set forth herein, the escrow
will be terminated, and the sale of the Stock will be consummated;
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements herein contained, and for the sum of $10.00
paid by the Company to the
<PAGE>
Shareholder, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Closing in Escrow
1.1. Overview. Upon execution of this Agreement, the Shareholder
shall be obliged to deliver to the Company: (i) Disclosure Files (as defined in
Section 9.1 below); and (ii) within thirty (30) days after execution of this
Agreement, the audited and unaudited financial statements required pursuant to
Section 1.3 below.
After approval of the same by the Company, and prior to filing the
registration statement with the Securities and Exchange Commission relating to
the initial public offering of the common stock, par value $.01 per share, of
the Company (the "Initial Public Offering"), the Company will deliver to the
Shareholder a disclosure document, together with a notice (the "Notice")
specifying the date (being no later than March 31, 1998) by which the
Shareholder must execute and deliver a satisfactory shareholder representation
letter in the form attached to this Agreement for identification as Exhibit B
(or in such other form as the parties may agree) in order to consummate the sale
of the Stock pursuant to the terms of this Agreement.
The parties acknowledge that the Corporation currently owns the
premises from which it conducts its business operations, to wit: 58/62 Scrutton
Street, London, England EC2 (the "Operating Site"). The Company shall have the
option, exercisable by written notice to the Shareholder given at least 30 days
prior to Closing, to: (i) purchase the Operating Site (by increasing the
Purchase Price by a figure equal to (pounds)600,000 plus the balance due under
the West Brom Loan as of Closing, which increase in the Purchase Price is
hereinafter referred tot as the "Property Price"); or (ii) leasing the Operating
Site pursuant to the provisions of that certain lease attached hereto as
Schedule 1.1. In the event that the Company fails to give the Shareholder timely
written notice of its election to purchase the Operating Site, then, prior to or
simultaneously with the Closing (as defined below), the Corporation will: (i)
declare a dividend in specie of the freehold of the Operating Site subject to
the related loan to the West Bromwich Building Society of approximately
(pounds)470,633 (the "West Brom Loan"); and (ii) enter into a lease for the
Operating Site (the "Lease") in the form set forth in Schedule 1.1.
2
<PAGE>
In the event that the Company fails to give the Shareholder timely
written notice of its election to purchase the Operating Site, and, prior to
Closing, the Shareholder does not assume the West Brom Loan, then the Company
will reduce the cash portion of the Purchase Price by the dollar amount of such
liability as of the Closing Date.
Upon timely delivery from the Shareholder of a shareholder
representation letter in the form set out in Exhibit B, the parties will close
in escrow (the "Closing in Escrow") pursuant to the terms and conditions of this
Agreement. Such Closing in Escrow shall take place within thirty (30) days (or
such shorter period as is specified in the Notice) after timely delivery of a
shareholder representation letter from the Shareholder in the form set forth in
Exhibit B.
In the event that the Shareholder does not deliver a shareholder
representation letter in the form set forth in Exhibit B within thirty (30) days
of receipt of the Notice, this Agreement will be of no further force or effect,
except for any and all obligations under Sections 3.2 (confidentiality) and 8.2
(effect of termination under Section 8.1), which obligations will survive
termination of this Agreement.
1.2 Closing in Escrow Deliveries and Other Actions.
(a) Shareholder's Deliveries at Closing in Escrow. At the
Closing in Escrow, the Shareholder shall deliver the following to the law firm
of Paisner & Co, as escrow agent: (i) certificates (or other appropriate
documentation) representing all of the Stock with duly executed stock transfer
forms conveying the Stock represented thereby to the Company, free and clear of
all liens, security interests and claims, encumbrances or other rights of third
parties of any nature whatsoever, and granting unrestricted title to and
possession of the Stock to the Company, provided that in respect of Stock over
which the Shareholder has options which have not prior to the Closing been
completed this obligation shall be satisfied by the delivery of an agreement
duly executed by the Shareholder and the party holding shares in the Corporation
agreeing to the exercise of such option conditional only on Closing taking
place; (ii) the Corporation's corporate minute book, including the Stock
Certificate Book and all of the original share certificates (or other
appropriate documentation) representing the Corporation's capital stock, or
options to purchase such capital stock, at one time issued (but no longer issued
and outstanding); and (iii) all consents, waivers, and authorizations
3
<PAGE>
reasonably necessary or appropriate for the consummation of the transactions
contemplated by this Agreement.
Photocopies of all documents delivered in escrow to Paisner & Co
shall be delivered to the law firm of Silver, Freedman & Taff, L.L.P., promptly
after receipt thereof by Paisner & Co.
(b) Consummation of Sale. Upon Closing in Escrow, subject to
the terms and conditions of this Agreement, the Company will be obligated to
purchase the Stock, and the Shareholder will be obliged to sell the Stock, at
the Purchase Price specified in Section 1.3 below, on the Closing Date specified
in Section 1.4 below.
1.3. Purchase Price. The purchase price for the Stock (the "Purchase
Price") shall be equal to Ten Million Eight Hundred Fifty Thousand Pounds
(U.K.)((pounds)10,850,000), subject to adjustment (if any) as provided in
Section 1.1 above.
Unless the Company gives the Shareholder written notice to the
contrary, the Shareholder shall deliver to the Company, within thirty (30) days
after execution of this Agreement: (i) audited financial statements of the
Corporation, including balance sheets dated as of September 30, 1994, 1995 and
1996, and income statements and cash flow statements for each of the three
twelve month periods ended on such dates; and (ii) unaudited financial
statements of the Corporation (the "June Figures", attached hereto as Exhibit
A), including a balance sheet dated as of June 30, 1997 and an income statement
and a cash flow statement for the nine month period ended June 30, 1997. In the
event that the closing of the Initial Public Offering has not occurred on or
before November 12, 1997, then upon written request from the Company given on or
before March 1, 1998, the Shareholder shall permit representatives of the
Company to prepare such additional financial statements of the Corporation as
the Company may desire (at the sole expense of the Company).
The Company shall pay Seven Million, Three Hundred Fifty Thousand
Pounds (U.K.)((pounds)7,350,000) of the Purchase Price (plus the Property Price,
if applicable) in cash and Three Million, Five Hundred Thousand Pounds
(U.K.)((pounds)3,500,000) of the Purchase Price in (restricted) stock of the
Company (the "Company Stock"). The number of shares of Company Stock to be
issued as partial payment of the Purchase Price shall be equal to the aggregate
dollar value of the stock component of the Purchase Price divided by the Initial
Public Offering price per share as set forth on the cover page of the prospectus
relating to the Initial Public Offering. (Pounds) 750,000 of Company Stock
4
<PAGE>
(the "Escrowed Stock"), and appropriately executed stock powers relating
thereto, shall be held in escrow (by a representative of the Company, and a
representative of the Shareholder, as joint escrow agents, pursuant to a
mutually agreeable escrow agreement) to secure the obligations of the
Shareholder pursuant to Section 9 below.
The Shareholder acknowledges that the sale of the Company Stock will
be restricted for a period of time by virtue of a "lock-up" agreement, as may be
required by the Company, by which the sale of the Company Stock is restricted
(perhaps prohibited) for a period of two (2) years from the date of the closing
of the Initial Public Offering, provided that: (i) the sale of such stock will
not restricted in the event that a third party makes an offer for the entire
issued capital stock of the Company, and the majority of the shareholders of the
Company accepts such offer; (ii) such shares of stock may be transferred to
members of the families of the Shareholder, or associated trusts, for fiscal
reasons, subject to the consent of the Company (not to be unreasonably withheld
or delayed), and subject in all cases to compliance with applicable U.S. federal
and state securities laws, rules and regulations; and (iii) (notwithstanding the
foregoing) such shares of stock may be transferred at such earlier time as the
original Class a members of Dispatch Management Services LLC transfer their
stock in the Company or any part thereof (excluding the Escrowed Stock, and
excepting from the effect of this clause iii transfers by operation of law, such
as by reason of death, bankruptcy, mental or physical incapacity, or divorce).
1.4. Time and Place of Closing. Unless this Agreement shall have
been terminated and the transactions herein contemplated shall have been
abandoned pursuant to Section 8.1., and subject to the satisfaction or waiver of
the conditions set forth in Section 7, the purchase and sale of the Stock
pursuant to this Agreement (the "Closing") shall take place contemporaneously
with the closing of the Initial Public Offering unless the Initial Public
Offering does not occur by March 31, 1998, in which case this Agreement shall be
rendered null and void, or unless another date, time or place is agreed to in
writing by the parties hereto (the day on which the Closing takes place being
the "Closing Date").
At the Closing: (i) Paisner & Co. shall deliver to the Company the
certificates, minute book, documents, and other materials theretofore held in
escrow from the Closing in Escrow; (ii) the Shareholder shall deliver to the
Company any updated consents, waivers and authorizations as
5
<PAGE>
referred to in Section 1.2(a)(iii) above which may reasonably be required;
(iii) the Shareholder shall deliver to the Escrow Agents appropriately executed
stock powers relating to the (pounds)750,000 of Company Stock to be placed in
escrow as specified above; (iv) the Company shall deliver the Purchase Price to
the Shareholder by way of: (a) payment in cleared funds in pounds sterling of
(pounds)7,350,000 (plus the Purchase Price, if applicable) to the Client Account
of Paisner & Co (whose receipt will be good discharge) as follows:
Bank: Barclays Bank Plc
Branch: Fleet Street Goslings Business Centre
80 Fleet Street
London EC4Y 1ET
Sort Code: 20-32-29
Account No. 600 65013;
(b) delivery of (pounds)2,750,000 in Company Stock to the Shareholder; and (c)
delivery of (pounds)750,000 in Company Stock to the joint escrow agents as
specified above; and (v) the Company shall pay the shareholder loan of
(pounds)212,500 and the directors' loan of (pounds)212,500 each as specified in
the audited accounts of the Corporation for the period ended September 30, 1997.
2. Representations, Warranties and Covenants of the Shareholder.
Subject to the limitations set forth in Section 9 below, and except
as set forth in the Disclosure Files (as defined in Section 9.1 below), the
Shareholder hereby represents, warrants and covenants to the Company as follows
(the "Warranties"):
2.1. Organization, Standing and Power. The Corporation is a limited
liability company duly organized, and validly existing under the laws of
England, and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
Corporation is duly qualified to conduct business in each jurisdiction in which
the business it is conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary.
2.2. Authority and Enforceability. The Shareholder and the
Corporation have all requisite legal right, power and authority to enter into
this Agreement and to agree to the transactions contemplated hereby and thereby
and to perform all of their respective obligations hereunder and thereunder.
This Agreement constitutes the legal, valid and binding obligations of the
Shareholder and the Corporation, enforceable in accordance with its terms,
subject to applicable bankruptcy,
6
<PAGE>
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity.
2.3. Capital Structure, Due Authorization and Issuance. The capital
structure of the Corporation consists solely of an authorized share capital of
one million shares of (pounds)1 par value Ordinary Shares, of which 75,000 are
issued and outstanding, and will consist solely of the foregoing as of the
Closing in Escrow Date and the Closing Date. All issued and outstanding Stock
has been duly authorized and validly issued, are fully paid and non-assessable,
and were issued in compliance with all applicable securities laws.
2.4 Title to Stock. The Shareholder owns all of the Stock, free and
clear of any and all claims, liens, restrictions, pledges, charges, options,
security interests, encumbrances or other rights of third parties, including any
imposed by law. There are no other shares of capital stock, Loan Stock, options
or other equity or debt securities of the Corporation, of any kind or class
whatsoever, authorized, issued or outstanding, or any warrants, subscription
rights, or any other rights, agreements, or commitments of any nature relating
to the issuance of, or granting of, rights to acquire any shares of capital
stock or such securities of the Corporation.
2.5 Title to and Condition of the Corporation's Assets. The
Corporation has title to all of the assets set forth in the Financial Statements
(as defined in Section 2.11 hereinbelow). None of the Corporation's assets is
subject to any restriction, mortgage, pledge, lien, security interest, lease,
charge, encumbrance, objection or joint ownership, other than liens arising in
the ordinary and proper course of business. The Corporation's material assets
are in an adequate condition for their current purpose.
2.6. Sufficiency of Assets. The material assets used by the
Corporation are either owned by it (and reflected in the Closing Balance Sheet,
as defined in Section 9 below) or subject to the leasing and hire purchase
agreements described in the Disclosure Files which are agreements on arms length
terms.
2.7. No Violations Resulting From Transactions. The execution and
delivery of this Agreement by the Shareholder and the Corporation, and the
consummation of the transactions contemplated hereby by the Shareholder and the
Corporation will not (a) conflict with or violate any
7
<PAGE>
provision of the organizational documents of the Corporation, (b) require any
consent, waiver, approval, authorization, permission, or filing with or
notification to, any third party which would be material to the operations of
the Corporation, (c) result in or constitute a default, or require any consent
or approval of or notice to any person or entity, or result in the creation of
an encumbrance, under or pursuant to (i) any of the material contracts to which
the Corporation is a party (including but not limited to contracts of insurance
and leases as applicable), or (ii) any other material agreements to which the
Shareholder is a party, or (d) violate any law applicable to the Shareholder or
the Corporation.
2.8. Compliance with Laws.
(a) The Corporation is, and at all times during the past three
years has been, in material compliance with all applicable laws; and
(b) The Corporation has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Company has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Corporation is currently subject (or which the Corporation was subject to
during the previous three years), and (ii) all correspondence through the date
hereof with respect to any of the matters referred to in clause (b) of this
Section 2.8. Neither the Shareholder nor the Corporation is aware of any
proposed legislation or law which is reasonably expected to be enacted and
which, if so enacted, could reasonably be expected to have a material adverse
effect on the Corporation (i.e., a ten percent or greater decrease in overall
value of the Corporation).
2.9. Litigation. There is no action, suit, claim, investigation or
proceeding, whether at law or in equity (each, a "Legal Proceeding"), pending
or, to the knowledge of the Shareholder and/or the Corporation, threatened, that
questions the validity of this Agreement or any action taken or to be taken by
the Shareholder or the Corporation in connection with the consummation of the
transactions contemplated hereby or which seeks to prohibit, enjoin or otherwise
challenge any of the transactions contemplated hereby. The Disclosure Files (as
defined below) set forth an accurate and complete list, and a brief description
(setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and
8
<PAGE>
the status thereof), of each material Legal Proceeding pending or, to the
knowledge of the Corporation and/or the Shareholder, threatened against or
affecting the Corporation. There is no outstanding or, to the knowledge of the
Corporation and/or the Shareholder, threatened, judgment, injunction, order or
consent or similar decree or agreement (including, without limitation, any
consent or similar decree or agreement with any governmental entity) against,
affecting or naming the Corporation.
2.10. Financial Advisors.
(a) No person or entity has acted directly or indirectly as a
broker, finder or financial advisor for or to the Shareholder and/or the
Corporation in connection with the negotiations relating to or the transactions
contemplated by this Agreement; and
(b) No person or entity is entitled to any fee or commission
or like payment, or expense reimbursement, from the Corporation in respect
thereof based in any way on agreements, arrangements or understandings made by
or on behalf of the Corporation and/or the Shareholder hereunder or thereunder.
The Shareholder hereby agrees that all such fees, commissions or like payments,
or expense reimbursement shall be for the sole account of the Shareholder.
2.11. Financial Statements; Receivables. Attached hereto as Exhibit
C are true, correct and complete copies of the Corporation's most recent
unaudited financial statements which have been prepared in good faith and on a
basis consistent with previous management accounts for the Corporation. The
financial statements (including the notes and exhibits thereto) for the periods
ended September 30, 1994, 1995 and 1996 to be delivered pursuant to Section 1.3
herein (the "Financial Statements") were prepared in accordance with the books
and records of the Corporation, have and will have been prepared in accordance
with U.K. generally accepted accounting principles ("GAAP"), applied
consistently with the past practices of the Corporation, except where otherwise
specifically noted therein, and show in all material respects a true and fair
view of the financial position, results of operations and changes in financial
position or cash flows, whichever is applicable, of the Corporation as at the
dates and for the periods indicated. Without limiting the foregoing, the Closing
Balance Sheet shall show a true and fair view of the position of the Corporation
as at the date to which it was prepared (including liabilities or obligations of
any nature, whether known or unknown). The Corporation has paid (to the extent
due) all federal and local income, profits,
9
<PAGE>
franchises, sales, use, occupation, property, excise and payroll taxes, and all
license fees and other charges imposed upon it, and has timely filed all tax
returns and related documents required to be filed with any governmental
authority (the warranty set forth in this sentence being referred to in Section
9 below as the "Tax Warranty"). There are no outstanding or proposed statements
of deficiency in tax payments to any federal, local or foreign government with
respect to the Corporation for any tax period (the warranty set forth in this
sentence and the immediately preceding sentence being referred to in Section 9
below as the "Tax Warranty"). As of the dates such Financial Statements were and
will be prepared, all accounts receivable reflected on the Financial Statements
have and will have arisen from bona fide transactions in the ordinary course of
the Corporation's business, consistent with its past practices. The Shareholder
has no reason to believe that such accounts receivable will not be good and
collectible at the aggregate recorded amounts thereof, net of any applicable
reserves for returns, credit notes, settlement discounts or doubtful accounts
which are reflected in such Financial Statements (such reserves, the
"Reserves"); such Reserves are believed to be adequate and reasonable and were
established in accordance with GAAP.
2.12. Default. The Corporation is not in material default of any of
its obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the
Shareholder have not been notified of any such defaults or breaches.
2.13. Absence of Certain Developments.
The Shareholder is not aware of: (i) any proposed legislation
directly affecting the Corporation's business; (ii) any change in the accounting
policies or practices of the Corporation or in generally accepted accounting
principles or in the tax reporting policies of the Corporation; or (iii) any
proposed increase in the rates of taxation applicable to the services of the
Corporation, which (in each case) could have a material adverse effect on the
Corporation (i.e., a ten percent or greater decrease in overall value of the
Corporation).
The Corporation has not entered into any transaction or contract, or
conducted its business, other than in the ordinary course consistent with past
practice.
2.14. Intellectual Property. The Corporation does not own any
registered Intellectual Property and to the extent that it owns any property
which is unregistered Intellectual
10
<PAGE>
Property it has not licensed this, it is not valued in the Closing Balance Sheet
and it has not received any notice from any other party claiming to be entitled
to it. Other than routine computer software which is properly licensed to the
Corporation it does not use any Intellectual Property belonging to any other
person. The Corporation has not licensed or sold to any other person its
customer list.
2.15. Insurance. The Corporation currently maintains, and as of the
Closing in Escrow and the Closing Date will maintain, valid insurance policies,
with limits of insurance at a level consistent with the level historically
maintained by the Corporation. There are no outstanding material insurance
claims by the Corporation as to which the applicable insurers have denied
coverage. In addition, there exist no material claims under such insurance that
have not been properly filed by the Corporation. During the past two years, the
Corporation has not been refused any insurance coverage by any insurer from
which the Corporation has sought coverage.
2.16. Leases. The Corporation is not a lessee or tenant of any real
or personal property.
2.17. Labor Agreements. The Corporation is not a party to any
collective bargaining agreement. Except as required by law, the Corporation is
not bound by any severance pay requirements which would require payment of more
than 3 months' pay.
2.18. Employee Benefit Plans. The Corporation does not maintain or
contribute to, and it has no liability or obligation with respect to any formal
or informal stock option, profit sharing, pension, retirement, bonus, stock
bonus, thrift-savings, incentive, benefit, welfare, cafeteria, medical
insurance, dental insurance, life insurance, accidental death and dismemberment
insurance, disability insurance or other similar plan, policy or arrangement
(collectively referred to herein as the "Plans"). The Corporation is not in
default under the terms of any of the Plans. The Corporation has made all
contributions to each of the Plans required by the terms of the respective
Plans, as well as all contributions required to be made in order to satisfy all
requirements of law. Each of the Plans has sufficient assets to satisfy (under
reasonable and permitted actuarial assumptions) its obligations on a termination
basis, and the level of contributions required pursuant to the terms of each
Plan is sufficient to satisfy (under reasonable and permitted actuarial
assumptions) the obligations of such Plan on a continuing basis for benefits
accrued to date.
11
<PAGE>
2.19. Compliance With Applicable Law. The Corporation's Plans are
currently in compliance in all respects with applicable law.
2.20. Employee Relations. The Corporation is in substantial
compliance with all applicable federal and local laws, statutes, regulations,
orders, codes, ordinances, guidelines, executive orders, contractor
requirements, judicial and administrative judgments and determinations to which
the Corporation is or was a party, and any other authority governing the
Corporation, with respect to its employees (hereinafter collectively referred to
as the "Applicable Employment Standards"), including, but not limited to,
employment, employment practices, fringe benefits, terms and conditions of
employment, termination of employment, severance or separation pay, workers'
compensation, disability, entitlements, unemployment insurance, employment
screening, wage-hour, employment discrimination on any basis, equal employment
opportunity, individual employee rights, affirmative action, occupational health
and safety, and immigration and right to work requirements. The Corporation
further represents that it is not in arrears in the payment of wages to any
employee (except to the extent of its normal payroll practices), and there are
no claims, liabilities, demands or causes of action, realized or unrealized,
actual, potential or contingent, pursuant to statutory rights or in tort,
contract or otherwise, against the Corporation arising out of or in connection
with any event, fact, circumstance or occasion relating to any applicant for
employment, the employment of any employee or the separation from employment of
any employee.
2.21. Licenses. The Corporation has the radio licenses, and the
appropriate license for the "ROCS" software, necessary for the conduct of its
business as presently conducted. Neither the radio licenses nor the license for
the ROCS software will be adversely affected by the consummation of the
transactions contemplated by this agreement. The Corporation does not possess
any licenses issued by public authorities, and the Corporation knows of no
licenses issued by public authorities which are necessary for the conduct of its
business as presently conducted.
2.22. Criminal Practices. The Corporation is not engaged and has not
been engaged in any criminal practices, including, but not limited to, payoffs,
kickbacks or illegal gifts.
2.23. Contracts. Neither the Corporation nor the Shareholder has
received notice of is aware of any present intention on the part of any
significant customer, supplier or other vendor with which the Corporation does
business to the effect that such customer either (x) will terminate
12
<PAGE>
or significantly change its existing business relationship with the Corporation
either now or in the foreseeable future, or (y) will fail to renew or extend its
existing business relationship with the Corporation at the end of the term of
any existing contractual arrangement such entity may have with the Corporation.
3. Additional Representations, Warranties and Covenants of the
Shareholder.
3.1. Non-Competition and Other Covenants of the Shareholder. The
Shareholder undertakes that it will not itself directly compete with the
Corporation and it will not itself knowingly solicit or entice away any of the
employees of the Corporation; provided that nothing in this section shall
prevent the Shareholder from continuing to have or acquiring investments in any
company or business which may do any of such things.
3.2. Confidentiality. The Shareholder shall abide by the terms of
the Confidentiality Agreement between the Corporation and the Company (or the
Company's predecessor, Dispatch Management Services LLC) executed on or about
September 3, 1997. The Shareholder and the Corporation both acknowledge and
agree that the Company shall have the right to disclose certain information
concerning the Corporation to third parties other than competitors of the
Corporation (which third parties will in turn be bound by an agreement similar
to the Confidentiality Agreement), for such general corporate purposes as
includes but is not limited to obtaining financing and/or underwriting, and for
general marketing purposes.
4. Representations and Warranties of the Company The Company represents
and warrants to the Shareholder as follows:
4.1. Organization, Standing and Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to conduct business in each jurisdiction in
which the business it is conducting, or the operation, ownership or leasing of
its properties, makes such qualification necessary.
4.2. Authority and Enforceability. The Company has all requisite
power and authority to execute and deliver this Agreement and to perform fully
its obligations hereunder. The
13
<PAGE>
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Company. This Agreement has been duly executed and
delivered by the Company, and constitutes the legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
4.3. No Violations Resulting From Transactions. The execution and
delivery by the Company of this Agreement and the consummation of the
transactions contemplated hereby by the Company, will not (a) conflict with or
violate any provision of the Certificate of Incorporation or By-laws of the
Company, (b) except as set forth on Exhibit D, require any consent, waiver,
approval, authorization or permission of, or filing with or notification to, any
third party, (c) result in or constitute a default, or require any consent or
approval of or notice to any person or entity under or pursuant to any of the
contracts to which the Company is a party; or (d) violate any applicable laws.
4.4. Compliance with Laws.
(a) The Company is, and at all times since its inception has
been, in material compliance with all applicable laws; and
(b) The Company has not received, and does not know of the
issuance or threatened issuance by any governmental entity of, any notices of
violation or alleged violation of any applicable law. The Shareholder has been
provided with true and complete copies of (i) all injunctions, judgments, orders
or consent or similar decrees or agreements of any governmental entity to which
the Company is currently subject (or to which the Company was subject since its
inception), and (ii) all correspondence through the date hereof with respect to
any of the matters referred to in clause (b) or clause (i) of this Section 4.4.
4.5. Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Company, threatened that questions the validity of this
Agreement or any action taken or to be taken by the Company in connection with
the consummation of the transactions contemplated hereby or
14
<PAGE>
which seeks to prohibit, enjoin or otherwise challenge any of the transactions
contemplated hereby or thereby. Exhibit E sets forth an accurate and complete
list, and a brief description (setting forth the names of the parties involved,
the court or other governmental or mediating entity involved, the relief sought
and the substantive allegations and the status thereof), of each Legal
Proceeding pending or, to the knowledge of the Company, threatened against or
affecting the Company. To the knowledge of the Company, no event has occurred
and no circumstance, matter or set of facts exist which would constitute a valid
basis for the assertion by any third party of any claim or Legal Proceeding,
other than those listed on Exhibit E. Except as set forth in Exhibit E, there is
no outstanding or, to the knowledge of the Company, threatened, judgment,
injunction, order or consent or similar decree or agreement (including, without
limitation, any consent or similar decree or agreement with any governmental
entity) against, affecting or naming the Company.
4.6. Default. The Company is not in material default of any of its
obligations, contracts, or commitments in any respect, or in breach of any
negative or affirmative covenants placed on it by its creditors, and the Company
has not been notified of any such defaults or breaches.
4.7. Misrepresentation. Neither this Agreement (including the
Exhibits hereto) or any information supplied to the Shareholder by or on behalf
of the Company in connection with this Agreement, or the transactions
contemplated hereby 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
statement contained herein or therein, in light of the circumstances under which
they were made, not misleading.
5. Covenants Relating to Conduct of Business
During the period from the date of this Agreement and continuing
until the Closing Date, the Shareholder and the Corporation each covenants and
agrees that (except as expressly contemplated or permitted by this Agreement, or
to the extent that the Company shall otherwise consent in writing) it shall use
such rights and powers as are reasonably available to it to procure that the
Corporation shall in all material respects:
(a) conduct its business only in the ordinary course,
consistent with past practice;
15
<PAGE>
(b) use its best efforts to (i) preserve the present business
operations, organization (including, without limitation, management and the
sales force) and goodwill of its business and (ii) preserve the present
relationship of the Corporation with Persons having business dealings with the
Corporation;
(c) comply with all laws and with all contractual and other
obligations applicable to it;
(d) not change its organizational documents;
(e) not issue or contract to issue any stock, securities,
options, or debt which is convertible to stock or securities;
(f) not declare or agree to declare or otherwise make any
dividend or other distribution or payment in respect of the Stock (other than
the Operating Site);
(g) not sell, transfer, assign, pledge, encumber or otherwise
dispose of any of its assets, except in the ordinary course of business
consistent with past practice;
(h) not acquire any material properties or assets and not
sell, assign, transfer, convey, lease or otherwise dispose of any of its
material properties (other than the Operating Site);
(i) maintain its present insurance or equivalent coverage on
all of its assets and on all real and personal property leased to it;
(j) promptly notify the Company of (i) the occurrence of any
matter which may have a material adverse effect on its business or its assets
(i.e., a ten percent or greater decrease in overall value of the Corporation),
and (ii) any Legal Proceeding commenced by or against it or any Legal Proceeding
commenced or threatened relating to the transactions contemplated by this
Agreement, which in either case is material to the business;
(k) not agree to anything prohibited by this Agreement or
anything which would make any of the representations and warranties of the
Shareholder or the Corporation in this Agreement untrue or incorrect in any
material respect.
Provided that:
(i) the Corporation will be entitled to pay monthly dividends of up to an
aggregate amount of (pounds)20,000 per month to the shareholders of the
Corporation; and
16
<PAGE>
(ii) the Corporation may incur capital expenditures as long as the Company
shall have been given prior notice, and the opportunity to consult with
the Corporation's management, once such capital expenditures exceeds
(pounds)100,000 in the aggregate (with additional prior notice and
opportunity to consult once such capital expenditures exceed
(pounds)200,000, and (pounds)300,000); and the Corporation shall not make
capital expenditures in excess of (pounds)350,000 without the Company's
prior written approval, which approval shall not be unreasonably withheld
or delayed;
notwithstanding the provisions of this Section 5.
6. Additional Agreements and Representations.
6.1. Access to Information. The Shareholder agrees to procure that,
prior to the Closing Date, the Company shall be entitled (at its sole expense
and subject to suitable undertakings as to confidentiality), through its
officers, employees and representatives (including, without limitation, its
legal advisors and accountants), to make such investigation of the properties,
businesses and operations and financial condition of the Corporation and
examination of its books and records as the Company may reasonably request, and
to make extracts and copies of such books and records. Any such investigation
and examination shall be conducted during regular business hours and under
reasonable circumstances, and shall not involve any outside advisers of the
Corporation unless the costs of such outside advisers shall be paid in advance
by the Company, and the Shareholder will procure that the Corporation shall
cooperate to permit such investigation and examination on such basis.
6.2. Non-solicitation Pending Closing. After execution of this
Agreement, and through the Closing Date, neither the Corporation nor the
Shareholder shall pursue, initiate, encourage or engage in any negotiations or
discussions with any third parties concerning the sale of the Corporation, its
assets, or any part thereof, or concerning the terms and conditions of this
Agreement.
6.3. Additional Agreements. Each of the parties hereto agrees to use
their respective reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, (ii) obtain all
17
<PAGE>
licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental entities, third parties and parties to contracts with the
Corporation as are necessary for consummation of the transactions contemplated
by this Agreement, and (iii) fulfill all conditions precedent applicable to such
party pursuant to this Agreement. In case at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, each party hereto shall use their respective reasonable efforts to
take or cause to be taken all such necessary action.
6.4. Notification of Certain Matters. The Corporation and the
Shareholder shall, as soon as practicable, give notice to the Company of (a) any
notice of, or other communication relating to, a default under any contract
material to the financial condition, properties, business operations, or results
of operations of the Corporation to which it is a party or is subject, (b) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement, or (c) any material adverse change (i.e., a ten
percent or greater decrease in overall value of the Corporation) in the
properties, business operations, results of operations, or financial condition
of the Corporation, other than changes resulting from general economic
conditions. In addition, the Corporation and the Shareholder shall be required
to update the Disclosure Documents and other information supplied pursuant to
this Agreement at such time as the information contained therein changes in any
material respect.
6.5 Working Capital as of the Closing Date. The Shareholder shall
ensure that the Corporation's working capital (defined as the excess of current
(liquid) assets over current liabilities in each case as defined in the June
Figures) as of the Closing Date is no less than the Corporation's working
capital as of June 30, 1997, and that the Corporation's net asset value as of
the Closing Date is no less than the Corporation's net asset value as of June
30, 1997. For purposes of determining whether the Corporation had the required
working capital and net asset value as of the Closing Date, the Company will
cause to be prepared, promptly following the Closing, a balance sheet (the
"Closing Balance Sheet") of the Corporation as of the Closing Date. The Closing
Balance Sheet shall be prepared in accordance with the English Companies Acts
and GAAP, and shall be prepared on the
18
<PAGE>
same basis as the June Figures and with the same accounting policies provided
always that accrued tax liabilities will be provided for as if the tax year
ended on the Closing Date).
In the event that the Company shall notify the Shareholder in writing
within five days after preparation of the Closing Balance Sheet that there is a
Shortfall (i.e., the amount necessary to bring the Corporation's working capital
and net asset value up to their respective levels as of June 30, 1997), then the
Company shall forthwith instruct Price Waterhouse to audit the Closing Balance
Sheet, and to calculate the working capital therein in accordance with the
English Companies Acts and GAAP. Price Waterhouse shall then determine the
amount of the Shortfall as set out in this paragraph 6.5 and set out their
determination in a certificate (the "PW Certificate") which they will deliver to
the Shareholder together with a copy of the Closing Balance Sheet. If the
Shareholder disputes the contents of the PW Certificate and/or the Closing
Balance Sheet, they shall notify the Company within 10 working days of their
receipt of the Certificate (the "Notification Period"). If the Shareholder does
not serve written notice within the Notification Period that they dispute the PW
Certificate and/or the Closing Balance Sheet (the" Dispute Notice") specifying
in reasonable detail the subject matter of the dispute then they will on the day
next following the end of the Notification Period forthwith pay the Company an
amount sufficient to bring the working capital and/or the net asset value, as
the case may be, up to the required amounts in order to pay the Shortfall.
If the Shareholder serves a Dispute Notice within the Notification Period,
the Company and the Shareholder will negotiate in good faith during the period
of 7 days to resolve the issue in dispute. If the dispute is not resolved within
the said period of 7 days the subject matter of the dispute shall be referred to
the President for the time being of the Institute of Chartered Accounts in
England and Wales who shall nominate an appropriate accountant (the "Referee")
to adjudicate on the dispute in question.
The Referee shall act as an expert and not as an arbitrator and the costs
and expenses of the Referee shall be borne as he shall direct. All issues as to
whether the Closing Balance Sheet has been prepared in accordance with the
English Companies Acts and GAAP and determination of assets and liabilities on
the Closing Balance Sheet shall be determined by the Referee whose decision
shall be final and binding upon the Company and the Shareholder in the absence
of manifest error.
19
<PAGE>
The Referee shall serve notice of his decision and the amount of the
Shortfall (if any) on the Company and the Shareholder. If and to the extent that
there is a Shortfall following such determination, the Shareholder shall pay
such amount to the Corporation within 5 working days of service on the
Shareholder of the determination of the Referee.
The Company will procure that the Corporation will promptly provide the
Shareholder and its advisers and the Referee all working papers and documents
reasonably necessary for them to decide upon the issues relevant to the PW
Certificate and the Closing Balance Sheet and will afford them facilities to
inspect the same or copies if requested.
7. Conditions Precedent.
7.1. Conditions to Obligations of All Parties. The respective
obligations of each party under this Agreement in respect of the matters to be
performed at the Closing in Escrow Date and the Closing Date shall be subject to
the satisfaction prior to the Closing in Escrow Date and the Closing Date (as
appropriate) of the following conditions:
(a) Governmental Approvals. All authorizations, consents,
orders or approvals of, or declarations or filings with, or expirations of
waiting periods imposed by, any governmental entity, requisite to the
transactions contemplated hereby, shall have been filed, occurred or have been
obtained, as the case may be.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect; provided that prior to invoking this condition, each party shall use
their reasonable efforts to have any such order, injunction, legal restraint or
prohibition vacated.
7.2. Conditions to Obligations of the Company. The obligations of
the Company to effect the transactions to be performed at the Closing in Escrow
and the Closing contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the Company,
any or all of which may be waived in whole or in part by the Company):
(a) Representations and Warranties. The representations and
warranties set forth in this Agreement (without regard to any supplements or
updates thereto) shall be true and correct in all respects as of the date of
this Agreement and (except to the extent such representations
20
<PAGE>
and warranties speak as of a specified, earlier date) would be true if they had
been repeated as of the Closing in Escrow Date and the Closing Date as though
made on and as of the Closing in Escrow Date and the Closing Date, respectively,
except as otherwise contemplated by this Agreement.
(b) Performance of Obligations. The Corporation and the
Shareholder shall each have performed all obligations required to be performed
by each such party under this Agreement at or prior to the Closing in Escrow
Date and the Closing Date, respectively.
(c) No Material Adverse Change. Since the date of this
Agreement, there shall have been no change, occurrence or circumstance resulting
in, or which could reasonably likely result in, individually or in the
aggregate, a material adverse effect on the Corporation, its assets or its
business (i.e., a ten percent or greater decrease in overall value of the
Corporation).
(d) Contractual Consents. The Corporation and/or the
Shareholder shall have given all notices to, and obtained all consents,
approvals or authorizations of or from, any individual, corporation or other
party which may be necessary to permit the consummation of the transactions
contemplated hereby (including, without limitation, any consents required under
the Contracts).
7.3. Conditions to Obligations of the Corporation and the
Shareholder. The obligations of the Corporation and the Shareholder to effect
the transactions contemplated by this Agreement are subject to the satisfaction
of the following conditions (which are for the exclusive benefit of the
Corporation and the Shareholder, any or all of which may be waived in whole or
in part by the Corporation or the Shareholder).
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all respects as of the date of this Agreement and (except to the extent such
representations and warranties speak as of a specified, earlier date) as of the
Closing in Escrow Date and the Closing Date as though made on and as of the
Closing in Escrow Date and the Closing Date, respectively, except as otherwise
contemplated by this Agreement.
(b) Performance of Obligations. The Company shall have
performed all obligations required to be performed by it under this Agreement at
or prior to the Closing in Escrow Date and the Closing Date, respectively.
21
<PAGE>
7.4 Costs of Satisfying Conditions. To the extent that any costs are
incurred in satisfying any of the conditions contemplated by this Agreement
these shall be borne by the Company, which will reimburse any other party which
has suffered any of such costs promptly upon demand, provided however that those
costs incident to the Corporation's or the Shareholder's compliance with the
requirements of English law, as necessary to fulfill their respective
obligations under this Agreement, shall be borne by the Corporation or the
Shareholder, as appropriate.
8. Termination.
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of the Company and the
Shareholder;
(b) by either the Company or the Shareholder, if the June
Figures, as finally prepared by Price Waterhouse, are materially different than
the June Figures, as set forth in the draft unaudited financial statements as
prepared by Price Waterhouse and delivered to the Company and the Shareholder
prior to execution of this Agreement;
(c) by either the Company or the Shareholder, if the Initial
Public Offering does not close by March 31, 1998; or
(d) by the Company in the event that the Shareholder does not
timely deliver a shareholder representation letter in the form of Exhibit B.
8.2. Effect of Termination Under Section 8.1. In the event of
termination of this Agreement by either the Company or the Shareholder as
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto or any of
its respective Affiliates, officers, directors or shareholders except (i) for
any and all obligations under the confidentiality provisions contained in
Section 3.2 of this Agreement; and (ii) to the extent that such termination
results from the willful breach by a party hereto of any of its representations
or warranties, or of any of its covenants or agreements, as set forth in this
Agreement. In the event that termination results from the willful breach by a
party hereto of any of its representations or warranties, or of any of its
covenants or agreements, as set forth in this Agreement, the breaching party
shall be liable to the non-breaching party for all direct damages (but not
indirect or consequential damages) incurred as a result of such willful breach
up to a maximum of (pounds)10,000.
22
<PAGE>
9. Limitations.
9.1. Limitation on Shareholder's Liability. The Shareholder shall
have no liability under this Agreement or in connection with this Agreement,
howsoever arising, whether in contract, tort or otherwise, unless and until the
aggregate amount of all proper claims under this Agreement shall exceed
(pounds)20,000 and further provided that the liability of the Shareholder under
this Agreement or in connection with this Agreement, howsoever arising, whether
in contract, tort or otherwise, shall be limited to the Company Stock placed in
escrow pursuant to the provisions of Section 1.3 above (the "Escrowed Stock"),
and further provided that the liability of the Shareholder under this Agreement
shall be limited to an aggregate of (pounds)150,000 in value of Escrowed Stock
as to the Tax Warranty (as defined in Section 2.11 above). As set forth in the
escrow agreement governing the disbursement of the Escrowed Stock (the "Escrow
Agreement"), the number of shares of Company Stock to be released from escrow
shall be equal to the dollar amount of the Warranty Claim (as defined below)
divided by the latest publicly quoted closing price for the Company Stock as
appears in the most recent copy of the Wall Street Journal on the date that
disbursement is made. Notwithstanding anything in this Agreement to the
contrary, the Company shall have no rights or remedies whatsoever against the
Shareholder in respect of the Purchase Price paid over to the Shareholder other
than the Escrowed Stock and the Company's sole remedies and rights pursuant to
this Agreement or in connection with this Agreement, howsoever arising, whether
in contract, tort or otherwise, shall be by way of disbursement of the Escrowed
Stock in accordance with the Escrow Agreement. Provided always that none of the
foregoing limitations will apply in the case of fraud or fraudulent
misrepresentation.
It is recorded that the Shareholder is entering into this Agreement in its
capacity as the trustee of a trust, and has no personal interest in the subject
matter hereof. Notwithstanding any of the other provisions of this Agreement,
the liabilities of the Shareholder in terms of this Agreement shall be limited
to the assets from time to time held by it as the trustee of such trust ("Trust
Assets"). Provided always that the Shareholder undertakes unconditionally that
the Escrowed Stock will at all times remain part of the Trust Assets whilst
there are obligations outstanding under this Agreement.
Except in the case of fraud or fraudulent misrepresentation, no claims
shall be capable of being made against the Shareholder under or in connection
with this Agreement unless written notice
23
<PAGE>
thereof (specifying all material details of the breach or other event to which
such a claim shall relate and the Company's bona fide estimate of the amount
thereof) shall have been given to the Shareholder not later than 24 months from
the date of this Agreement. Any such claim which may be made shall (if it has
not been previously satisfied, settled or withdrawn) be deemed to be withdrawn
at the expiration of 6 months from the date of giving notice of such claim
unless legal proceedings in respect thereof have been commenced by the issuing
and service of such proceedings against the Shareholder and the subject matter
of any such claim which shall be deemed withdrawn shall not be capable of being
the subject of a further claim.
The Company acknowledges that it has not relied on any
representation, warranty, covenant or undertaking of the Shareholder or any
other persons save for any representation, warranty, covenant or undertaking
expressly set out in this Agreement or the Disclosure Files; and that without
limiting the foregoing it has no rights pursuant to any of the information
provided to it prior to the date of this Agreement; and that the Company is not
aware of any matter or thing which in its reasonable opinion may be inconsistent
with any of the Warranties or which would or may give rise to any liability on
the part of the Warrantors pursuant to the Warranties. The Company acknowledges
that no representation, warranty, covenant or undertaking (whether express or
implied, statutory or otherwise) made or alleged to have been made by or on
behalf of the Shareholder in connection with or arising out of the sale of the
Stock (whether by the provision of information or otherwise howsoever) and which
is not expressly set out in this Agreement shall give rise to any liability on
the part of the makers thereof or any other person or persons who might
otherwise be liable in respect of the making thereof.
The Warranties are given subject to all matters disclosed by the
minute books of the Corporation and to all other matters disclosed by any
written information made available to the Company or its advisers prior to the
execution of this Agreement (the "Disclosure Files"), all of which matters shall
be treated as disclosed against each and all of the Warranties.
9.2. Specific Limitations. The Shareholder shall have no liability
to the Company and the Company shall not have any claim whatsoever against the
Shareholder in respect of any claim under the provisions of Section 2 above (a
"Warranty Claim") or any matter giving rise thereto the extent that:
24
<PAGE>
(i) provision or allowance or reserve in respect thereof has been
made in the Closing Balance Sheet or payment or discharge
thereof has been taken into account in preparing such balance
sheet or the matter to which the claim relates was
specifically referred to in the note to such balance sheet;
(ii) it would not have arisen but for any change after Closing in
the accounting policies or practices of the Corporation or in
generally accepted accounting principles or in the tax
reporting policies of the Corporation;
(iii) it occurs as a result of any legislation not in force at the
date of Closing which takes effect retrospectively or occurs
as a consequence of a change in the interpretation of the law
or the practice or any taxation authority after the date
hereof in the United Kingdom;
(iv) it would not have arisen but for any voluntary act, omission,
transaction or arrangement after Closing otherwise than in the
ordinary course of business of the Corporation as at present
carried on;
(v) it would not have arisen but for any change in the nature or
conduct or any winding up or cessation after Closing of any
trade or business carried on by the Corporation; and
(vi) the Corporation recovers under a policy of insurance in
respect of the loss or damage which gives rise to the Warranty
Claim.
If any liability of the Shareholder is in respect of a liability of the
Corporation which is contingent when the Warranty Claim is notified to the
Shareholder, then the Shareholder shall not be obliged to make any payment in
respect of the liability until such time as the contingent liability becomes an
actual liability.
If after Closing there comes to the notice of the Company any matter or
claim or event or thing which may constitute or give rise to a Warranty Claim,
it shall be a condition of liability in respect of such Warranty Claim that the
Company shall:
(i) forthwith give written notice thereof to the Shareholder
giving full details of the Warranty Claim so far as then known
to the Company together with the Company's assessment of the
amount that and the date on which the Company
25
<PAGE>
anticipates that the Shareholder will be required to make a
payment in respect of the Warranty Claim;
(ii) not make any admission of liability, agreement or compromise
with any person, body or authority in relation thereto without
the prior agreement of the Shareholder (which shall not be
unreasonably withheld or delayed); and
(iii) give the Shareholder and its professional advisers access to
the premises, personnel and advisers of the Company and the
Shareholder as may be relevant upon reasonable notice and
during normal business hours and access to any relevant
chattels, documents and records owned by or within the power
or control of the Company and/or the Corporation or to which
the Company or the Corporation has or can procure access so as
to enable the Shareholder and its professional advisers to
examine such chattels, accounts, documents and records and
take extracts or photocopies thereof for the purpose of
determining the nature and extent of the Warranty Claim and
the steps that may be appropriate to remedy or avert it.
Following the Company giving notice to the Shareholder of a Warranty
Claim, the Company shall afford the opportunity to take such steps as the
Shareholder considers reasonable to remedy or avert the Warranty Claim.
The Shareholder may require the Company to give such information and
assistance in connection with the affairs of the Corporation as the Shareholder
may reasonably request to avoid, resist, appeal or compromise the Warranty Claim
subject to the Shareholder's indemnifying the Company for itself and as trustee
for the Corporation against all costs and expenses which it or they may properly
incur in connection with such assistance.
The Shareholder may request the Company or the Corporation to allow the
Shareholder to take on or take over at its own expense the conduct of all
proceedings of whatsoever nature arising in connection with the Warranty Claim
subject to the Company's approval of the Shareholder's professional advisers,
which approval shall not be unreasonably withheld or delayed. If the Shareholder
takes on or takes over the conduct of proceedings, the Company shall, or shall
procure that the Corporation shall, provide such information as the Shareholder
may reasonably require in
26
<PAGE>
connection with the preparation for and conduct of such proceedings. Any
settlement of a Warranty Claim the proceedings of which has been taken over by
the Shareholder shall be subject to the prior written approval of the Company,
which approval shall not be unreasonably withheld or delayed.
Where the Company or Corporation is entitled to recover from some other
person any sums in respect of a Warranty Claim the Company shall or shall
procure that the Corporation shall take such action as the Shareholder may
reasonably request to enforce such recovery and any amount so recovered shall be
taken into account in determining the liability of the Shareholder in respect of
any related Warranty Claim subject to the Shareholder's advancing to the Company
all costs and expenses which the Company may incur in connection with such
action.
For the avoidance of doubt, nothing in this Agreement shall in any way
restrict or limit the general obligation at law of the Company to take
reasonable steps to mitigate any loss or damage which it may suffer in
consequence of any breach by the Shareholder of the terms of this Agreement.
If, before the Shareholder has made a payment in respect of a Warranty
Claim, the Corporation or the Company shall recover (whether by payment,
discount, credit or otherwise including from insurers or any taxation authority)
any sum by reason of or in respect of the matter giving rise to the Warranty
Claim they shall take such recovery (less any reasonable costs and expenses
properly incurred in relation to such recovery) into account in determining the
amount of the Warranty Claim.
If the Shareholder shall have made any payment in respect of a Warranty
Claim and the Corporation or the Company shall subsequently receive a benefit
which was not taken into account in determining any liability of the Shareholder
in respect of the Warranty Claim and which would have reduced such liability had
the benefit been taken into account (including under any insurance) the Company
(for itself or on behalf of the relevant company as the case may be) shall
forthwith repay the Shareholder an amount equal to the lesser of:
(i) an amount corresponding to the benefit (including the amount of any
such refund but, in all cases, after deduction of any reasonable
costs or expenses properly incurred in such recovery as well as all
taxation thereon); and
(ii) the payment by the Shareholder to the Company in respect of the
Warranty Claim.
27
<PAGE>
9.3 Guarantees
The following provisions of this Section 9.3 shall apply to any
guarantees, indemnities, undertakings, agreements or other contingent
liabilities given or entered into at any time by any of Hilton Lewis and Leslie
Sieff in relation to Corporation or its acts, omissions, obligations or
liabilities ("Guarantees"). The Company shall attempt to procure the release of
Hilton Lewis and Leslie Sieff from those Guarantees listed in the Disclosure
File for the purposes of this Section 9.3 as soon as practicable and in respect
of any other Guarantees of which Hilton Lewis and Leslie Sieff shall at any time
hereafter become aware as soon as practicable after notice thereof has been
given by Hilton Lewis and Leslie Sieff to the Company. Notwithstanding the
foregoing, unless the Company secures the release of the April 25, 1997
indemnity and all other guarantees and indemnities given by Leslie Sieff and
Hilton Lewis to Trade Indemnity - Heller Commercial Finance Ltd ("Heller"), the
Company shall pay at Closing the liability of the Corporation to Heller under
the factoring agreement between the Corporation and Heller dated November 2,
1992 and procure that the factoring agreement is discharged. The Company
undertakes to Hilton Lewis and Leslie Sieff that it will indemnify Hilton Lewis
and Leslie Sieff and keep Hilton Lewis and Leslie Sieff indemnified from and
against any and all liability (including in respect of claims, proceedings,
costs and interest) in relation to any claims made, or obligations arising on or
after Closing (as well as before Closing to the extent such claims or
obligations are set forth in the Disclosure Files) under or pursuant to any of
the Guarantees.
10. General Provisions.
10.1. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement shall survive the
Closing for the period of two (2) years referred to in Section 9.2 above.
10.2. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally or sent by
overnight courier, or by certified or registered mail, postage prepaid, and
shall be deemed to be given, dated and received when so delivered personally or
by courier, or, if mailed, five business days after the date of mailing to the
following address, or to such other address or addresses as such Person may
subsequently designate by written notice given hereunder:
28
<PAGE>
(a) if to Company, to:
Dispatch Management Services Corp.
12240 Indian Creek Court
Beltsville, Maryland 20705
Attention: Linda Jenkinson, Chief Executive Officer
(b) if to the Corporation or the Shareholder, to:
Pailex Corporate Services Limited
c/o Paisner & Co.
Bouverie House
154 Fleet Street
London EC4A 2DQ
Attention: S. J. Nelson
with a copy to: Riverbank Limited
P.O. Box 124 Mignot Plateau
Cornet Street
St. Peter Port
Guernsey
Channel Islands GY1 4EG
10.3. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be considered an original and all of which
shall be considered one and the same agreement and shall become effective when
two or more counterparts have been signed by each of the parties and delivered
to the other parties, it being understood that all parties need not sign the
same counterpart.
10.4. Entire Agreement; No Third Party Beneficiaries. This Agreement
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereto and is not intended to confer upon any Person other than
the parties hereto any rights or remedies hereunder. Subject to applicable law,
this Agreement may be amended, modified or supplemented only by written
agreement of all parties
29
<PAGE>
hereto with respect to any of the terms contained herein, and each party hereto
agrees to be bound by any such amendment, modification or supplement.
10.5. Governing Law. This Agreement shall be governed and construed
in accordance with the laws of England. The parties irrevocably submit to the
sole jurisdiction of the courts of England and Wales in respect of any claim,
dispute or difference arising out of or in connection with this Agreement. The
Company hereby irrevocably appoints any partner of Akin Gump (London), located
at One Angel Court, London, England EC2R 7HJ, to be its agent for service of
proceedings within England and Wales.
10.6. Severability. If any term or other provision of this Agreement
is invalid, illegal or unenforceable, all other provisions of this Agreement
shall remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner materially
adverse to any party. In the event that the enforceability of any
non-competition or similar covenants contained herein is called into question as
the result of time, geographical or other applicable limitations specified in
such covenants, such time, geographical or other applicable limitations shall be
deemed modified to the minimum extent necessary to render the applicable
provisions of such covenants enforceable.
10.7. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties.
10.8. Fees and Expenses. All costs and expenses, including but not
limited to all fees and expenses of attorneys, lenders, financial advisers and
accountants, in connection with the negotiation, execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby, shall
be paid by the party incurring such costs and expenses.
10.9. Disclosure to Third Parties. The Company shall have the right
to disclose to third parties (except for competitors of the Corporation), in
whatever manner the Company may determine, the fact that this Agreement has been
executed, the names of the parties to this Agreement and the terms hereof.
10.10. Stamp Duty. The Company and the Shareholder shall share
equally the obligation to pay Stamp Duty as necessary for the Company's name to
be registered in the Register of Members of the Corporation.
30
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
or on behalf of each of the parties hereto as of the date first above written.
"COMPANY"
DISPATCH MANAGEMENT SERVICES CORP.
By: /s/ Linda Jenkinson
------------------------------------------
Name: Linda Jenkinson
Title: Chief Executive Officer
Attest: "CORPORATION"
Bridge Wharf Investments Limited
_________________________ By: /s/ Hilton Lewis
------------------------------------------
Name: Hilton Lewis
Title: Managing Director
Witness: "SHAREHOLDER"
Riverbank Limited
__________________________ By: /s/ Riverbank
------------------------------------------
Duly authorized for Trustee, Mrs. E. Sieff
Settlement
31
BRAND MANAGER AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into this 14 day of September,
1997, by and between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation
("DMS Corp."), and Barry Anderson, an individual residing at 1822 West 3rd
Street, Tempe, Arizona, 85281 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as American Eagle Express -
Minneapolis (the "Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using his best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how his
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software;
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $6,000,000 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $6,000,000 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the Brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under his
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $9,000 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
4
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the ____ day of _________________, 1997 between the parties
hereto; or (v) conduct constituting "termination for just cause" at any time
during the term of the Agreement. For purposes of this Agreement, "termination
for just cause" shall mean termination for: (a) proven dishonesty in the course
of managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law classified as a felony or a crime of moral turpitude; or (c)
declaration of bankruptcy, composition of creditors, attachment of the Brand
Manger's interest or rights under this Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged
5
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Manager has defaulted in his obligations under this
Agreement, the Brand Manager shall receive written notice thereof, and (except
for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage falls in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform his services. The
equity portion of the Brand Manager's
6
<PAGE>
compensation payable under this Agreement need not be listed on a stock
exchange, but in the event such equities are listed, they shall be listed on
such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of his obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign his rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed, except the Brand
Manager shall have the right to assign his rights and obligations under this
Agreement to an entity controlled by the Brand Manager without prior written
approval of DMS Corp., provided that the Brand Manager gives reasonable advance
notice to DMS Corp. of such assignment. The Brand Manager's request for approval
of such an assignment shall include the name of the assignee; DMS Corp. shall
approve such assignment unless the assignee or an affiliate of the assignee is,
in the reasonable judgment of DMS Corp., a competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
7
<PAGE>
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
------------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Barry Anderson
------------------------------------------
Barry Anderson
9
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 12th day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Frank L. Mullins, an individual residing at 10604 Springmann Drive, Fairfax,
Virginia, 22030 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as AFS Courier Systems Inc. (the
"Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using his best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how his
responsibilities under this Agreement are to be performed.
2. Conduct of Business Through DMS Corp.
<PAGE>
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $150,613.00 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $150,613.00 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand
2
<PAGE>
Contribution Percentage achieved by all DMS Corp. brands, DMS Corp. will have
the right, upon approval by the Business Steering Committee, to terminate this
Agreement in accordance with the provisions of paragraph 6 hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under his
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $2,500.00 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
4
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the ____ day of _________________, 1997 between the parties
hereto; or (v) conduct constituting "termination for just cause" at any time
during the term of the Agreement. For purposes of this Agreement, "termination
for just cause" shall mean termination for: (a) proven dishonesty in the course
of managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law; or (c) declaration of bankruptcy, composition of creditors,
attachment of the Brand Manger's interest or rights under this Agreement and
similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged
5
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Manager has defaulted in his obligations under this
Agreement, the Brand Manager shall receive written notice thereof, and (except
for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage falls in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform his services. The
equity portion of the Brand Manager's
6
<PAGE>
compensation payable under this Agreement need not be listed on a stock
exchange, but in the event such equities are listed, they shall be listed on
such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of his obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign his rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
--------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Frank L. Mullins
--------------------------------------
Frank L. Mullins
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 25th day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Jodi Gould, an individual residing at 18 Clinton Drive, Hollis, New
Hampshire, 03049, and Leo J. Gould, an individual residing at 18 Clinton Drive,
Hollis, New Hampshire, 03049 (collectively, the "Brand Managers").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Managers to
manage the business owned by DMS Corp. known as Christian Courier Service (the
"Brand") as an independent entity;
WHEREAS, the Brand Managers wish to be retained by DMS Corp. to manage the
Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Managers will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Managers, as an
independent entity, to manage the Brand, and the Brand Managers hereby accept
such engagement, all upon the terms and conditions herein provided. During the
term of this Agreement, the Brand Managers covenant to manage the Brand in a
reasonable and judicious manner, using their best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Managers as to the details of when, where and how
their responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp. Notwithstanding anything in this
Agreement to the contrary, the Brand Managers covenant and agree that all of the
Brand's business (including but not limited to dispatching services, other
back-office functions, and road management services) shall be conducted,
processed and serviced through DMS Corp., its affiliates, or an entity
designated by DMS Corp., and the failure to do so shall be grounds for DMS Corp.
to terminate this Agreement immediately.
The Brand Managers also covenant and agree that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Managers and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Managers shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Managers must
maintain a revenue base of at least $1,116,032 for the Brand during any twelve
month calendar period (January 1-December 31), reviewed on a quarterly basis as
set forth in Exhibit 3. For purposes of this paragraph 3(a), the revenue base of
the Brand from the date of execution of this Agreement through December 31, 1997
shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Managers' failure to
maintain a minimum revenue base of $1,116,032 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Managers
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Managers, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under
their control for each fiscal quarter in the upcoming fiscal year. Such budget
will be submitted to the DMS Corp. Business Steering Committee for approval, and
such approval shall not be unreasonably withheld unless the submitted budget
targets a Brand Contribution Percentage in the bottom 10% of the Brand
Contribution Percentages targeted by all DMS Corp. brands.
4. Brand Managers' Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Managers shall be compensated by DMS Corp. based on
the revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Managers for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Managers'
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Managers of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Managers is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Managers pursuant to this Agreement, DMS Corp. shall pay
the Brand Managers a minimum retainer in the amount of $1300 per month for Leo
Gould and $866 per month for Jodi Gould, in arrears, payable on the 25th day of
the calendar month immediately following the month for which the retainer is
being paid. DMS Corp. will provide the Brand Managers with a monthly statement
of the Brand Managers' total earned margin for the Brand. Any additional cash
compensation, and all compensation payable in common stock of DMS Corp. to which
the Brand Managers are entitled pursuant to this Agreement will be paid on a
deferred basis on or about the January 15th following the year in which such
compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Managers, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Managers with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Managers. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Managers shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Managers shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
4
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Managers. The Brand Managers shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Managers' failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Managers' violation of the Non-Competition
Agreement dated the 26th day of September, 1997 between the parties hereto; or
(v) conduct constituting "termination for just cause" at any time during the
term of the Agreement. For purposes of this Agreement, "termination for just
cause" shall mean termination for: (a) proven dishonesty in the course of
managing the Brand; (b) conviction of the Brand Managers for violation of any
criminal law; or (c) declaration of bankruptcy, composition of creditors,
attachment of the Brand Mangers' interest or rights under this Agreement and
similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged
5
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Managers have defaulted in their obligations under
this Agreement, the Brand Managers shall receive written notice thereof, and
(except for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or
6(a)(v), any of which shall be grounds for immediate termination without
opportunity for cure) shall be given a cure period during which the Brand
Managers shall be permitted to address and rectify the default. In the case of a
failure to achieve the minimum revenue base required under Paragraph 3(a) above,
the Brand Managers shall be deemed to have addressed and rectified the default
if, during the calendar quarter immediately following the date on which the
Brand Managers receive notice of such default, the annualized revenue for the
Brand equals or exceeds the minimum revenue base set forth in Paragraph 3(a). In
the case of the Brand's Brand Contribution Percentage falling, for three (3)
consecutive review periods, in the bottom 10% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands, the Brand Managers shall be
deemed to have addressed and rectified the default if, during the calendar
quarter immediately following the date on which the Brand Managers receive
notice of such default, the Brand's Brand Contribution Percentage falls in the
top 90% of the Brand Contribution Percentage achieved by all other DMS Corp.
brands. In the event that the default has not been addressed and rectified
within the specified cure period, as determined in the sole discretion of the
Business Steering Committee, the Business Steering Committee will submit a
recommendation to all brand managers that this Agreement be terminated (the
"Recommendation of Termination"). Unless greater than one third of all DMS Corp.
brand managers send the Business Steering Committee written objection to such
termination within fourteen (14) days after the date of the Recommendation of
Termination, this Agreement will be terminated immediately thereafter and the
Brand Managers will be so notified in writing. Upon termination, all keys,
identification materials, and proprietary information and the like will be
returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Managers will perform their services.
The equity portion of the Brand
6
<PAGE>
Managers' compensation payable under this Agreement need not be listed on a
stock exchange, but in the event such equities are listed, they shall be listed
on such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Managers in the performance of their obligations under this
Agreement. Rather, the Brand Managers are recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Managers, and
their respective successors and/or permitted assigns. The Brand Managers shall
have the right to assign their rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Managers' request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Managers hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
---------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGERS"
__________________________ /s/ Jodi Gould
---------------------------------------
Jodi Gould
WITNESS:
__________________________ /s/ Leo J. Gould
---------------------------------------
Leo J. Gould
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this ____ day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and John J. Walker, an individual residing at 705 North Clear Creek Drive,
Friendswood, Texas, 77546 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as Flash Delivery and/or Houston
Flash (collectively, the "Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using his best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how his
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp. DMS will charge the allocations of back-office expenses:
Item Price of Job Allocation Percentage
---- ------------ ---------------------
1. less than $25.00 DMS Standard % (20% Maximum)
2. $25.00 to $50.00 3/4 of Item 1
3. more than $50.00 1/2 of Item 1
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $1,344,351 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $1,344,351 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
2
<PAGE>
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under his
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall
3
<PAGE>
be included as revenue for the month in which it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $8,400.00 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
4
<PAGE>
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year period or any succeeding one year period thereafter, or unless this
Agreement is terminated in accordance with the provisions of paragraph 6
hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the ____ day of _________________, 1997 between the parties
hereto; or (v) conduct constituting "termination for just cause" at any time
during the term of the Agreement. For purposes of this Agreement, "termination
for just cause" shall mean termination for: (a) proven dishonesty in the course
of managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law; or (c) declaration of bankruptcy, composition
5
<PAGE>
of creditors, attachment of the Brand Manger's interest or rights under this
Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged by DMS Corp., and the head of
the Business Steering Committee will be the President of DMS Corp. In the event
that the Business Steering Committee determines that the Brand Manager has
defaulted in his obligations under this Agreement, the Brand Manager shall
receive written notice thereof, and (except for termination by DMS Corp. under
Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of which shall be grounds for
immediate termination without opportunity for cure) shall be given a cure period
during which the Brand Manager shall be permitted to address and rectify the
default. In the case of a failure to achieve the minimum revenue base required
under Paragraph 3(a) above, the Brand Manager shall be deemed to have addressed
and rectified the default if, during the calendar quarter immediately following
the date on which the Brand Manager receives notice of such default, the
annualized revenue for the Brand equals or exceeds the minimum revenue base set
forth in Paragraph 3(a). In the case of the Brand's Brand Contribution
Percentage falling, for three (3) consecutive review periods, in the bottom 10%
of the Brand Contribution Percentage achieved by all other DMS Corp. brands, the
Brand Manager shall be deemed to have addressed and rectified the default if,
during the calendar quarter immediately following the date on which the Brand
Manager receives notice of such default, the Brand's Brand Contribution
Percentage falls in the top 90% of the Brand Contribution Percentage achieved by
all other DMS Corp. brands. In the event that the default has not been addressed
and rectified within the specified cure period, as determined in the sole
discretion of the Business Steering Committee, the Business Steering Committee
will submit a recommendation to all brand managers that this Agreement be
terminated (the "Recommendation of Termination"). Unless greater than one third
of all DMS Corp. brand managers send the Business Steering Committee written
objection to such termination within fourteen (14) days after the date of the
6
<PAGE>
Recommendation of Termination, this Agreement will be terminated immediately
thereafter and the Brand Manager will be so notified in writing. Upon
termination, all keys, identification materials, and proprietary information and
the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform his services. The
equity portion of the Brand Manager's compensation payable under this Agreement
need not be listed on a stock exchange, but in the event such equities are
listed, they shall be listed on such exchange as DMS Corp. shall determine in
its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of his obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign his rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
7
<PAGE>
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ John J. Walker
------------------------------------
John J. Walker
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this ____ day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Dave Clancy, an individual residing at 1203 S.E. 181 Avenue, Vancouver,
Washington, 98683 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as Express It and/or 1 800 Courier
(the "Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using his best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how his
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $1,900,000 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $1,900,000 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under his
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $0 per month, in arrears,
payable on the 25th day of the calendar month immediately following the month
for which the retainer is being paid. DMS Corp. will provide the Brand Manager
with a monthly statement of the Brand Manager's total earned margin for the
Brand. Any additional cash compensation, and all compensation payable in common
stock of DMS Corp. to which the Brand Manager is entitled pursuant to this
Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
4
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the ____ day of _________________, 1997 between the parties
hereto; or (v) conduct constituting "termination for just cause" at any time
during the term of the Agreement. For purposes of this Agreement, "termination
for just cause" shall mean termination for: (a) proven dishonesty in the course
of managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law; or (c) declaration of bankruptcy, composition of creditors,
attachment of the Brand Manger's interest or rights under this Agreement and
similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged
5
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Manager has defaulted in his obligations under this
Agreement, the Brand Manager shall receive written notice thereof, and (except
for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage falls in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform his services. The
equity portion of the Brand Manager's
6
<PAGE>
compensation payable under this Agreement need not be listed on a stock
exchange, but in the event such equities are listed, they shall be listed on
such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of his obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign his rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed, except the
original Brand Manager shall have the right to make a one-time assignment of his
rights and obligations under this Agreement to a limited liability company in
which such Brand Manager has a majority interest, without prior written approval
of DMS Corp. The Brand Manager's request for approval of such an assignment
shall include the name of the assignee; DMS Corp. shall approve such assignment
unless the assignee or an affiliate of the assignee is, in the reasonable
judgment of DMS Corp., a competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of New York, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in New York. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of New York.
7
<PAGE>
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
------------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Dave Clancy
------------------------------------------
Dave Clancy
9
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 14th day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Allen Orner, an individual residing at 4137 Sinton Road, Colorado Springs,
Colorado, 80907 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as Kangaroo Express (the "Brand")
as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using his best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how his
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $2,698,069 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $2,698,069 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under his
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $0 per month, in arrears,
payable on the 25th day of the calendar month immediately following the month
for which the retainer is being paid. DMS Corp. will provide the Brand Manager
with a monthly statement of the Brand Manager's total earned margin for the
Brand. Any additional cash compensation, and all compensation payable in common
stock of DMS Corp. to which the Brand Manager is entitled pursuant to this
Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
consummation of the Initial Public Offering of DMS Corp.'s common stock, and
unless terminated in accordance with the provisions of paragraph 6 hereinbelow,
shall terminate two (2) years thereafter. Thereafter, this Agreement shall be
automatically renewed for successive one year periods, unless the Brand Manager
shall give written notice to the contrary at least 90 days
4
<PAGE>
prior to the termination of the initial one year period or any succeeding one
year period thereafter, or unless this Agreement is terminated in accordance
with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement between the parties hereto entered into in connection with the
Agreement, dated as of September ____, 1997, between Kangaroo Express of
Colorado Springs, Inc. and DMS Corp.; or (v) conduct constituting "termination
for just cause" at any time during the term of the Agreement. For purposes of
this Agreement, "termination for just cause" shall mean termination for: (a)
proven dishonesty in the course of managing the Brand; (b) conviction of the
Brand Manager for violation of any criminal law that is classified as a felony
or a crime of moral turpitude; or (c) declaration of bankruptcy, composition of
creditors, attachment of the Brand Manger's interest or rights under this
Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement
5
<PAGE>
may be terminated pursuant to the provisions of Sections 6(a)(i), 6(a)(iv) or
6(a)(v) above. Members of the Business Steering Committee will include other
active brand managers engaged by DMS Corp., and the head of the Business
Steering Committee will be the President of DMS Corp. In the event that the
Business Steering Committee determines that the Brand Manager has defaulted in
his obligations under this Agreement, the Brand Manager shall receive written
notice thereof, and (except for termination by DMS Corp. under Sections 6(a)(i),
6(a)(iv) or 6(a)(v), any of which shall be grounds for immediate termination
without opportunity for cure) shall be given a cure period during which the
Brand Manager shall be permitted to address and rectify the default. In the case
of a failure to achieve the minimum revenue base required under Paragraph 3(a)
above, the Brand Manager shall be deemed to have addressed and rectified the
default if, during the calendar quarter immediately following the date on which
the Brand Manager receives notice of such default, the annualized revenue for
the Brand equals or exceeds the minimum revenue base set forth in Paragraph
3(a). In the case of the Brand's Brand Contribution Percentage falling, for
three (3) consecutive review periods, in the bottom 10% of the Brand
Contribution Percentage achieved by all other DMS Corp. brands, the Brand
Manager shall be deemed to have addressed and rectified the default if, during
the calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the Brand's Brand Contribution Percentage falls
in the top 90% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands. In the event that the default has not been addressed and rectified
within the specified cure period, as determined in the sole discretion of the
Business Steering Committee, the Business Steering Committee will submit a
recommendation to all brand managers that this Agreement be terminated (the
"Recommendation of Termination"). Unless greater than one third of all DMS Corp.
brand managers send the Business Steering Committee written objection to such
termination within fourteen (14) days after the date of the Recommendation of
Termination, this Agreement will be terminated immediately thereafter and the
Brand Manager will be so notified in writing. Upon termination, all keys,
identification materials, and proprietary information and the like will be
returned to DMS Corp.
6
<PAGE>
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform his services. The
equity portion of the Brand Manager's compensation payable under this Agreement
need not be listed on a stock exchange, but in the event such equities are
listed, they shall be listed on such exchange as DMS Corp. shall determine in
its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of his obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign his rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
7
<PAGE>
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
---------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
____________ ____________ /s/ Allen Orner
---------------------------------------
Allen Orner
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 12th day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and KiwiCorp Limited, located at Transport Villiage, Nauranga Gorge, P.O. Box
6009, Wellington, New Zealand (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as Office Express, 60/30 Couriers
and Sprincycle (the "Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using her best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how her
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers
(as applies to the New Zealand industry / market); and other methods of doing
business in effect from time to time which are intended to be consistent with
the industry's then-current best practices as determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $2,281,818 for the Brand during any twelve
month calendar period (January 1-December 31).
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $2,281,818 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under her
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $6,666.67 + AST per month,
in arrears, payable on the 25th day of the calendar month immediately following
the month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be payable on the 25th day of the calendar month immediately
following the month for which the compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year period or any succeeding one year period thereafter, or unless this
Agreement is terminated in
4
<PAGE>
accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; or (iv) conduct constituting "termination for just cause" at any
time during the term of the Agreement. For purposes of this Agreement,
"termination for just cause" shall mean termination for: (a) proven dishonesty
in the course of managing the Brand; (b) conviction of the Brand Manager for
violation of any criminal law; or (c) declaration of bankruptcy, composition of
creditors, attachment of the Brand Manger's interest or rights under this
Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged by DMS Corp., and the head of
the Business Steering Committee will be the President of DMS Corp. In the event
that the Business Steering Committee determines that the Brand Manager has
defaulted in her obligations under this Agreement, the Brand Manager shall
receive written
5
<PAGE>
notice thereof, and (except for termination by DMS Corp. under Sections 6(a)(i),
6(a)(iv) or 6(a)(v), any of which shall be grounds for immediate termination
without opportunity for cure) shall be given a cure period during which the
Brand Manager shall be permitted to address and rectify the default. In the case
of a failure to achieve the minimum revenue base required under Paragraph 3(a)
above, the Brand Manager shall be deemed to have addressed and rectified the
default if, during the calendar quarter immediately following the date on which
the Brand Manager receives notice of such default, the annualized revenue for
the Brand equals or exceeds the minimum revenue base set forth in Paragraph
3(a). In the case of the Brand's Brand Contribution Percentage falling, for
three (3) consecutive review periods, in the bottom 10% of the Brand
Contribution Percentage achieved by all other DMS Corp. brands, the Brand
Manager shall be deemed to have addressed and rectified the default if, during
the calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the Brand's Brand Contribution Percentage falls
in the top 90% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands. In the event that the default has not been addressed and rectified
within the specified cure period, as determined in the sole discretion of the
Business Steering Committee, the Business Steering Committee will submit a
recommendation to all brand managers that this Agreement be terminated (the
"Recommendation of Termination"). Unless greater than one third of all DMS Corp.
brand managers send the Business Steering Committee written objection to such
termination within fourteen (14) days after the date of the Recommendation of
Termination, this Agreement will be terminated immediately thereafter and the
Brand Manager will be so notified in writing. Upon termination, all keys,
identification materials, and proprietary information and the like will be
returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform her services.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the
6
<PAGE>
performance of her obligations under this Agreement. Rather, the Brand Manager
is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign her rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS, Inc.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
--------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Lynette Williams
--------------------------------------
Lynette Williams
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 9th day of October, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Tammy K. Patterson, an individual residing at 1705 Cedar Springs, Dallas,
Texas, 75202, and Merlene Y. Flores, an individual residing at 1705 Cedar
Springs, Dallas, Texas, 75202 (collectively, the "Brand Managers").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Managers to
manage the business owned by DMS Corp. known as Striders Courier (the "Brand")
as an independent entity;
WHEREAS, the Brand Managers wish to be retained by DMS Corp. to manage the
Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Managers will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Managers, as an
independent entity, to manage the Brand, and the Brand Managers hereby accepts
such engagement, all upon the terms and conditions herein provided. During the
term of this Agreement, the Brand Managers covenant to manage the Brand in a
reasonable and judicious manner, using their best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Managers as to the details of when, where and how
their responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp. Notwithstanding anything in this
Agreement to the contrary, the Brand Managers covenant and agree that all of the
Brand's business (including but not limited to dispatching services, other
back-office functions, and road management services) shall be conducted,
processed and serviced through DMS Corp., its affiliates, or an entity
designated by DMS Corp., and the failure to do so shall be grounds for DMS Corp.
to terminate this Agreement immediately.
The Brand Managers also covenant and agree that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Managers and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Managers shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Managers must
maintain a revenue base of at least $1,071,080 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Managers' failure to
maintain a minimum revenue base of $1,071,080 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Managers
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Managers, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under
their control for each fiscal quarter in the upcoming fiscal year. Such budget
will be submitted to the DMS Corp. Business Steering Committee for approval, and
such approval shall not be unreasonably withheld unless the submitted budget
targets a Brand Contribution Percentage in the bottom 10% of the Brand
Contribution Percentages targeted by all DMS Corp. brands.
4. Brand Managers' Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Managers shall be compensated by DMS Corp. based on
the revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Managers for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Managers'
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Managers of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Managers is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Managers pursuant to this Agreement, DMS Corp. shall pay
the Brand Managers a minimum retainer in the amount of $______________ per
month, in arrears, payable on the 25th day of the calendar month immediately
following the month for which the retainer is being paid. DMS Corp. will provide
the Brand Managers with a monthly statement of the Brand Managers' total earned
margin for the Brand. Any additional cash compensation, and all compensation
payable in common stock of DMS Corp. to which the Brand Managers are entitled
pursuant to this Agreement will be paid on a deferred basis on or about the
January 15th following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Managers, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Managers with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Managers. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Managers shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Managers shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
4
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Managers. The Brand Managers shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Managers' failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Managers' violation of the Non-Competition
Agreement dated the 2nd day of October, 1997 between the parties hereto; or (v)
conduct constituting "termination for just cause" at any time during the term of
the Agreement. For purposes of this Agreement, "termination for just cause"
shall mean termination for: (a) proven dishonesty in the course of managing the
Brand; (b) conviction of the Brand Managers for violation of any criminal law;
or (c) declaration of bankruptcy, composition of creditors, attachment of the
Brand Mangers' interest or rights under this Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged
5
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Managers have defaulted in their obligations under
this Agreement, the Brand Managers shall receive written notice thereof, and
(except for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or
6(a)(v), any of which shall be grounds for immediate termination without
opportunity for cure) shall be given a cure period during which the Brand
Managers shall be permitted to address and rectify the default. In the case of a
failure to achieve the minimum revenue base required under Paragraph 3(a) above,
the Brand Managers shall be deemed to have addressed and rectified the default
if, during the calendar quarter immediately following the date on which the
Brand Managers receive notice of such default, the annualized revenue for the
Brand equals or exceeds the minimum revenue base set forth in Paragraph 3(a). In
the case of the Brand's Brand Contribution Percentage falling, for three (3)
consecutive review periods, in the bottom 10% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands, the Brand Managers shall be
deemed to have addressed and rectified the default if, during the calendar
quarter immediately following the date on which the Brand Managers receive
notice of such default, the Brand's Brand Contribution Percentage falls in the
top 90% of the Brand Contribution Percentage achieved by all other DMS Corp.
brands. In the event that the default has not been addressed and rectified
within the specified cure period, as determined in the sole discretion of the
Business Steering Committee, the Business Steering Committee will submit a
recommendation to all brand managers that this Agreement be terminated (the
"Recommendation of Termination"). Unless greater than one third of all DMS Corp.
brand managers send the Business Steering Committee written objection to such
termination within fourteen (14) days after the date of the Recommendation of
Termination, this Agreement will be terminated immediately thereafter and the
Brand Managers will be so notified in writing. Upon termination, all keys,
identification materials, and proprietary information and the like will be
returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Managers will perform their services.
The equity portion of the Brand
6
<PAGE>
Managers' compensation payable under this Agreement need not be listed on a
stock exchange, but in the event such equities are listed, they shall be listed
on such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Managers in the performance of their obligations under this
Agreement. Rather, the Brand Managers are recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Managers, and
their respective successors and/or permitted assigns. The Brand Managers shall
have the right to assign their rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Managers' request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Texas, without regard to such state's conflicts of law
principles. The Brand Managers hereby agrees to the personal jurisdiction of the
state and federal courts in Texas. The provisions of this Agreement shall be
deemed severable, and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Texas.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
---------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGERS"
__________________________ /s/ Tammy Patterson
---------------------------------------
Tammy Patterson
WITNESS:
__________________________ /s/ Merlene Flores
---------------------------------------
Merlene Flores
8
BRAND MANAGERS AGREEMENT
THIS AGREEMENT is entered into this 8th day of October, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Tom Cromwell and Peter Begley, each individuals residing at 76 Hampshire
Street, Cambridge, Massachusetts, 02139 (collectively, the "Brand Managers").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Managers to
manage the business owned by DMS Corp. known as Time Couriers LLC (the "Brand")
as an independent entity;
WHEREAS, the Brand Managers wish to be retained by DMS Corp. to manage the
Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Managers will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Managers, as independent
entities, to manage the Brand, and the Brand Managers hereby accept such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Managers covenant to manage the Brand in a
reasonable and judicious manner, using their best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Managers as to the details of when, where and how
their responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Managers covenant and agree that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Managers also covenant and agree that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Managers and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Managers shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Managers must
maintain a revenue base of at least $0 for the Brand during any twelve month
calendar period (January 1-December 31). For purposes of this paragraph 3(a),
the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Managers' failure to
maintain a minimum revenue base of $0 during any twelve month calendar period
shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Managers
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Managers, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under
their control for each fiscal quarter in the upcoming fiscal year. Such budget
will be submitted to the DMS Corp. Business Steering Committee for approval, and
such approval shall not be unreasonably withheld unless the submitted budget
targets a Brand Contribution Percentage in the bottom 10% of the Brand
Contribution Percentages targeted by all DMS Corp. brands.
4. Brand Managers Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Managers shall be compensated by DMS Corp. based on
the revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Managers for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Managers'
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Managers of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Managers is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Managers pursuant to this Agreement, DMS Corp. shall pay
the Brand Managers a minimum retainer in the amount of $1,000 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Managers with a monthly statement of the Brand Managers' total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Managers are entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Managers, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Managers with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Managers. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Managers shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Managers shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
4
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Managers. The Brand Managers shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Managers Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Managers' failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Managers' violation of the Non-Competition
Agreements dated the 9th day of October, 1997 between the parties hereto; or (v)
conduct constituting "termination for just cause" at any time during the term of
the Agreement. For purposes of this Agreement, "termination for just cause"
shall mean termination for: (a) proven dishonesty in the course of managing the
Brand; (b) conviction of the Brand Managers for violation of any criminal law,
classified as a felony or a crime of moral turpitude; or (c) declaration of
bankruptcy, composition of creditors, attachment of the Brand Manger's interest
or rights under this Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Managers
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active Brand Managers engaged
5
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Managers have defaulted in their obligations under
this Agreement, the Brand Managers shall receive written notice thereof, and
(except for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or
6(a)(v), any of which shall be grounds for immediate termination without
opportunity for cure) shall be given a cure period during which the Brand
Managers shall be permitted to address and rectify the default. In the case of a
failure to achieve the minimum revenue base required under Paragraph 3(a) above,
the Brand Managers shall be deemed to have addressed and rectified the default
if, during the calendar quarter immediately following the date on which the
Brand Managers receive notice of such default, the annualized revenue for the
Brand equals or exceeds the minimum revenue base set forth in Paragraph 3(a). In
the case of the Brand's Brand Contribution Percentage falling, for three (3)
consecutive review periods, in the bottom 10% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands, the Brand Managers shall be
deemed to have addressed and rectified the default if, during the calendar
quarter immediately following the date on which the Brand Managers receive
notice of such default, the Brand's Brand Contribution Percentage falls in the
top 90% of the Brand Contribution Percentage achieved by all other DMS Corp.
brands. In the event that the default has not been addressed and rectified
within the specified cure period, as determined in the sole discretion of the
Business Steering Committee, the Business Steering Committee will submit a
recommendation to all Brand Managers that this Agreement be terminated (the
"Recommendation of Termination"). Unless greater than one third of all DMS Corp.
Brand Managers send the Business Steering Committee written objection to such
termination within fourteen (14) days after the date of the Recommendation of
Termination, this Agreement will be terminated immediately thereafter and the
Brand Managers will be so notified in writing. Upon termination, all keys,
identification materials, and proprietary information and the like will be
returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Managers will perform their services.
The equity portion of the Brand
6
<PAGE>
Managers' compensation payable under this Agreement need not be listed on a
stock exchange, but in the event such equities are listed, they shall be listed
on such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Managers in the performance of their obligations under this
Agreement. Rather, the Brand Managers are recognized as independent entities.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Managers, and
their respective successors and/or permitted assigns. The Brand Managers shall
have the right to assign their rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Managers' request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Managers hereby agree to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
-----------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Tom Cromwell
-----------------------------------
Tom Cromwell
WITNESS: "BRAND MANAGER"
__________________________ /s/ Peter Begley
-----------------------------------
Peter Begley
8
BRAND MANAGERS AGREEMENT
THIS AGREEMENT is entered into this ____ day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Jeff Appeltans, an individual residing at 554 North Lawrence Street,
Philadelphia, Pennsylvania, 19123 and Eric D. Nordberg, an individual residing
at 6835 Algald Street, Philadelphia, Pennsylvania, 19135 (collectively, the
"Brand Managers").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Managers to
manage the business owned by DMS Corp. known as TimeCycle Courier Inc. (the
"Brand") as an independent entity;
WHEREAS, the Brand Managers wish to be retained by DMS Corp. to manage the
Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Managers will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Managers, as an
independent entity, to manage the Brand, and the Brand Managers hereby accept
such engagement, all upon the terms and conditions herein provided. During the
term of this Agreement, the Brand Managers covenant to manage the Brand in a
reasonable and judicious manner, using their best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this
<PAGE>
Agreement, DMS Corp. will not have the right to direct or control the Brand
Managers as to the details of when, where and how their responsibilities under
this Agreement are to be performed.
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Managers covenant and agree that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Managers also covenant and agree that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Managers and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Managers shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Managers must
maintain a revenue base of at least $694,184 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Managers' failure to
maintain a minimum revenue base of $694,184 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Managers
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of
2
<PAGE>
all other DMS Corp. brands, will be evaluated on a regular (quarterly) basis by
DMS Corp. and provided to the DMS Corp. Business Steering Committee for review.
If, for three consecutive review periods, the Brand's Brand Contribution
Percentage falls in the bottom 10% of the Brand Contribution Percentage achieved
by all DMS Corp. brands, DMS Corp. will have the right, upon approval by the
Business Steering Committee, to terminate this Agreement in accordance with the
provisions of paragraph 6 hereinbelow.
The Brand Managers, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under
their control for each fiscal quarter in the upcoming fiscal year. Such budget
will be submitted to the DMS Corp. Business Steering Committee for approval, and
such approval shall not be unreasonably withheld unless the submitted budget
targets a Brand Contribution Percentage in the bottom 10% of the Brand
Contribution Percentages targeted by all DMS Corp. brands.
4. Brand Managers' Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Managers shall be compensated by DMS Corp. based on
the revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Managers for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Managers'
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Managers of
registered, unrestricted common stock
3
<PAGE>
of DMS Corp. The cash/equity compensation to be paid by DMS Corp. to the Brand
Managers is set forth in Exhibit 2, which exhibit is attached hereto and
incorporated herein by reference.
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Managers pursuant to this Agreement, DMS Corp. shall pay
the Brand Managers a minimum retainer in the amount of $0 per month, in arrears,
payable on the 25th day of the calendar month immediately following the month
for which the retainer is being paid. DMS Corp. will provide the Brand Managers
with a monthly statement of the Brand Managers' total earned margin for the
Brand. Any additional cash compensation, and all compensation payable in common
stock of DMS Corp. to which the Brand Managers are entitled pursuant to this
Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Managers, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Managers with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Managers. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Managers shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Managers shall
4
<PAGE>
give written notice to the contrary at least 90 days prior to the termination of
the initial one year period or any succeeding one year period thereafter, or
unless this Agreement is terminated in accordance with the provisions of
paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Managers. The Brand Managers shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Managers Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Managers' failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Managers' violation of the Non-Competition
Agreements dated the ____ day of _________________, 1997 between the parties
hereto; or (v) conduct constituting "termination for just cause" at any time
during the term of the Agreement. For purposes of this Agreement, "termination
for just cause" shall mean termination for: (a) proven dishonesty in the course
of managing the Brand; (b) conviction of the Brand Managers for violation of any
criminal law; or (c) declaration of bankruptcy, composition of creditors,
attachment of the Brand Mangers' interest or rights under this Agreement and
similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Managers
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above.
5
<PAGE>
Members of the Business Steering Committee will include other active brand
managers engaged by DMS Corp., and the head of the Business Steering Committee
will be the President of DMS Corp. In the event that the Business Steering
Committee determines that the Brand Managers have defaulted in their obligations
under this Agreement, the Brand Managers shall receive written notice thereof,
and (except for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or
6(a)(v), any of which shall be grounds for immediate termination without
opportunity for cure) shall be given a cure period during which the Brand
Managers shall be permitted to address and rectify the default. In the case of a
failure to achieve the minimum revenue base required under Paragraph 3(a) above,
the Brand Managers shall be deemed to have addressed and rectified the default
if, during the calendar quarter immediately following the date on which the
Brand Managers receive notice of such default, the annualized revenue for the
Brand equals or exceeds the minimum revenue base set forth in Paragraph 3(a). In
the case of the Brand's Brand Contribution Percentage falling, for three (3)
consecutive review periods, in the bottom 10% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands, the Brand Managers shall be
deemed to have addressed and rectified the default if, during the calendar
quarter immediately following the date on which the Brand Managers receive
notice of such default, the Brand's Brand Contribution Percentage falls in the
top 90% of the Brand Contribution Percentage achieved by all other DMS Corp.
brands. In the event that the default has not been addressed and rectified
within the specified cure period, as determined in the sole discretion of the
Business Steering Committee, the Business Steering Committee will submit a
recommendation to all brand managers that this Agreement be terminated (the
"Recommendation of Termination"). Unless greater than one third of all DMS Corp.
brand managers send the Business Steering Committee written objection to such
termination within fourteen (14) days after the date of the Recommendation of
Termination, this Agreement will be terminated immediately thereafter and the
Brand Managers will be so notified in writing. Upon termination, all keys,
identification materials, and proprietary information and the like will be
returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in
6
<PAGE>
which the Brand Managers will perform their services. The equity portion of the
Brand Managers' compensation payable under this Agreement need not be listed on
a stock exchange, but in the event such equities are listed, they shall be
listed on such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Managers in the performance of their obligations under this
Agreement. Rather, the Brand Managers are recognized as independent entities.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Managers and
their respective successors and/or permitted assigns. The Brand Managers shall
have the right to assign their rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Managers' request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Managers hereby agree to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
-----------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Jeff Appeltans
-----------------------------------
Jeff Appeltans
WITNESS: "BRAND MANAGER"
__________________________ /s/ Eric D. Nordberg
-----------------------------------
Eric D. Nordberg
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this ____ day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Marla Kennedy, an individual residing at 1705 Cedar Springs Road, Dallas,
Texas, 75202 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as United Messengers (the "Brand")
as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using her best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how her
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $_____ for the Brand during any twelve month
calendar period (January 1-December 31). For purposes of this paragraph 3(a),
the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $______ during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under her
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $______________ per month,
in arrears, payable on the 25th day of the calendar month immediately following
the month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the ____ day of _________________, 1997 between the parties
hereto; or (v) conduct constituting "termination for just cause" at any time
during the term of the Agreement. For purposes of this Agreement, "termination
for just cause" shall mean termination for: (a) proven dishonesty in the course
of managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law; or (c) declaration of bankruptcy, composition of creditors,
attachment of the Brand Manger's interest or rights under this Agreement and
similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Manager has defaulted in her obligations under this
Agreement, the Brand Manager shall receive written notice thereof, and (except
for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage falls in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform her services. The
equity portion of the Brand Manager's
<PAGE>
compensation payable under this Agreement need not be listed on a stock
exchange, but in the event such equities are listed, they shall be listed on
such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of her obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign her rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
----------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Marla Kennedy
----------------------------------------
Marla Kennedy
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 10th day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and James Michael Shaughnessy, [an individual residing at Howe Road, Cohasset,
Massachusetts and currently President of Express It couriers, Inc. (the "Brand
Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as Express It Couriers, Inc. (the
"Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using [his/her/its] best efforts to maximize
Brand Contribution (defined as total revenue less total expenses, before taxes,
in accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how
[his/her/its] responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $1.5 million for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $1.5 million during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage
2
<PAGE>
achieved by all DMS Corp. brands, DMS Corp. will have the right, upon approval
by the Business Steering Committee, to terminate this Agreement in accordance
with the provisions of paragraph 6 hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under
[his/her/its] control for each fiscal quarter in the upcoming fiscal year. Such
budget will be submitted to the DMS Corp. Business Steering Committee for
approval, and such approval shall not be unreasonably withheld unless the
submitted budget targets a Brand Contribution Percentage in the bottom 10% of
the Brand Contribution Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution -Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $6,250.00 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year period or any succeeding one year period thereafter, or unless this
Agreement is terminated in accordance with the provisions of paragraph 6
hereinbelow.
4
<PAGE>
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the 10th day of September, 1997 between the parties hereto; or
(v) conduct constituting "termination for just cause" at any time during the
term of the Agreement. For purposes of this Agreement, "termination for just
cause" shall mean termination for: (a) proven dishonesty in the course of
managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law; or (c) declaration of bankruptcy, composition of creditors,
attachment of the Brand Manger's interest or rights under this Agreement and
similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged by DMS Corp., and the head of
the Business Steering Committee will be the President of DMS Corp. In the event
that the Business Steering Committee determines that the Brand Manager has
defaulted in [his/her/its] obligations under this Agreement, the Brand Manager
shall receive written notice thereof, and (except
5
<PAGE>
for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform [his/her/its]
services. The equity portion of the Brand Manager's compensation payable under
this Agreement need not be listed on a stock exchange, but in the event such
equities are listed, they shall be listed on such exchange as DMS Corp. shall
determine in its sole discretion.
6
<PAGE>
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of [his/her/its] obligations under
this Agreement. Rather, the Brand Manager is recognized as an independent
entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign [his/her/its] rights and obligations under this
Agreement to another individual or entity with prior written approval of DMS
Corp. only, which approval shall not be unreasonably withheld or delayed. The
Brand Manager's request for approval of such an assignment shall include the
name of the assignee; DMS Corp. shall approve such assignment unless the
assignee or an affiliate of the assignee is, in the reasonable judgment of DMS
Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
DISPATCH MANAGEMENT SERVICES CORP.
"DMS CORP."
/s/ Linda Jenkinson
-----------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
James Michael Shaughnessy
/s/ James Michael Shaughnessy
- - - - --------------------------
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into this ____ day of
September, 1997, by and between DISPATCH MANAGEMENT SERVICES CORP., a Delaware
corporation ("DMS Corp."), and Barry Anderson, an individual residing at 1822
West 3rd Street, Tempe, Arizona, 85281 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as American Eagle Express - Phoenix
(the "Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using his best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how his
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software;
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $2,500,000 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $2,500,000 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the Brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under his
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $1,000 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
4
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the ____ day of _________________, 1997 between the parties
hereto; or (v) conduct constituting "termination for just cause" at any time
during the term of the Agreement. For purposes of this Agreement, "termination
for just cause" shall mean termination for: (a) proven dishonesty in the course
of managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law classified as a felony or a crime of moral turpitude; or (c)
declaration of bankruptcy, composition of creditors, attachment of the Brand
Manger's interest or rights under this Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged
5
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Manager has defaulted in his obligations under this
Agreement, the Brand Manager shall receive written notice thereof, and (except
for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage falls in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform his services. The
equity portion of the Brand Manager's
6
<PAGE>
compensation payable under this Agreement need not be listed on a stock
exchange, but in the event such equities are listed, they shall be listed on
such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of his obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign his rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed, except the Brand
Manager shall have the right to assign his rights and obligations under this
Agreement to an entity controlled by the Brand Manager without prior written
approval of DMS Corp., provided that the Brand Manager gives reasonable advance
notice to DMS Corp. of such assignment. The Brand Manager's request for approval
of such an assignment shall include the name of the assignee; DMS Corp. shall
approve such assignment unless the assignee or an affiliate of the assignee is,
in the reasonable judgment of DMS Corp., a competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
7
<PAGE>
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
----------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Barry Anderson
----------------------------------------
Barry Anderson
9
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this ____ day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Joan Levy, an individual residing at 720 North Post Oak Road, Houston,
Texas, 77024 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as A & W Couriers (the "Brand") as
an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using her best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how her
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $1,616,750 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $1,616,750 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
2
<PAGE>
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under her
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution-Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $8,300 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year
4
<PAGE>
period or any succeeding one year period thereafter, or unless this Agreement is
terminated in accordance with the provisions of paragraph 6 hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the ____ day of _________________, 1997 between the parties
hereto; or (v) conduct constituting "termination for just cause" at any time
during the term of the Agreement. For purposes of this Agreement, "termination
for just cause" shall mean termination for: (a) proven dishonesty in the course
of managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law; or (c) declaration of bankruptcy, composition of creditors,
attachment of the Brand Manger's interest or rights under this Agreement and
similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged
5
<PAGE>
by DMS Corp., and the head of the Business Steering Committee will be the
President of DMS Corp. In the event that the Business Steering Committee
determines that the Brand Manager has defaulted in her obligations under this
Agreement, the Brand Manager shall receive written notice thereof, and (except
for termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage falls in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform her services. The
equity portion of the Brand Manager's
6
<PAGE>
compensation payable under this Agreement need not be listed on a stock
exchange, but in the event such equities are listed, they shall be listed on
such exchange as DMS Corp. shall determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of her obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign her rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
"DMS CORP."
DISPATCH MANAGEMENT SERVICES CORP.
/s/ Linda Jenkinson
-----------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
__________________________ /s/ Joan Levy
-----------------------------------------
Joan Levy
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 21st day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and CHRISTOPHER NEAL, an individual residing at 2342 17th Street San Francisco,
California 94103 (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as Zap Courier (the "Brand") as an
independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using his best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how his
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $1 million for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $1 million during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage
2
<PAGE>
achieved by all DMS Corp. brands, DMS Corp. will have the right, upon approval
by the Business Steering Committee, to terminate this Agreement in accordance
with the provisions of paragraph 6 hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under his
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution -Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $6,250.00 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year period or any succeeding one year period thereafter, or unless this
Agreement is terminated in accordance with the provisions of paragraph 6
hereinbelow.
4
<PAGE>
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the 21st day of October, 1997 between the parties hereto; or (v)
conduct constituting "termination for just cause" at any time during the term of
the Agreement. For purposes of this Agreement, "termination for just cause"
shall mean termination for: (a) proven dishonesty in the course of managing the
Brand; (b) conviction of the Brand Manager for violation of any criminal law; or
(c) declaration of bankruptcy, composition of creditors, attachment of the Brand
Manger's interest or rights under this Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged by DMS Corp., and the head of
the Business Steering Committee will be the President of DMS Corp. In the event
that the Business Steering Committee determines that the Brand Manager has
defaulted in his obligations under this Agreement, the Brand Manager shall
receive written notice thereof, and (except for
5
<PAGE>
termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage falls in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform his services. The
equity portion of the Brand Manager's compensation payable under this Agreement
need not be listed on a stock exchange, but in the event such equities are
listed, they shall be listed on such exchange as DMS Corp. shall determine in
its sole discretion.
6
<PAGE>
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of [his/her/its] obligations under
this Agreement. Rather, the Brand Manager is recognized as an independent
entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign his rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
DISPATCH MANAGEMENT SERVICES CORP.
"DMS CORP."
/s/ Linda Jenkinson
-------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
/s/ Christopher Neal
- - - - -------------------------- -------------------------------------
Christopher Neal
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 12th day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS
Corp."), Leon Spirt and Jack Spirt, individuals residing at______________] (the
"Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as Eveready Express Corp. (the
"Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using its best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how its
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $_____ for the Brand during any twelve month
calendar period (January 1-December 31). For purposes of this paragraph 3(a),
the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $______ during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage
2
<PAGE>
achieved by all DMS Corp. brands, DMS Corp. will have the right, upon approval
by the Business Steering Committee, to terminate this Agreement in accordance
with the provisions of paragraph 6 hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under its
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution -Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
3
<PAGE>
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $______________ per month,
in arrears, payable on the 25th day of the calendar month immediately following
the month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year period or any succeeding one year period thereafter, or unless this
Agreement is terminated in accordance with the provisions of paragraph 6
hereinbelow.
4
<PAGE>
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the 12th day of September, 1997 between the parties hereto; or
(v) conduct constituting "termination for just cause" at any time during the
term of the Agreement. For purposes of this Agreement, "termination for just
cause" shall mean termination for: (a) proven dishonesty in the course of
managing the Brand; (b) conviction of the Brand Manager for violation of any
criminal law; or (c) declaration of bankruptcy, composition of creditors,
attachment of the Brand Manger's interest or rights under this Agreement and
similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged by DMS Corp., and the head of
the Business Steering Committee will be the President of DMS Corp. In the event
that the Business Steering Committee determines that the Brand Manager has
defaulted in its obligations under this Agreement, the Brand Manager shall
receive written notice thereof, and (except for
5
<PAGE>
termination by DMS Corp. under Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of
which shall be grounds for immediate termination without opportunity for cure)
shall be given a cure period during which the Brand Manager shall be permitted
to address and rectify the default. In the case of a failure to achieve the
minimum revenue base required under Paragraph 3(a) above, the Brand Manager
shall be deemed to have addressed and rectified the default if, during the
calendar quarter immediately following the date on which the Brand Manager
receives notice of such default, the annualized revenue for the Brand equals or
exceeds the minimum revenue base set forth in Paragraph 3(a). In the case of the
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands, the Brand Manager shall be deemed to have addressed and
rectified the default if, during the calendar quarter immediately following the
date on which the Brand Manager receives notice of such default, the Brand's
Brand Contribution Percentage in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform its services. The
equity portion of the Brand Manager's compensation payable under this Agreement
need not be listed on a stock exchange, but in the event such equities are
listed, they shall be listed on such exchange as DMS Corp. shall determine in
its sole discretion.
6
<PAGE>
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of its obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign its rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
(g) Brand Manager. The term Brand Manager shall mean either or both
of Leon Spirt and Jack Spirt such that if one of them dies, is disabled or
retires, this Agreement shall continue as to the party who continues to provide
Brand Manager services (until the Agreement is otherwise terminated).
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
DISPATCH MANAGEMENT SERVICES CORP.
"DMS CORP."
/s/ Linda Jenkinson
------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
/s/ Leon Spirt
- - - - -------------------------- ------------------------------------
WITNESS: Leon Spirt
/s/ Jack Spirt
- - - - -------------------------- ------------------------------------
Jack Spirt
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 12th day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and Dispatch Management Services of the National Capital Area, Inc. a Maryland
corporation in formation (the "Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager to
manage the business owned by DMS Corp. known as Washington Express Services (the
"Brand") as an independent entity;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp. to manage
the Brand as an independent entity; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using its best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how its
responsibilities under this Agreement are to be performed.
<PAGE>
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services, other back-office functions, and road
management services) shall be conducted, processed and serviced through DMS
Corp., its affiliates, or an entity designated by DMS Corp., and the failure to
do so shall be grounds for DMS Corp. to terminate this Agreement immediately.
The Brand Manager also covenants and agrees that the Brand will be managed
pursuant to the "DMS Model" (as defined below), subject to a transition period
as mutually determined by the Brand Manager and DMS Corp. For purposes of this
Agreement, the "DMS Model" shall mean the use of DMS Corp.'s licensed software,
consolidation of back-office operations through a DMS Center; standardized
delivery zones, costing, services and data entry; profit-incentivized workers;
and other methods of doing business in effect from time to time which are
intended to be consistent with the industry's then-current best practices as
determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand. The Brand Manager must
maintain a revenue base of at least $5,768,881 for the Brand during any twelve
month calendar period (January 1-December 31). For purposes of this paragraph
3(a), the revenue base of the Brand from the date of execution of this Agreement
through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure to
maintain a minimum revenue base of $5,768,881 during any twelve month calendar
period shall be grounds for termination of this Agreement by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage
2
<PAGE>
achieved by all DMS Corp. brands, DMS Corp. will have the right, upon approval
by the Business Steering Committee, to terminate this Agreement in accordance
with the provisions of paragraph 6 hereinbelow.
The Brand Manager, on at least 60 days' advance notice from DMS Corp.,
will be responsible for preparing a budget, forecasting expense items under its
control for each fiscal quarter in the upcoming fiscal year. Such budget will be
submitted to the DMS Corp. Business Steering Committee for approval, and such
approval shall not be unreasonably withheld unless the submitted budget targets
a Brand Contribution Percentage in the bottom 10% of the Brand Contribution
Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution -Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand Contribution formula set forth in Exhibit 1, which exhibit is
attached hereto and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort to collect all receivables of the
Brand for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period shall be written off by
DMS Corp. and assigned back to the Brand Manager for further collection action.
The Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp.(provided that no part of the
accounts receivable for the Brand outstanding as of the commencement date of
this Agreement shall be deemed written off for the purpose of calculating Brand
Manager's Brand Contribution until such time as the aggregate amount of such
write offs shall exceed the reserve established on the balance sheet of the
Brand as of the commencement date of this Agreement) so as to compensate DMS
Corp. for the uncollected amount. If any portion of such uncollected amount is
collected in the future, such portion shall be included as revenue for the month
in which it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The
3
<PAGE>
cash/equity compensation to be paid by DMS Corp. to the Brand Manager is set
forth in Exhibit 2, which exhibit is attached hereto and incorporated herein by
reference.
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $21,875 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to generally accepted accounting principles and applicable tax laws and
regulations. The Business Steering Committee of DMS Corp. will provide the Brand
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported for
the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year period or any succeeding one year period thereafter, or unless this
Agreement is terminated in accordance with the provisions of paragraph 6
hereinbelow.
4
<PAGE>
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the Brand's Brand
Contribution Percentage falling, for three (3) consecutive review periods, in
the bottom 10% of the Brand Contribution Percentage achieved by all other DMS
Corp. brands; (iv) the Brand Manager's violation of the Non-Competition
Agreement dated the 17th day of September, 1997 between the parties hereto; or
(v) conduct constituting "termination for just cause" at any time during the
term of the Agreement. For purposes of this Agreement, "termination for just
cause" shall mean termination for: (a) proven dishonesty in the course of
managing the Brand; (b) conviction of any of the principals of the Brand Manager
of a felony or misdemeanor involving moral turpitude; or (c) declaration of
bankruptcy, composition of creditors, attachment of the Brand Manger's interest
or rights under this Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged by DMS Corp., and the head of
the Business Steering Committee will be the President of DMS Corp. In the event
that the Business Steering Committee determines that the Brand Manager has
defaulted in its obligations under this Agreement, the Brand Manager shall
receive written notice thereof, and (except for termination by DMS Corp. under
Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of which shall be grounds
5
<PAGE>
for immediate termination without opportunity for cure) shall be given a cure
period during which the Brand Manager shall be permitted to address and rectify
the default. In the case of a failure to achieve the minimum revenue base
required under Paragraph 3(a) above, the Brand Manager shall be deemed to have
addressed and rectified the default if, during the calendar quarter immediately
following the date on which the Brand Manager receives notice of such default,
the annualized revenue for the Brand equals or exceeds the minimum revenue base
set forth in Paragraph 3(a). In the case of the Brand's Brand Contribution
Percentage falling, for three (3) consecutive review periods, in the bottom 10%
of the Brand Contribution Percentage achieved by all other DMS Corp. brands, the
Brand Manager shall be deemed to have addressed and rectified the default if,
during the calendar quarter immediately following the date on which the Brand
Manager receives notice of such default, the Brand's Brand Contribution
Percentage falls in the top 90% of the Brand Contribution Percentage achieved by
all other DMS Corp. brands. In the event that the default has not been addressed
and rectified within the specified cure period, as determined in the sole
discretion of the Business Steering Committee, the Business Steering Committee
will submit a recommendation to all brand managers that this Agreement be
terminated (the "Recommendation of Termination"). Unless greater than one third
of all DMS Corp. brand managers send the Business Steering Committee written
objection to such termination within fourteen (14) days after the date of the
Recommendation of Termination, this Agreement will be terminated immediately
thereafter and the Brand Manager will be so notified in writing. Upon
termination, all keys, identification materials, and proprietary information and
the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform its services. The
equity portion of the Brand Manager's compensation payable under this Agreement
need not be listed on a stock exchange, but in the event such equities are
listed, they shall be listed on such exchange as DMS Corp. shall determine in
its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of
6
<PAGE>
[his/her/its] obligations under this Agreement. Rather, the Brand Manager is
recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign its rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such assignment unless the assignee or an
affiliate of the assignee is, in the reasonable judgment of DMS Corp., a
competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this agreement may not be amended or modified except
in writing signed by the parties.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
DISPATCH MANAGEMENT SERVICES CORP.
"DMS CORP."
/s/ Linda Jenkinson
-----------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
/s/ Gilbert D. Carpel
- - - - --------------------------- -----------------------------------
Gilbert D. Carpel, President
Dispatch Management Services of the
National Capital Area, Inc.
8
BRAND MANAGER AGREEMENT
THIS AGREEMENT is entered into this 15th day of September, 1997, by and
between DISPATCH MANAGEMENT SERVICES CORP., a Delaware corporation ("DMS Corp.")
and The Delivery Company Limited, a limited liability company to be formed (the
"Brand Manager").
WITNESSETH:
WHEREAS, DMS Corp. owns companies providing time-critical and related
services;
WHEREAS, DMS Corp. wishes to retain the services of the Brand Manager, as
an independent contractor, to manage the business owned by DMS Corp. known as
__________________ (the "Brand") as an independent contractor;
WHEREAS, the Brand Manager wishes to be retained by DMS Corp., as an
independent contractor, to manage the Brand as an independent contractor; and
WHEREAS, the parties hereto wish to set forth the terms and conditions
pursuant to which the Brand Manager will manage the Brand.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties, it is agreed as follows:
1. Services. DMS Corp. hereby retains the Brand Manager, as an independent
entity, to manage the Brand, and the Brand Manager hereby accepts such
engagement, all upon the terms and conditions herein provided. During the term
of this Agreement, the Brand Manager covenants to manage the Brand in a
reasonable and judicious manner, using its best efforts to maximize Brand
Contribution (defined as total revenue less total expenses, before taxes, in
accordance with U.S. GAAP except as otherwise set forth in Exhibit 1 attached
hereto) and revenue of the Brand. For purposes of clarification, except where
otherwise provided in this Agreement, DMS Corp. will not have the right to
direct or control the Brand Manager as to the details of when, where and how its
responsibilities under this Agreement are to be performed.
2. Conduct of Business Through DMS Corp.
Notwithstanding anything in this Agreement to the contrary, the
Brand Manager covenants and agrees that all of the Brand's business (including
but not limited to dispatching services,
<PAGE>
other back-office functions, and road management services) shall be conducted,
processed and serviced through DMS Corp., its affiliates, or entities or persons
designated from time to time by DMS Corp., and the failure to do so shall be
grounds for DMS Corp. to terminate this Agreement immediately (unless the Brand
Manager justifies the reason for doing so to the reasonable satisfaction of DMS
Corp.).
The Brand Manager also covenants and agrees that the Brand will be
managed pursuant to the "DMS Model" (as defined below), subject to a transition
period as mutually determined by the Brand Manager and DMS Corp. For purposes of
this Agreement, the "DMS Model" shall mean the use, pursuant to license or other
arrangement, of DMS Corp.'s licensed software, consolidation of back-office
operations through a DMS Center; standardized delivery zones, costing, services
and data entry; profit-incentivized workers; and other methods of doing business
in effect from time to time which are intended to be consistent with the
industry's then-current best practices as determined by DMS Corp.
3. Revenue Maintenance; Brand Contribution Percentage Maintenance.
(a) Revenue Maintenance. The Brand Manager shall be responsible for
maintaining and growing the revenue base of the Brand, provided, however, that
DMS Corp. shall not take any actions intended, or that have the probable effect,
of interfering in any material respect with the Brand Manager's efforts to
maximize Brand Contribution and Brand Revenue. In the event that DMS Corp.
places additional operations at the Brand location, and the same has a material
adverse effect on the revenue of the Brand, an equitable adjustment shall be
made to the revenue base of the Brand for purposes of this Section 3.(a). An
equitable adjustment to the required revenue base shall also be made when the
Brand Manager is prevented from doing business in the ordinary course by causes
beyond the Brand Manager's control, which causes shall include labor disputes,
riots, civil commotion or insurrection, war or war-like operations, invasion,
rebellion, military or usurped power, sabotage, terrorist attack, public
transportation strike, fire or other casualties, or acts of God and like
conditions ("Force Majeure").
Subject to the foregoing, the Brand Manager must maintain a revenue
base as set forth in exhibit G for the Brand during any twelve month calendar
period (January 1-December 31). For
2
<PAGE>
purposes of this paragraph 3(a), the revenue base of the Brand from the date of
execution of this Agreement through December 31, 1997 shall be annualized.
As set forth in paragraph 6 hereinbelow, the Brand Manager's failure
to maintain a minimum revenue base of as set forth in exhibit G during any
twelve month calendar period shall be grounds for termination of this Agreement
by DMS Corp.
(b) Brand Contribution Percentage Maintenance. The Brand Manager
shall be responsible for maintaining and growing the "Brand Contribution
Percentage" (defined as Brand Contribution as a percentage of the Brand's total
revenue). The relative performance of the Brand's Brand Contribution Percentage,
compared to the Brand Contribution Percentage of all other DMS Corp. brands,
will be evaluated on a regular (quarterly) basis by DMS Corp. and provided to
the DMS Corp. Business Steering Committee for review. If, for three consecutive
review periods, the Brand's Brand Contribution Percentage falls in the bottom
10% of the Brand Contribution Percentage achieved by all DMS Corp. brands, DMS
Corp. will have the right, upon approval by the Business Steering Committee, to
terminate this Agreement in accordance with the provisions of paragraph 6
hereinbelow.
In the event that DMS Corp. places additional operations at the
Brand location, and the same has a material adverse effect on the Brand
Contribution Percentage of the Brand, an equitable adjustment shall be made to
the Brand Contribution Percentage of the Brand for purposes of this Section
3.(b) as well as an equitable adjustment to the Brand Contribution Percentage
for purposes of this Section 3 (b) in the event of a Force Majeure occurrence or
condition.
The Brand Manager, on at least 60 days' advance notice from DMS
Corp., will be responsible for preparing a budget, forecasting expense items
under its control for each fiscal quarter in the upcoming fiscal year. Such
budget will be submitted to the DMS Corp. Business Steering Committee for
approval, and such approval shall not be unreasonably withheld or delayed unless
the submitted budget targets a Brand Contribution Percentage in the bottom 10%
of the Brand Contribution Percentages targeted by all DMS Corp. brands.
4. Brand Manager Compensation.
(a) Contribution -Based Compensation Structure. During the term of
this Agreement, the Brand Manager shall be compensated by DMS Corp. based on the
revenue/Brand
3
<PAGE>
Contribution formula set forth in Exhibit 1, which exhibit is attached hereto
and incorporated herein by reference.
(b) Treatment of Uncollectible Accounts Receivable. DMS Corp. and/or
its agents agree to make a good faith effort, consistent with its efforts to
collect receivables of all other brands, to collect all receivables of the Brand
for a period of ninety days after billing and posting of revenues. Any
receivables not collected within such ninety day period notwithstanding such
good faith efforts shall be written off by DMS Corp. and assigned back to the
Brand Manager for further collection action. DMS Corp. will consult with the
Brand Manager on all compromises of accounts receivable in excess of $1,000. The
Brand Contribution shall be calculated by increasing the expenses for the
calendar month immediately following such ninety day period by 100% of the
amount of receivables written off by DMS Corp. so as to compensate DMS Corp. for
the uncollected amount. If any portion of such uncollected amount is collected
in the future, such portion shall be included as revenue for the month in which
it is received.
(c) Cash/Equity Mix of Compensation. The Brand Manager's
compensation, as determined in accordance with Exhibit 1 attached hereto, shall
be paid partly in cash, and partly by the issuance to the Brand Manager of
registered, unrestricted common stock of DMS Corp. The cash/equity compensation
to be paid by DMS Corp. to the Brand Manager is set forth in Exhibit 2, which
exhibit is attached hereto and incorporated herein by reference.
(d) Minimum Retainer; Deferred Compensation. For the services
rendered by the Brand Manager pursuant to this Agreement, DMS Corp. shall pay
the Brand Manager a minimum retainer in the amount of $20,833.00 per month, in
arrears, payable on the 25th day of the calendar month immediately following the
month for which the retainer is being paid. DMS Corp. will provide the Brand
Manager with a monthly statement of the Brand Manager's total earned margin for
the Brand. Any additional cash compensation, and all compensation payable in
common stock of DMS Corp. to which the Brand Manager is entitled pursuant to
this Agreement will be paid on a deferred basis on or about the January 15th
following the year in which such compensation is earned.
(e) Expense Reimbursement and Benefits. Expense reimbursement and
benefits policies of the Brand will be determined by the Brand Manager, subject
to U.S. GAAP and applicable tax laws and regulations. The Business Steering
Committee of DMS Corp. will provide the Brand
4
<PAGE>
Manager with a list of guidelines as to appropriate reimbursement and benefits
policies for use by the Brand Manager. In the event that a particular expense
reimbursement or benefit is not clearly within the guidelines supplied by the
Business Steering Committee, then the Brand Manager shall submit the issue to
the Business Steering Committee for approval prior to claiming the reimbursement
or benefit as a deduction by the Brand.
Notwithstanding the foregoing, to the extent an expense is reported
for the Brand which expense is determined to be (either wholly or partly)
non-deductible for tax purposes, the Brand Contribution shall be reduced by
adding (as an additional expense for purposes of calculating Brand Contribution)
that amount of additional taxes incurred by DMS Corp. as a result of such
non-deductibility.
5. Term. The term of this Agreement shall begin as of the date of the
Initial Public Offering of DMS Corp.'s common stock, and unless terminated in
accordance with the provisions of paragraph 6 hereinbelow, shall terminate two
(2) years thereafter. Thereafter, this Agreement shall be automatically renewed
for successive one year periods, unless the Brand Manager shall give written
notice to the contrary at least 90 days prior to the termination of the initial
one year period or any succeeding one year period thereafter, or unless this
Agreement is terminated in accordance with the provisions of paragraph 6
hereinbelow.
6. Termination.
(a) Termination Rights. In addition to the provisions for
termination provided elsewhere in this Agreement, this Agreement may be
terminated at any time upon the mutual consent, given in writing effective upon
delivery, of DMS Corp. and the Brand Manager. The Brand Manager shall have the
unilateral right to give DMS Corp. notice of an intention to voluntarily
withdraw from this Agreement on six months written notice. In the event of such
voluntary withdrawal, or in the event of termination of this Agreement by DMS
Corp. or the DMS Corp. Business Steering Committee pursuant to this paragraph 6,
the right to re-issue a Brand Manager Agreement for the Brand rests solely with
DMS Corp. This Agreement may also be terminated by DMS Corp. upon the happening
of any of the following circumstances: (i) Brand Manager's failure to conduct
all of the Brand's business through DMS Corp., its affiliates or designee as
required pursuant to paragraph 2 above; (ii) failure to maintain the minimum
revenue base set forth in paragraph 3(a) above; (iii) the
5
<PAGE>
Brand's Brand Contribution Percentage falling, for three (3) consecutive review
periods, in the bottom 10% of the Brand Contribution Percentage achieved by all
other DMS Corp. brands; (iv) the Brand Manager's violation of the
Non-Competition Agreement dated the 12th day of September, 1997 between the
parties hereto; or (v) conduct constituting "termination for just cause" at any
time during the term of the Agreement. For purposes of this Agreement,
"termination for just cause" shall mean termination for: (a) proven dishonesty
in the course of managing the Brand; (b) conviction of any of the principals of
the Brand Manager for violation of any felony or misdemeanor involving moral
turpitude; or (c) declaration of bankruptcy (to include involuntary bankruptcy
actions not dismissed within sixty (60) days after filing), composition of
creditors, attachment by creditors of the Brand Manger's interest or rights
under this Agreement and similar occurrences.
(b) Cure Period. Compliance with the terms of this Brand Manager
Agreement shall be determined by the judgment of the Business Steering Committee
of DMS Corp., except that DMS Corp. shall be solely responsible for determining
whether the Agreement may be terminated pursuant to the provisions of Sections
6(a)(i), 6(a)(iv) or 6(a)(v) above. Members of the Business Steering Committee
will include other active brand managers engaged by DMS Corp., and the head of
the Business Steering Committee will be the President of DMS Corp. In the event
that the Business Steering Committee determines that the Brand Manager has
defaulted in its obligations under this Agreement, the Brand Manager shall
receive written notice thereof, and (except for termination by DMS Corp. under
Sections 6(a)(i), 6(a)(iv) or 6(a)(v), any of which shall be grounds for
immediate termination without opportunity for cure) shall be given a cure period
during which the Brand Manager shall be permitted to address and rectify the
default. In the case of a failure to achieve the minimum revenue base required
under Paragraph 3(a) above, the Brand Manager shall be deemed to have addressed
and rectified the default if, during the calendar quarter immediately following
the date on which the Brand Manager receives notice of such default, the
annualized revenue for the Brand equals or exceeds the minimum revenue base set
forth in Paragraph 3(a). In the case of the Brand's Brand Contribution
Percentage falling, for three (3) consecutive review periods, in the bottom 10%
of the Brand Contribution Percentage achieved by all other DMS Corp. brands, the
Brand Manager shall be deemed to have addressed and rectified the default if,
during the calendar quarter immediately following the date on which the Brand
Manager receives notice of such default, the Brand's Brand
6
<PAGE>
Contribution Percentage falls in the top 90% of the Brand Contribution
Percentage achieved by all other DMS Corp. brands. In the event that the default
has not been addressed and rectified within the specified cure period, as
determined in the sole discretion of the Business Steering Committee, the
Business Steering Committee will submit a recommendation to all brand managers
that this Agreement be terminated (the "Recommendation of Termination"). Unless
greater than one third of all DMS Corp. brand managers send the Business
Steering Committee written objection to such termination within fourteen (14)
days after the date of the Recommendation of Termination, this Agreement will be
terminated immediately thereafter and the Brand Manager will be so notified in
writing. Upon termination, all keys, identification materials, and proprietary
information and the like will be returned to DMS Corp.
7. Miscellaneous.
(a) Payment in local currency. All references to the measurement,
determination or payment of money under this Agreement, are to be in the
currency of the area in which the Brand Manager will perform [his/her/its]
services. The equity portion of the Brand Manager's compensation payable under
this Agreement need not be listed on a stock exchange, but in the event such
equities are listed, they shall be listed on such exchange as DMS Corp. shall
determine in its sole discretion.
(b) No Employment Agreement. This Agreement does not create an
employer/employee relationship between the parties hereto. Except where
otherwise provided in this Agreement, DMS Corp. has no right to control and
direct the Brand Manager in the performance of its obligations under this
Agreement. Rather, the Brand Manager is recognized as an independent entity.
(c) Binding Effect; Assignability. This Agreement shall be binding
upon and shall inure to the benefit of DMS Corp. and the Brand Manager, and
their respective successors and/or permitted assigns. The Brand Manager shall
have the right to assign its rights and obligations under this Agreement to
another individual or entity with prior written approval of DMS Corp. only,
which approval shall not be unreasonably withheld or delayed. The Brand
Manager's request for approval of such an assignment shall include the name of
the assignee; DMS Corp. shall approve such
7
<PAGE>
assignment unless the assignee or an affiliate of the assignee is, in the
reasonable judgment of DMS Corp. a competitor of DMS Corp.
(d) Governing Law; Severability. This Agreement shall be governed by
the laws of the State of Delaware, without regard to such state's conflicts of
law principles. The Brand Manager hereby agrees to the personal jurisdiction of
the state and federal courts in Delaware. The provisions of this Agreement shall
be deemed severable, and the invalidity or unenforceability of any provision
shall not affect the validity or enforceability of the other provisions hereof.
(e) Entire Agreement. This Agreement constitutes the entire
Agreement between the parties as to the subject matter hereof, and will not be
superseded by any prior Agreement, covenant, or law other than that imposed by
the State of Delaware.
(f) No Waiver. No waiver by DMS Corp. shall constitute a waiver as
to any subsequent act and this Agreement may not be amended or modified except
in writing signed by the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
DISPATCH MANAGEMENT SERVICES CORP.
"DMS CORP."
/s/ Linda Jenkinson
-----------------------------------------
Linda Jenkinson
Chief Executive Officer
WITNESS: "BRAND MANAGER"
Delivery Company Limited
By: /s/ Michael Fiorito
- - - - ------------------------- -------------------------------------
WITNESS:
By: /s/ Frederick H. Mayerson
- - - - ------------------------- -------------------------------------
8
CERTIFICATE OF INCORPORATION
OF
DISPATCH MANAGEMENT SERVICES CORP.
I, the undersigned, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is Dispatch Management Services Corp.
(the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805.
The name of its registered agent at such address is The Corporation Service
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 110,000,000 shares of stock, of
which 10,000,000 shares, designated as preferred stock, shall have a par value
of One Cent ($.01) per share (the "Preferred Stock"), and 100,000,000 shares,
designated as common stock, shall have a par value of One Cent ($.01) per share
(the "Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
Preferred Stock. The Preferred Stock may be issued from time to time by the
Board of Directors as shares of one or more classes or series. Subject to the
provisions of this Certificate of Incorporation and the limitations prescribed
by law, the Board of Directors is expressly authorized by adopting resolutions
to issue the shares, fix the number of shares and change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (and whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), a redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
class or series of the Preferred Stock, without any further action or vote by
the stockholders.
Common Stock. 1. Dividends. Subject to the preferred rights of the holders of
shares of any class or series of Preferred Stock as provided by the Board of
Directors with respect to any such class
<PAGE>
or series of Preferred Stock, the holders of the Common Stock shall be entitled
to receive, as and when declared by the Board of Directors out of the funds of
the Corporation legally available therefor, such dividends (payable in cash,
stock or otherwise) as the Board of Directors may from time to time determine,
payable to stockholders of record on such dates, not exceeding 60 days preceding
the dividend payment dates, as shall be fixed for such purpose by the Board of
Directors in advance of payment of each particular dividend.
2. Liquidation. In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, after the distribution or
payment to the holders of shares of any class or series of Preferred Stock as
provided by the Board of Directors with respect to any such class or series of
Preferred Stock, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among and paid to the holders
of Common Stock ratably in proportion to the number of shares of Common Stock
held by them.
3. Voting Rights. Except as otherwise required by law, each holder of
shares of Common Stock shall be entitled to one vote for each share of Common
Stock standing in such holder's name on the books of the Corporation.
FIFTH: The name and mailing address of the incorporator is as follows:
J. Steven Patterson
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
SIXTH: 1. Board of Directors. The Directors shall be classified with
respect to the time for which they shall severally hold office into three
classes as nearly equal in number as possible. The Class I Directors shall be
elected to hold office for an initial term expiring at the 1998 annual meeting
of stockholders, the Class II Directors shall be elected to hold office for an
initial term expiring at the 1999 annual meeting of stockholders and the Class
III Directors shall be elected to hold office for an initial term expiring at
the 2000 annual meeting of stockholders, with the members of each class of
directors to hold office until their successors have been duly elected and
qualified. At each annual meeting of stockholders, the successors to the class
of directors whose term expires at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held in the third year
following the year of their election and until their successors have been duly
elected and qualified. At each annual meeting of stockholders at which a quorum
is present, the persons receiving a plurality of the votes
2
<PAGE>
cast shall be directors. No director or class of directors may be removed from
office by a vote of the stockholders at any time except for cause. Election of
directors need not be by written ballot unless the Bylaws of the Corporation so
provide.
2. Vacancies. Any vacancy on the Board of Directors resulting from death,
retirement, resignation, disqualification or removal from office or other cause,
as well as any vacancy resulting from an increase in the number of directors
which occurs between annual meetings of the stockholders at which directors are
elected, shall be filled only by a majority vote of the remaining directors then
in office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term of the class to which they
have been elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately as a class
or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to this ARTICLE SIXTH applicable thereto, and each director so elected
shall not be subject to the provisions of this ARTICLE SIXTH unless otherwise
provided therein.
3. Power to Make, Alter and Repeal Bylaws. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to make, alter and repeal the Bylaws of the Corporation.
4. Amendment and Repeal of Article Six. Notwithstanding any provision of
this Certificate of Incorporation and of the Bylaws, and notwithstanding the
fact that a lesser percentage may be specified by Delaware law, unless such
action has been approved by a majority vote of the full Board of Directors, the
affirmative vote of 66 2/3 percent of the Corporation's shareholders entitled to
vote thereon, voting together as a single class, shall be required to amend or
repeal any provisions of this ARTICLE SIXTH or to adopt any provision
inconsistent with this ARTICLE SIXTH. In the event such action has been
previously approved by a majority vote of the full Board of Directors, the
affirmative vote of a majority of the outstanding stock entitled to vote thereon
shall be sufficient to amend or repeal any provision of this ARTICLE SIXTH or
adopt any provision inconsistent with this ARTICLE SIXTH.
3
<PAGE>
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute.
EIGHTH: No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for
any transaction from which the director derived an improper personal benefit.
NINTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as amended from
time to time, indemnify all persons whom it may indemnify pursuant thereto.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation on behalf of the Corporation and does verify and affirm, under
penalty of perjury, that this Certificate of Incorporation is the act and deed
of the Corporation and that the facts stated herein are true as of this 5th day
of September, 1997.
Dispatch Management Services Corp.
By:
----------------------------------
J. Steven Patterson, Incorporator
5
DISPATCH MANAGEMENT SERVICES CORP.
---oo0oo---
AMENDED AND RESTATED
BYLAWS
---oo0oo---
ARTICLE I
OFFICES
Section 1.01. Registered Office. The registered office of Dispatch
Management Services Corp. (hereinafter referred to as the "Corporation")
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 1.02. Additional Offices. The Corporation may also have offices at
such other places, both within and outside the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. Time and Place. All meetings of stockholders shall be held
at such time and place, either within or outside the State of Delaware, as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice of the meeting.
<PAGE>
Section 2.02. Annual Meeting. Annual meetings of stockholders shall
be held for the purpose of electing a Board of Directors and transacting such
other business as may properly be brought before the meeting.
Section 2.03. Notice of Annual Meeting. Written notice of the annual
meeting, stating the place, date and time of such annual meeting, shall be given
to each stockholder entitled to vote at such meeting not less than ten (10)
(unless a longer period is required by law) nor more than sixty (60) days prior
to the meeting.
Section 2.04. Special Meeting. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Chairman of the Board, if
any, or, if the Chairman is not present (or, if there is none), by the Chief
Executive Officer and shall be called by the Chief Executive Officer or
Secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of the stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote at
such meeting. Such request shall state the purpose or purposes of the proposed
meeting. The person calling such meeting shall cause notice of the meeting to be
given in accordance with the provisions of Section 2.05 of this Article II and
of Article V.
2
<PAGE>
Section 2.05. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date and time of such special meeting and the
purpose or purposes for which the meeting is called, shall be delivered either
personally or mailed to each stockholder at his last address as shown on the
stock ledger of the Corporation not less than ten (10) (unless a longer period
is required by law) nor more than sixty (60) days prior to the meeting.
Section 2.06. List of Stockholders. The officer in charge of the stock
ledger of the Corporation or the transfer agent shall prepare and make, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting, at
a place within the city where the meeting is to be held. Such place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting and may be inspected by any stockholder who
is present.
3
<PAGE>
Section 2.07. Presiding Officer. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or if the Chairman is not
present (or if there is none), by the Chief Executive Officer, or, if the Chief
Executive Officer is not present, by a Vice Chief Executive Officer, or, if a
Vice Chief Executive Officer is not present, by such person who may have been
chosen by the Board of Directors, or, if none of such persons is present, by a
Chairman to be chosen by the stockholders owning a majority of the shares of
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting and who are present in person or represented by proxy. The Secretary
of the Corporation, or, if the Secretary is not present, an Assistant Secretary,
or, if an Assistant Secretary is not present, such person as may be chosen by
the Board of Directors, shall act as secretary of meetings of stockholders, or,
if none of such persons is present, the stockholders owning a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote at the meeting and who are present in person or represented by proxy
shall choose any person present to act as secretary of the meeting.
Section 2.08. Quorum and Adjournments. The holders of a majority of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote at stockholders meetings, present in person or represented by proxy,
shall be necessary to,
4
<PAGE>
and shall constitute a quorum for, the transaction of business at all meetings
of the stockholders, except as otherwise provided by statute or by the
Certificate of Incorporation. The stockholders present in person or represented
by proxy at a duly organized meeting may continue to do business until final
adjournment of such meeting whether on the same day or on a later day,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. If a meeting cannot be organized because a quorum has not attended, or
even if a quorum shall be present or represented at any meeting of the
stockholders, the stockholders entitled to vote at such meeting present in
person or represented by proxy may adjourn the meeting from time to time;
provided however, that if the holders of any class of stock of the Corporation
are entitled to vote separately as a class or series upon any matter at such
meeting, any adjournment of the meeting in respect of action of such class or
series upon such matter shall be determined by the holders of a majority of the
shares of such class or series present in person or represented by proxy and
entitled to vote at such meeting, until a quorum shall be present or
represented. Notice of the adjourned meeting need not be given if the time and
place of the adjourned meeting are announced at the meeting at which the
adjournment is taken. At any adjourned meeting at which a quorum is present in
person or represented by proxy of any class or series of stock entitled to vote
separately as a class or series, as the case may be, any business may be
transacted which might have been transacted at
5
<PAGE>
the meeting as originally called. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at such meeting.
Section 2.09. Voting.
(a) At any meeting of stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy, but no such proxy
shall be voted or acted upon after one (1) year from its date, unless the proxy
provides for a longer period. Except as otherwise provided by law or the
Certificate of Incorporation, each stockholder of record shall be entitled to
one (1) vote for each share of capital stock registered in his name on the books
of the Corporation.
(b) At a meeting at which a quorum is present, all elections of
Directors shall be determined by a plurality vote, and, except as otherwise
provided by law or the Certificate of Incorporation, all other matters shall be
determined by a vote of a majority of the shares present in person or
represented by proxy and entitled to vote on such other matters.
Section 2.10. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received
6
<PAGE>
and taken in charge, and all questions touching the qualification of voters, the
validity of proxies and the acceptance or rejection of votes shall be decided at
any meeting of the stockholders by two or more inspectors who may be appointed
by the Board of Directors before the meeting, or if not so appointed, who shall
be appointed by the presiding officer at the meeting. If any person so appointed
fails to appear or act, the vacancy may be filled by appointment in like manner.
Section 2.11. Consent. Unless otherwise provided in the Certificate of
Incorporation, any action required or permitted by law or the Certificate of
Incorporation to be taken at any meeting of the stockholders may be taken
without a meeting, without prior notice and without a vote, if a written consent
or counterparts thereof, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote on such action were present or represented by
proxy and voted. Such written consent or counterparts thereof shall be filed
with the minutes of meetings of stockholders. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not so consented in writing.
7
<PAGE>
ARTICLE III
DIRECTORS
Section 3.01. Number and Tenure. There shall be such number of Directors,
no fewer than one (1), as shall from time to time be fixed by the Board of
Directors at the annual meeting or at any special meeting called for such
purpose. The Directors shall be classified with respect to the time for which
they shall severally hold office into three classes as nearly equal in number as
possible. The Class I Directors shall be elected to hold office for an initial
term expiring at the 1998 annual meeting of stockholders, the Class II Directors
shall be elected to hold office for an initial term expiring at the 1999 annual
meeting of stockholders and the Class III Directors shall be elected to hold
office for an initial term expiring at the 2000 annual meeting of stockholders,
with the members of each class of directors to hold office until their
successors have been duly elected and qualified. At such annual meeting of
stockholders, the successors to the class of directors to hold office until
their successors have been duly elected and qualified. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified. At
each annual meeting of stockholders at which a
8
<PAGE>
quorum is present, the persons receiving a plurality of the votes cast shall be
directors. No director or class of directors may be removed from office by a
vote of the stockholders at any time except for cause. Election of directors
need not be by written ballot unless the Bylaws of the Corporation so provide.
Section 3.02. Vacancies. Any vacancy on the Board of Directors resulting
from death, retirement, resignation, disqualification or removal from office or
other cause, as well as any vacancy resulting from an increase in the number of
directors which occurs between annual meetings of the stockholders at which
directors are elected, shall be filled only by a majority vote of the remaining
directors then in office, though less than a quorum, except that those vacancies
resulting from removal from office by a vote of the stockholders may be filled
by a vote of the stockholders at the same meeting at which such removal occurs.
The directors chosen to fill vacancies shall hold office for a term expiring at
the end of the next annual meeting of stockholders at which the term of the
class to which they have been elected expires. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately as a class
or series, to elect
9
<PAGE>
directors, the election, term of office, filling of vacancies, removal and other
features of such directorships shall be governed by the terms of the resolution
or resolutions adopted by the Board of Directors pursuant to this Section 3.02
applicable hereto, and each director as elected shall not be subject to the
provisions of this Section 3.02 unless otherwise provided herein.
Section 3.03. Resignation. Any Director may resign at any time by giving
written notice to the Chairman of the Board, the Chief Executive Officer or the
Secretary of the Corporation, or, in the absence of all of the foregoing, by
notice to any other Director or officer of the Corporation. Unless otherwise
specified in such written notice, a resignation shall take effect upon delivery
to the designated Director or officer. It shall not be necessary for a
resignation to be accepted before it becomes effective.
Section 3.04. Place of Meetings. The Board of Directors may hold
meetings, both regular and special, either within or outside the State of
Delaware.
Section 3.05. Nomination of Directors. Only persons who are nominated in
accordance with the provisions set forth in these Bylaws shall be eligible to be
elected as directors at the annual or special meeting of shareholders.
Nomination for
10
<PAGE>
election to the Board of Directors shall be made or approved by the Board of
Directors.
In addition, nomination for election of any person to the Board of
Directors may be made by a shareholder if written notice of the nomination of
such person shall have been delivered to the Secretary of the Corporation at the
principal office of the Corporation not less than 14 days nor more than 60 days
prior to any meeting of the shareholders called for the election of directors;
provided, however, that if fewer than 21 days' notice of the meeting is given to
shareholders, such written notice shall be received not later than the close of
the tenth day following the day on which notice of the meeting was mailed to
shareholders. Notwithstanding the foregoing, any shareholder who wishes the
Board of Directors or a duly authorized committee of the Board of Directors to
consider nominating for election to the Board of Directors a person recommended
by a shareholder must deliver such notice to, or mail it so that it is received
by, the Secretary of the Corporation not less than 90 nor more than 150 days
prior to the meeting. Any notice provided pursuant to this Section shall set
forth: (a) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the shareholder is a holder of record of shares of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (c) a
description of all arrangements or
11
<PAGE>
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (d) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission if the nominee had been nominated by the
Board of Directors; and (e) the written consent of each nominee to serve as a
director of the Corporation if so elected. Nothing in this Section shall require
the Board of Directors to nominate or approve, as one of its nominees, any
person recommended to be so nominated by a shareholder or to give the
shareholders notice of any proposed nomination by a shareholder. The chairman of
the meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure.
Section 3.06. Annual Meeting. Unless otherwise agreed by the newly elected
Directors, the annual meeting of each newly elected Board of Directors shall be
held immediately following the annual meeting of stockholders, and no notice of
such meeting to either incumbent or newly elected Directors shall be necessary.
Section 3.07. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice, at such time and
12
<PAGE>
place as may from time to time be determined by the Board of Directors. A copy
of every resolution fixing or changing the time or place of regular meetings
shall be mailed to every Director at least five days before the first meeting
held in pursuance thereof.
Section 3.08. Special Meetings. Special Meetings of the Board of Directors
may be called by the Chairman of the Board or the Chief Executive Officer on at
least (1) day actual notice to each Director, if such Special Meeting is to be
conducted by means of conference telephone or similar communications equipment
in accordance with Section 3.11, and otherwise, upon two (2) days' actual notice
if such notice is delivered personally or sent by telegram, facsimile or
telecopy. Special Meetings shall be called by the Chairman of the Board or the
Chief Executive Officer in like manner and on like notice on the written request
of one-half or more of the Directors then in office. The purpose of a Special
Meeting of the Board of Directors need not be stated in the notice of such
meeting. Any and all business other than an amendment of these Bylaws may be
transacted at any special meeting, and an amendment of these Bylaws may be acted
upon if the notice of the meeting shall have stated that the amendment of these
Bylaws is one of the purposes of the meeting. At any meeting at which every
Director shall be present, even though without any notice, any business may be
transacted, including the amendment of these Bylaws.
13
<PAGE>
Section 3.09. Quorum and Adjournments. Unless otherwise provided by the
Certificate of Incorporation, at all meetings of the Board of Directors,
one-half of the total number of Directors shall constitute a quorum for the
transaction of business; provided, however, that when the Board of Directors
consists of one (1) Director, then one (1) Director shall constitute a quorum.
If a quorum is not present at any meeting of the Board of Directors, the
Directors present may adjourn the meeting, from time to time, without notice
other than announcement at the meeting, until a quorum shall be present.
Section 3.10. Presiding Officer. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board of Directors, if any, or if the
Chairman is not present (or if there is none), by the Chief Executive Officer,
or, if the Chief Executive Officer is not present, by such person as the Board
of Directors may appoint for the purpose of presiding at the meeting from which
the Chief Executive Officer is absent.
Section 3.11. Action by Consent. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings
14
<PAGE>
of the Board of Directors or committee. Such consent shall have the same force
and effect as the unanimous vote of the Board of Directors.
Section 3.12. Telephone Meetings. Members of the Board of Directors, or
any committee designated by the Board of Directors, may participate in a meeting
of the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
Section 3.13. Compensation. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office and irrespective of the
personal interest of any Director, shall have authority to establish reasonable
compensation for Directors for their services as such and may, in addition,
authorize reimbursement of any reasonable expenses incurred by Directors in
connection with their duties.
ARTICLE IV
COMMITTEES
Section 4.01. Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
(1) or more committees, each committee to consist of one (1) or more Directors
of the
15
<PAGE>
Corporation. The Board of Directors may designate one (1) or more persons who
are not Directors as additional members of any committee, but such persons shall
be nonvoting members of such committee. The Board of Directors may designate one
(1) or more Directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not such member or members constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have
power or authority to amend the Certificate of Incorporation, adopt an agreement
of merger or consolidation, recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, elect or remove officers or Directors, or amend these Bylaws
of the Corporation; and, unless the resolution or the Certificate of
Incorporation expressly so provides, no such
16
<PAGE>
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 4.02. Minutes of Committee Meetings. Unless otherwise provided in
the resolution of the Board of Directors establishing such committee, each
committee shall keep minutes of action taken by it and file the same with the
Secretary of the Corporation.
Section 4.03. Quorum. A majority of the number of Directors constituting
any committee shall constitute a quorum for the transaction of business, and the
affirmative vote of such Directors present at the meeting shall be required for
any action of the committee; provided, however, that, when a committee of one
(1) member is authorized under the provisions of Section 4.01 of this Article,
such one (1) member shall constitute a quorum.
Section 4.04. Vacancies, Changes and Discharge. The Board of
Directors shall have the power at any time to fill vacancies in, to change
the membership of and to discharge any committee.
Section 4.05. Compensation. The Board of Directors, by the affirmative
vote of a majority of the Directors then in office
17
<PAGE>
and irrespective of the personal interest of any Director, shall have authority
to establish reasonable compensation for committee members for their services as
such and may, in addition, authorize reimbursement of any reasonable expenses
incurred by committee members in connection with their duties.
ARTICLE V
NOTICES
Section 5.01. Form and Delivery.
(a) Whenever, under the provisions of law, the Certificate of
Incorporation or these Bylaws, notice is required to be given to any
stockholder, it shall not be construed to mean personal notice unless otherwise
specifically provided, but such notice may be given in writing, by mail,
telecopy, telegram or messenger addressed to such stockholder, at his address as
it appears on the stock ledger of the Corporation. If mailed, such notice shall
be deemed to be delivered when deposited in the United States mail, with postage
prepaid.
(b) Whenever, under the provisions of law, the Certificate of
Incorporation, or these Bylaws, notice is required to be given to any Director,
it shall not be construed to mean personal notice unless otherwise specifically
provided, but such notice may be given in writing, by mail, telecopy, telegram
or messenger addressed to such Director at the usual place of residence or
business of such Director as in the discretion of the person giving such notice
will be likely to be received most
18
<PAGE>
expeditiously by such Director. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, with postage prepaid.
Section 5.02. Waiver. Whenever any notice is required to be given under
the provisions of law, the Certificate of Incorporation or these Bylaws, a
written waiver of notice, signed by the person or persons entitled to said
notice, whether before or after the time for the meeting stated in such notice,
shall be deemed equivalent to such notice.
ARTICLE VI
OFFICERS
Section 6.01. Designations. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a Chief Executive Officer and a
Secretary. The Board of Directors may also choose a Chairman of the Board, one
(1) or more Vice Presidents or similar officers, a Chief Financial Officer or
Treasurer, one (1) or more Assistant Secretaries and one (1) or more Assistant
Treasurers and other officers and agents as it shall deem necessary or
appropriate. Any officer of the Corporation shall have the authority to affix
the seal of the Corporation and to attest the affixing of the seal by his
signature. All officers and agents of the Corporation shall exercise such powers
and perform such duties as shall from time to time be determined by the Board of
Directors.
19
<PAGE>
Section 6.02. Term of Office and Removal. The Board of Directors at its
annual meeting after each annual meeting of stockholders or at a special meeting
called for that purpose shall choose officers and agents, if any, in accordance
with the provisions of Section 6.01. Each officer of the Corporation shall hold
office until his successor is elected and shall qualify. Any officer or agent
elected or appointed by the Board of Directors may be removed, with or without
cause, at any time by the affirmative vote of a majority of the Directors then
in office. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of Directors.
Section 6.03. Compensation. The salaries of all officers and agents, if
any, of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer or agent shall be prevented from receiving such salary
by reason of the fact that he is also a Director of the Corporation.
Section 6.04. Chairman of the Board. The duties of the Chairman of
the Board shall be the following:
(i) Subject to the direction of the Board of Directors, to
have general charge of the business, affairs and property of the
Corporation and general supervision over its other officers and agents
and, in general, to perform all duties incident to the office of Chairman
of the Board
20
<PAGE>
and to see that all orders and resolutions of the Board of Directors are
carried into effect.
(ii) Unless otherwise prescribed by the Board of Directors, to
have full power and authority on behalf of the Corporation to attend, act
and vote at any meeting of security holders of other Corporations in which
the Corporation may hold securities. At such meeting the Chairman of the
Board shall possess and may exercise any and all rights and powers
incident to the ownership of such securities that the Corporation might
have possessed and exercised if it had been present. The Board of
Directors may from time to time confer like powers upon any other person
or persons.
(iii) To preside over meetings of the stockholders and of the
Board of Directors, to call special meetings of stockholders, to be an
ex-officio member of all committees of the Board of Directors, and to have
such other duties as may from time to time be prescribed by the Board of
Directors.
Section 6.05. Chief Executive Officer. The duties of the Chief Executive
Officer shall be the following:
(i) Subject to the direction of the Board of Directors or
Chairman, to have general charge of the business, affairs and property of
the Corporation and general supervision over its other officers and agents
and,
21
<PAGE>
in general, to perform all duties incident to the office of Chief
Executive Officer and to see that all orders and resolutions of the Board
of Directors are carried into effect.
(ii) Unless otherwise prescribed by the Board of Directors or
Chairman, to have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of security holders of other
Corporations in which the Corporation may hold securities. Subject to the
direction of the Board of Directors or the Chairman, at such meeting the
Chief Executive Officer shall possess and may exercise any and all rights
and powers incident to the ownership of such securities that the
Corporation might have possessed and exercised if it had been present. The
Board of Directors may from time to time confer like powers upon any other
person or persons.
(iii) To preside over meetings of the stockholders, to call
special meetings of stockholders, and to have such other duties as may
from time to time be prescribed by the Board of Directors.
Section 6.06. The Vice President. The Vice President or similar officer,
if any (or in the event there be more than one (1), the Vice President or
similar officer in the order designated, or in the absence of any designation,
in the order of their election), shall, in the absence of the Chief Executive
22
<PAGE>
Officer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Chief Executive Officer and shall generally
assist the Chief Executive Officer and perform such other duties and have such
other powers as may from time to time be prescribed by the Board of Directors.
Section 6.07. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all votes and
the proceedings of the meetings in a book to be kept for that purpose and shall
perform like duties for any committees of the Board of Directors, if requested
by such committee. The Secretary shall give, or cause to be given, notice of all
meetings of stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may from time to time be prescribed by the
Board of Directors or the Chief Executive Officer, under whose supervision he
shall act. The Secretary shall have custody of the seal of the Corporation, and,
or an Assistant Secretary, shall have authority to affix the same to any
instrument requiring it, and, when so affixed, the seal may be attested by the
signature of the Secretary or by the signature of such Assistant Secretary.
Section 6.08. The Assistant Secretary. The Assistant Secretary, if any (or
in the event there be more than one (1), the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election),
23
<PAGE>
shall, in the absence of the Secretary or in the event of the Secretary's
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as may
from time to time be prescribed by the Board of Directors.
Section 6.09. The Chief Financial Officer or Treasurer. The Chief
Financial Officer or Treasurer, if any, shall have the custody of the corporate
funds and other valuable effects, including securities, and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may from time to
time be designated by the Board of Directors. The Chief Financial Officer or
Treasurer shall disburse the funds of the Corporation as may be ordered by the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chief Executive Officer and the Board of Directors, at regular
meetings of the board, or whenever they may require it, an account of all his
transactions as Chief Financial Officer or Treasurer and of the financial
condition of the Corporation.
Section 6.10. The Assistant Treasurer. The Assistant Treasurer, if any,
(or in the event there be more than one (1), the Assistant Treasurers in the
order designated, or in the
24
<PAGE>
absence of any designation, in the order of their election), shall, in the
absence of the Treasurer or in the event of the Treasurer's inability or refusal
to act, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as may from time to time be
prescribed by the Board of Directors.
Section 6.11. Transfer of Authority. In case of the absence of any officer
or for any other reason that the Board of Directors deems sufficient, the Board
of Directors may transfer the powers or duties of that officer to any other
officer or to any Director or employee of the Corporation, provided a majority
of the full Board of Directors concurs.
Section 6.12. Giving of Bond by Officers. All officers of the Corporation,
if required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
ARTICLE VII
STOCK CERTIFICATES
Section 7.01. Form and Signatures. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by or in the name of
the Corporation, by the Chairman of the Board, the Chief Executive Officer or a
Vice President and
25
<PAGE>
the Chief Financial Officer, an Assistant Treasurer, the Secretary or an
Assistant Secretary of the Corporation, certifying the number and class (and
series, if any) of shares owned by him, and bearing the seal of the Corporation.
Such seal and any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed, or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
Section 7.02. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or its transfer
agent to issue a new certificate to the person entitled thereto, to cancel the
old certificate and to record the transaction upon its books.
Section 7.03. Registered Stockholders. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person who is registered on its books as the owner of shares of its capital
stock to receive dividends or other distributions, to vote as such owner, and to
hold liable for calls and assessments a person who is registered on its books
26
<PAGE>
as the owner of shares of its capital stock. The Corporation shall not be bound
to recognize any equitable, legal or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
Section 7.04. Issuance of Certificates. No certificate shall be issued for
any share until (i) consideration for such share in the form of cash, services
rendered, personal or real property, leases of real property or a combination
thereof in an amount not less than the par value or stated capital of such share
has been received by the Corporation and (ii) the Corporation has received a
binding obligation of the subscriber or purchaser to pay the balance of the
subscription or purchase price.
Section 7.05. Lost, Stolen or Destroyed Certificates. The Board of
Directors may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate, or his legal representative, to advertise the
same
27
<PAGE>
in such manner as it shall require, and to give the Corporation a bond in such
sum, or other security in such form as it may direct, as indemnity against any
claim that may be made against the Corporation on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate.
Section 7.06. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
ARTICLE VIII
INDEMNIFICATION
Section 8.01. Directors or Officers.
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a Director or officer of the Corporation,
or is or was serving at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees),
28
<PAGE>
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner that he reasonably believed to be in or not opposed to the best interests
of the Corporation and, with respect to any criminal action or a proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a Director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the
29
<PAGE>
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that a Director or officer of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of this Article VIII, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
Article VIII (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the Director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
Article VIII. Such determination shall be made (1) by the Board of Directors by
a majority vote of a quorum consisting of Directors who were not parties to such
action, suit or
30
<PAGE>
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by independent legal counsel in a
written opinion or (3) by the stockholders.
(e) Expenses incurred by a Director or officer in defending a civil
or criminal action, suit or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article.
(f) The indemnification and advancement of expenses provided by
these Bylaws shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
agreement, vote of stockholders or disinterested Directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
(g) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a Director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(h) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a Director or
31
<PAGE>
officer of the Corporation, or is or was serving at the request of the
Corporation as a Director or officer of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under this Article.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01. Fiscal Year. The fiscal year of the Corporation shall
be as determined from time to time by the Board of Directors.
Section 9.02. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal" and "Delaware." The seal or any facsimile thereof may be, but need not be,
unless required by law, impressed or affixed to any instrument executed by an
officer of the Corporation.
ARTICLE X
AMENDMENTS
Section 10.01. These Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the stockholders or by
32
<PAGE>
the Board of Directors, to the extent that such power is conferred upon the
Board of Directors by the Certificate of Incorporation, at any regular meeting
of the stockholders or of the Board of Directors or at any special meeting of
the stockholders or of the Board of Directors if notice of such proposed
alteration, amendment, repeal or adoption of new Bylaws be contained in the
notice of such special meeting.
Doc. No. 44889 v.3
33
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports as of the dates and the
related financial statements of the companies listed below which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
<TABLE>
<CAPTION>
Price Waterhouse LLP Office
Company Date City, State
------- ---- -----------
<S> <C> <C>
Dispatch Management Services, Corp. September 15, 1997 Detroit, Michigan
Atlantic Freight Systems, Inc. September 3, 1997 Philadelphia, Pennsylvania
Aero Special Delivery Service, Inc. September 9, 1997 San Francisco, California
Gregory W. Austin (dba Battery Point
Messenger and Alpha Express) August 29, 1997 San Francisco, California
Washington Express Services, Inc. August 29, 1997 Washington, D C.
MLQ Express, Inc. August 27, 1997 Atlanta, Georgia
American Eagle Endeavors, Inc. September 5, 1997 Minneapolis, Minnesota
A&W Couriers, Inc. September 12, 1997 Austin, Texas
Fleetfoot Max, Inc. October 7, 1997 Seattle, Washington
Expressit Couriers, Inc. September 5, 1997 Detroit, Michigan
Express Enterprise, Inc. September 4, 1997 Detroit, Michigan
Bullit Courier Services, Inc. September 11, 1997 Detroit, Michigan
Profall, Inc. September 15, 1997 Los Angeles, California
Kangaroo Express September 5, 1997 Denver, Colorado
National Messenger, Inc. September 15, 1991 Los Angeles, California
S-Car-Go Courier, Inc. August 29, 1997 San Francisco, California
Transpeed Courier Services, Inc. September 5, 1997 Denver, Colorado
</TABLE>
PRICE WATERHOUSE LLP
November 10, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports as of the dates and the
related financial statements of the companies listed below which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
Company Date
------- ----
Brookside Systems and Programming Limited October 15, 1997
Bridge Wharf Investments Limited
(excluding the mail room services
operations) October 15, 1997
Security Despatch Limited (excluding the
mail room services operations) October 15, 1997
PRICE WATERHOUSE
London, England
November 10, 1997
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 3, 1997, except for Note 11, as to which the
date is October 1, 1997, with respect to the combined financial statements of
Earlybird Courier Service, LLC, Total Management Support Services LLC and their
Affiliates included in the Registration Statement (Form S-1) and related
Prospectus of Dispatch Management Services, Corp. for the registration of its
common stock.
ERNST & YOUNG LLP
New York, New York
November 6, 1997
<PAGE>
Consent of Ernst & Young LLP
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 20, 1997, with respect to the financial
statements of RJK Enterprises Inc. (d.b.a. Deadline Express) included in the
Registration Statement (Form S-1) and related Prospectus of Dispatch Management
Services, Corp. for the registration of its common stock.
ERNST & YOUNG LLP
New York, New York
November 6, 1997
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), I hereby consent to the use of my name and any references to
me as a person nominated to become a director of Dispatch Management Services
Corp. ("DMSC") in the Prospectus constituting a part of DMSC's Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
pursuant to the Securities Act.
Dated:
/s/ Michael Fiorito
------------------------------
Michael Fiorito
<PAGE>
CONSENT OF PERSON NAMED TO BECOME A DIRECTOR
Pursuant to Rule 438 under the Securities Act of 1933, as amended (the
"Securities Act"), I hereby consent to the use of my name and any references to
me as a person nominated to become a director of Dispatch Management Services
Corp. ("DMSC") in the Prospectus constituting a part of DMSC's Registration
Statement on Form S-1 to be filed with the Securities and Exchange Commission
pursuant to the Securities Act.
Dated:
/s/ Alison Davis
------------------------------
Alison Davis
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 29
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 427
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 427
<CURRENT-LIABILITIES> 365
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 62
<TOTAL-LIABILITY-AND-EQUITY> 427
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
