AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1998
REGISTRATION NO. 333-50447
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRANSPORTATION COMPONENTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 5013 76-0562800
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
T. MICHAEL YOUNG
CHIEF EXECUTIVE OFFICER
THREE RIVERWAY
SUITE 630
HOUSTON, TEXAS 77056
(713) 965-9522
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES AND AGENT FOR SERVICE)
------------------------
COPIES TO:
WILLIAM D. GUTERMUTH STEPHEN A. RIDDICK
BRACEWELL & PATTERSON, L.L.P. PIPER & MARBURY L.L.P.
SOUTH TOWER PENNZOIL PLACE 36 SOUTH CHARLES STREET
711 LOUISIANA STREET, SUITE BALTIMORE, MARYLAND 21201
2900 (410) 539-2530
HOUSTON, TEXAS 77002-2781
(713) 221-1316
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $0.01 par value
per share..................... 5,500,000 shares $12.00 $75,900,000 $22,390.50(2)
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
******************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR *
* SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH *
* OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR *
* QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. *
* *
******************************************************************************
SUBJECT TO COMPLETION, DATED MAY 28, 1998
PROSPECTUS
5,500,000 SHARES
[LOGO]
TRANSCOM USA
COMMON STOCK
------------------------
All of the 5,500,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby are being offered by Transportation Components,
Inc. ("TransCom USA" or the "Company"). TransCom USA was founded in October 1997
and has conducted no operations to date. Prior to this offering, there has been
no public market for the Common Stock of the Company. It is currently estimated
that the initial public offering price for the Common Stock will be between
$10.00 and $12.00 per share. See "Underwriting" for a discussion of certain
factors to be considered in determining the initial public offering price.
Following completion of this offering, approximately 67.6% of the outstanding
shares of Common Stock will be beneficially owned by officers and directors of
the Company and former owners of the Founding Companies (as herein defined).
Approximately 41.1% of the proceeds will be paid to affiliates of the Founding
Companies as consideration for the Mergers (as herein defined). The Common Stock
has been approved for listing on the New York Stock Exchange under the symbol
"TUI," subject to official notice of issuance.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 10 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
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 Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
to be $5,000,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
825,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Common Stock will be made against
payment therefor, on or about ____________, 1998 at the offices of Bear, Stearns
& Co. Inc., 245 Park Avenue, New York, New York 10167.
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN
SANDERS MORRIS MUNDY
The date of this Prospectus is , 1998.
<PAGE>
[TransCom USA LOGO]
TransCom USA was founded in October 1997 to become a leading national,
value-added independent distributor of replacement parts and supplies for Class
III through Class VIII commercial trucks, trailers and other types of
specialized heavy duty vehicles and equipment. The Company intends to pursue
aggressively the consolidation of this highly-fragmented market by combining a
geographically dispersed group of independent distributors offering a broad
selection of products and complementary services to a wide range of customers.
As the first step in the consolidation process, TransCom USA has entered into
agreements to purchase nine Founding Companies that operate through more than 60
locations with $208 million in 1997 pro forma revenues and have an average of 40
years in business. The Company's strategy includes expanding by acquisitions,
operating on a decentralized basis, accelerating internal sales growth and
improving operating margins.
[Photograph of tractor trailer with caption "Class VIII"]
FOUNDING COMPANY INFORMATION
------------------------------------------------
CHARLES W. CARTER CO. -- LOS ANGELES
Placentia, California -- Founded in 1929
Primarily distributes commercial vehicle parts
and, to a lesser extent, auto parts.
TRANSPORTATION COMPONENTS CO.
St. Paul, Minnesota -- Founded in 1946
Primarily distributes commerical vehicle parts
and also performs installation and maintenance
services and relines brake shoes.
GEAR & WHEEL, INC.
Orlando, Florida -- Founded in 1981
Primarily distributes commerical vehicle parts
and also remanufactures brakes, clutches, drive
train components and turbochargers.
AMPARTS INTERNATIONAL, INC.
Laredo, Texas -- Founded in 1990
Exports commerical vehicle parts to customers
principally in Mexico and countries in South and
Central America, Southeast Asia and the Pacific
Rim.
THE COOK BROTHERS COMPANIES, INC.
Binghamton, New York -- Founded in 1918
Primarily distributes commercial vehicle parts
and sells Mack trucks.
PLAZA AUTOMOTIVE, INC.
St. Louis, Missouri -- Founded in 1946
Primarily distributes commerical vehicle parts
and also performs installation and maintenance
services and relines brake shoes.
UNIVERSAL FLEET SUPPLY, INC.
Fremont, California -- Founded in 1978
Primarily distributes commerical vehicle parts
and also relines brakes shoes.
PERFECTION EQUIPMENT COMPANY, INC.
Oklahoma City, Oklahoma -- Founded in 1946
Primarily distributes commerical vehicle parts
and assembles specialty commercial vehicle
equipment and also performs installation and
maintenance services.
DRIVE LINE, INC.
Sunrise, Florida -- Founded in 1988
Primarily distributes commerical vehicle parts
to OEMs and other end-users and military vehicle
parts to the Unites States military.
THE COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS AND WITH QUARTERLY REPORTS CONTAINING UNAUDITED SUMMARY FINANCIAL
INFORMATION FOR EACH OF THE FIRST THREE QUARTERS OF EACH FISCAL YEAR.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
[Map of United States, Mexico and Hawaii depicting Corporate Headquarters,
Founding Companies Headquarters and Branch Locations.]
[TransCom USA Logo]
[Photograph of truck with the caption "Class VIII"]
[Photograph of truck with the caption "Class VI"]
[Photograph of truck with the caption "Class IV"]
[Photograph of truck with the caption "Class III"]
<PAGE>
PROSPECTUS SUMMARY
SIMULTANEOUS WITH, AND AS A CONDITION, TO THE CONSUMMATION OF THE OFFERING
MADE BY THIS PROSPECTUS (THE "OFFERING"), TRANSPORTATION COMPONENTS, INC. WILL
ACQUIRE, IN SEPARATE MERGER TRANSACTIONS (THE "MERGERS") IN EXCHANGE FOR CASH
AND SHARES OF ITS COMMON STOCK, NINE COMPANIES (EACH A "FOUNDING COMPANY" AND,
COLLECTIVELY, THE "FOUNDING COMPANIES") ENGAGED IN THE DISTRIBUTION OF
REPLACEMENT PARTS AND SUPPLIES FOR COMMERCIAL TRUCKS, TRAILERS AND OTHER TYPES
OF SPECIALIZED HEAVY DUTY VEHICLES AND EQUIPMENT. UNLESS OTHERWISE INDICATED,
ALL REFERENCES TO "TRANSCOM USA" OR THE "COMPANY" HEREIN INCLUDE THE
FOUNDING COMPANIES FOLLOWING THE CONSUMMATION OF THE MERGERS, AND REFERENCES
HEREIN TO "TRANSPORTATION COMPONENTS" MEAN TRANSPORTATION COMPONENTS, INC.
PRIOR TO THE CONSUMMATION OF THE MERGERS.
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE PRO FORMA COMBINED
AND INDIVIDUAL HISTORICAL FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, (I) ALL
SHARE, PER SHARE AND FINANCIAL INFORMATION SET FORTH HEREIN (A) HAVE BEEN
ADJUSTED TO GIVE EFFECT TO THE MERGERS; (B) ASSUME AN INITIAL PUBLIC OFFERING
PRICE OF $11.00 PER SHARE AND (C) ASSUME NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION; AND (II) ALL REFERENCES TO COMMON STOCK INCLUDE BOTH
COMMON STOCK, $0.01 PAR VALUE, AND RESTRICTED VOTING COMMON STOCK, $0.01 PAR
VALUE (THE "RESTRICTED COMMON STOCK"), OF THE COMPANY.
THE COMPANY
TransCom USA was founded in October 1997 to become a leading national,
value-added independent distributor of replacement parts and supplies for Class
III through Class VIII commercial trucks, trailers and other types of
specialized heavy duty vehicles and equipment. Class III through Class VIII
trucks range in size from one-ton commercial vehicles to tractor-trailers and
represent a $22 billion annual market for parts and repairs. Specialized heavy
duty vehicles and equipment include bulldozers, fork lifts, agricultural
vehicles, airport vehicles, government-operated vehicles and marine applications
and represent a significant additional market for parts and repairs. The Company
believes that this industry, generally referred to as the "heavy duty parts and
repair industry," includes approximately 14,100 participants in the United
States, consisting of 11,500 independent distributors and repair shops and 2,600
original equipment manufacturer ("OEM") authorized dealerships.
The Company intends to pursue aggressively the consolidation of this
highly-fragmented industry by combining a geographically dispersed group of
independent distributors offering a broad selection of products and
complementary services to a wide range of customers. Upon consummation of this
Offering, Transportation Components will acquire the nine Founding Companies,
which have been in business an average of 40 years and had 1997 pro forma
revenues of $208 million.
The Company purchases heavy duty parts from component manufacturers,
inventories these parts in over 60 facilities across the United States and
Mexico and distributes them to over 18,000 customers. The Company also exports
heavy duty parts to customers located in countries in South and Central America,
Southeast Asia and the Pacific Rim. The Company maintains a large volume and
wide selection of inventory, thereby increasing customers' accessibility to
parts and assisting the Company in meeting its goal of serving its customers on
a same-day basis. To complement its parts distribution business, the Company
also provides customers with value-added services, such as parts installation
and repair, fleet maintenance management, training, machine shop services and
remanufacturing. The Company seeks to enable its customers to reduce expenses by
reducing material and labor costs, decreasing capital required for parts
inventory and minimizing lost productivity and costs attributable to vehicle and
equipment breakdowns.
The Company's comprehensive product line includes a broad selection of
parts for braking systems and suspension and steering systems, as well as axles,
wheels and rims, trailer parts, drive train components, hydraulic components and
engine parts. The parts are installed in vehicles such as tractor-trailers,
3
<PAGE>
construction vehicles, waste disposal trucks, buses and light duty trucks. The
Company also provides parts for specialized heavy duty vehicles and equipment
that support the oil field services, construction, mining, timber and
agriculture industries as well as the United States military and ground support
for commercial airlines.
The Company's customers include regional and national private fleets
operated by businesses such as Dowell Schlumberger Corporation, Browning-Ferris
Industries, Inc. and Waste Management, Inc. and common carrier and rental
fleets, including United Parcel Service of America, Inc., Roadway Package
System, Inc. and U-Haul International, Inc. The Company also distributes parts
to independent repair shops, resellers, municipal and other government entities,
specialty OEMs and other end-users. The Company has a diverse customer base of
more than 18,000 customers, with no single customer accounting for more than two
percent of the Company's pro forma revenues in 1997.
Based on the experience of management of the Founding Companies, the number
of independent distributors and repair shops in the industry and the acquisition
activity within the industry, the Company believes that the independent heavy
duty parts and repair industry is highly fragmented and in the early stages of
consolidation. The Company believes that most of the approximately 11,500
independent distributors and repair shops in this industry are small,
owner-operated businesses with limited access to the capital required to develop
and maintain a large volume and wide selection of inventory, expand product
offerings, implement advanced management information systems and service
regional and national accounts. As the first public company formed to pursue
aggressively the consolidation of this industry, the Company believes that it
will have significant acquisition opportunities. Additionally, the Company
believes that the consolidation of the industry will provide it with volume
purchasing discounts, distribution and operating efficiencies, national sales
and marketing opportunities and cross-selling opportunities.
Key elements of the Company's strategy are:
EXPANDING THROUGH ACQUISITIONS. The Company intends to pursue aggressively
this consolidation through its acquisition program by entering new geographic
markets, expanding within existing geographic markets and acquiring
complementary businesses. The Company believes there are significant
opportunities to expand through acquisitions into geographic markets where the
Company does not currently have a strong presence by acquiring companies that
are leaders in their regional markets. The Company also plans to improve its
market share in existing markets by pursuing smaller "tuck-in" acquisitions,
whereby the Company purchases a smaller business and operates it as part of the
Company's existing operations in that market, and by pursuing acquisitions that
expand its range of products and services.
OPERATING ON A DECENTRALIZED BASIS. The Company intends to manage the
Founding Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business and the flexibility to capitalize on
the considerable local and regional market knowledge, goodwill, name recognition
and customer relationships.
ACCELERATING INTERNAL SALES GROWTH. A key component of the Company's
strategy is to accelerate internal sales growth at each Founding Company and at
each subsequently acquired company by establishing national market coverage and
cross selling and expanding products and services. Based on the national fleet
service provided by one of the Founding Companies, the Company believes that
demand exists from larger fleets to utilize the services of independent
distributors capable of providing comprehensive services on a regional or
national basis. The Company intends to market itself to these regional and
national accounts as a single-source, preferred provider for replacement parts
and installation and repair services. The Company also believes it will be able
to cross-sell the products and services it offers to its customers by leveraging
the specialized and diverse product, service and marketing expertise of
individual Founding Companies.
IMPROVING OPERATING MARGINS. The Company intends to improve the operating
margins of the Founding Companies and subsequently acquired businesses by
increasing operating efficiencies and
4
<PAGE>
centralizing appropriate administrative functions. The Company believes the
consolidation of commonly-owned locations within a geographical area will
provide additional cost savings through distribution efficiencies. In addition,
the Company expects measurable cost savings in such areas as parts purchasing,
vehicle leasing and maintenance, information systems and contractual
relationships with key suppliers. Moreover, the Company intends to identify
those "best practices" among the Founding Companies that can be successfully
implemented throughout its operations. The Company also believes there are
significant opportunities to improve operating margins by consolidating
administrative functions such as inventory financing, marketing, insurance,
employee benefits, accounting and risk management.
As consideration for future acquisitions, the Company intends to use
combinations of its Common Stock, cash and notes. The Company has received a
commitment for a credit facility of $75.0 million for working capital and
acquisitions, which is expected to be available upon consummation of this
Offering. Within 90 days following the completion of this Offering, the Company
intends to register up to 10,000,000 additional shares of Common Stock under the
Securities Act for its use in connection with future acquisitions.
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the
Company.............................. 5,500,000 shares
Common Stock to be outstanding after
the Offering....................... 16,262,611 shares(1)(2)
Use of proceeds...................... To pay the cash portion of the purchase price for the
Founding Companies, to repay expenses incurred in
connection with the organization of Transportation
Components and the Offering and to repay a portion of
existing indebtedness of the Founding Companies. See
"Use of Proceeds."
NYSE symbol.......................... TUI
- ------------
</TABLE>
(1) Includes (a) 7,493,394 shares of Common Stock to be issued in connection
with the Mergers, (b) 5,500,000 shares of Common Stock offered hereby and
(c) 1,106,829 shares of Common Stock issued to management and directors of,
and consultants to, the Company, but excludes (y) 1,795,465 shares of Common
Stock subject to options to be granted in connection with this Offering at
an exercise price equal to the initial public offering price and (z)
warrants to purchase 669,894 shares of Common Stock at a price of $8.42 per
share. See "Management -- 1998 Long-Term Incentive Plan" and "-- 1998
Non-Employee Directors' Stock Plan" and "-- Executive Compensation,
Employment Agreements, Covenants Not-to-Compete."
(2) Includes 250,000 shares of Common Stock and 1,912,388 shares of Restricted
Common Stock held by Notre Capital Ventures II, L.L.C. ("Notre"). Each
share of Restricted Common Stock is entitled to 0.75 of one vote on all
matters submitted to stockholders. Restricted Common Stock is convertible
into Common Stock under certain circumstances. See "Description of Capital
Stock -- Common Stock and Restricted Common Stock."
5
<PAGE>
RECENT DEVELOPMENTS
During 1997 and 1998, members of the management team and certain
consultants were assembled by Notre to pursue the consolidation of the Founding
Companies. Notre, a consolidator of highly-fragmented industries, provided
Transportation Components with expertise regarding the consolidation process and
advanced Transportation Components approximately $1.4 million of $3.0 million
incurred by Notre for organizational and a portion of the Offering expenses. In
connection therewith, during the fourth quarter of 1997 and the first quarter of
1998, Transportation Components sold an aggregate of 1,106,829 shares of Common
Stock to management and directors of, and consultants to, the Company for $0.01
per share. As a result, the Company has recorded non-recurring, non-cash
compensation charges of $4.3 million in the fourth quarter of 1997 and $6.7
million in the first quarter of 1998, representing the difference between the
amount paid for the shares and the estimated fair value of $9.90 per share on
the date of sale, as if the Founding Companies were combined (collectively, the
"Compensation Charge").
The aggregate consideration to be paid by Transportation Components in the
Mergers consists of approximately $21.0 million in cash and 7,493,394 shares of
Common Stock. The consideration to be paid by Transportation Components for each
Founding Company was determined by negotiations between Transportation
Components and representatives of each Founding Company and was based primarily
on the pro forma adjusted 1997 net income of each Founding Company. Prior to the
Mergers, certain of the Founding Companies will distribute in the aggregate $5.4
million to their respective stockholders, representing substantially all of
their previously taxed undistributed earnings and tax payments on current
earnings and accumulated income of a Domestic International Sales Corporation
(the "S Corporation Distributions"). Additionally, prior to the Mergers
certain of the Founding Companies will distribute certain real estate and other
non-operating assets and liabilities having a net book value of $0.9 million
(the "Other Assets"). In order to fund the S Corporation Distributions, these
Founding Companies will borrow $4.8 million from existing sources, which
borrowings are included in the debt to be assumed by the Company. For a more
detailed description of these transactions, see "Certain
Transactions -- Organization of the Company."
6
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Transportation Components will acquire the Founding Companies
simultaneously with, and as a condition to, the consummation of this Offering.
The following table presents summary pro forma combined financial data of
Transportation Components, as adjusted for (i) the effects of the Mergers, (ii)
the effects of certain pro forma adjustments to the historical financial
statements described below and (iii) the consummation of this Offering and the
application of the net proceeds therefrom. See "Selected Financial Data," the
Unaudited Pro Forma Combined Financial Statements and the Notes thereto and the
historical Financial Statements of the Founding Companies and the Notes thereto
included elsewhere in this Prospectus.
PRO FORMA COMBINED
----------------------------------------
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
------------------ ------------------
STATEMENT OF OPERATIONS DATA(1):
Revenues(2)..................... $ 207,588 $ 56,097
Cost of sales................... 147,111 38,699
------------------ ------------------
Gross profit.................... 60,477 17,398
Selling, general and
administrative expenses(3).... 45,315 12,503
Goodwill amortization(4)........ 1,819 455
------------------ ------------------
Income from operations.......... 13,343 4,440
Interest and other income
(expense), net(5)............. (69) (404)
------------------ ------------------
Income before income taxes...... 13,274 4,036
Provision for income taxes(6)... 5,972 1,792
------------------ ------------------
Net income...................... $ 7,302 $ 2,244
================== ==================
Net income per share............ $ 0.45 $ 0.14
================== ==================
Shares used in computing pro
forma net income per
share(7)...................... 16,262,611 16,262,611
MARCH 31, 1998
-----------------------------
PRO FORMA
COMBINED AS ADJUSTED(8)
---------- --------------
BALANCE SHEET DATA(9):
Working capital(10)............. $ 3,070(11) $ 55,249
Total assets.................... 177,006 172,519
Long-term debt, net(10)......... 17,914 14,341
Stockholders' equity(10)........ 74,218 125,483
- ------------
(1) The Pro Forma Combined Statement of Operations Data assume that the Mergers
and the Offering were closed on January 1, 1997 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.
(2) Includes pro forma revenues of approximately $13.1 million and $0.2 million
for the year ended December 31, 1997 and the three months ended March 31,
1998, respectively, associated with the acquisition of two parts
distribution businesses and a truck dealership by certain Founding
Companies.
(3) The pro forma combined statement of operations data reflects (a) in
selling, general and administrative expenses, an aggregate of approximately
$3.5 million and $0.7 million for the year ended December 31, 1997 and the
three months ended March 31, 1998, respectively, in pro forma reductions in
salary, bonuses and benefits to the owners of the Founding Companies to
which they have agreed prospectively (the "Compensation Differential")
and (b) selling, general and administrative expenses do not
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
7
<PAGE>
include the nonrecurring portion of the Compensation Charge of $4.2 million
and $6.5 for the year ended December 31, 1997 and the three months ended
March 31, 1998, respectively.
(4) Consists of amortization of goodwill to be recorded as a result of the
Mergers computed on the basis described in Notes to the Unaudited Pro Forma
Combined Financial Statements.
(5) Reflects $2.5 million and $0.7 million for the year ended December 31, 1997
and the three months ended March 31, 1998, respectively, in pro forma
reductions in interest expense as a result of the planned repayment of a
portion of the Founding Companies' existing debt (the "Interest
Differential").
(6) Assumes all income is subject to an effective corporate tax rate of 39% and
the non-deductibility of goodwill.
(7) Includes (i) 7,493,394 shares to be issued to owners of the Founding
Companies, (ii) 1,106,829 shares issued to the management and directors of,
and consultants to, Transportation Components (iii) 2,162,388 shares issued
to Notre and, (iv) 5,500,000 shares to be sold in the Offering. Excludes
options to purchase 1,795,465 shares to be granted upon consummation of
this Offering at the initial public offering price and warrants to purchase
669,894 shares of Common Stock at $8.42 per share.
(8) Adjusted for the sale of 5,500,000 shares of Common Stock offered hereby
and the application of the net proceeds therefrom. See "Use of Proceeds."
(9) The Pro Forma Combined Balance Sheet Data assumes that the Mergers were
consummated on March 31, 1998.
(10) Prior to the Mergers, some of the Founding Companies will make S
Corporation Distributions to their stockholders totaling $5.4 million. In
order to fund the S Corporation Distributions, these Founding Companies
will borrow an aggregate of $4.8 million from existing sources.
Additionally, prior to the Mergers, certain of the Founding Companies will
distribute to their stockholders the Other Assets having a net book value
of $0.9 million. Accordingly, pro forma working capital has been decreased
by $0.6 million, and pro forma net income has been increased by $0.1
million.
(11) Includes a $21.0 million payable, representing the cash portion of the
Merger consideration.
8
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
The following table presents summary financial data for each of the
individual Founding Companies for each of their three most recent fiscal years
and for each of the three months ended March 31, 1997 and 1998. Income from
operations has not been adjusted for the anticipated increase in income
attributable to the Compensation Differential and Interest Differential or to
take into account increased costs associated with the Company's new corporate
management and with being a public company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Introduction."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR(1) MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
CARTER:
Revenues........................ $ 35,824 $ 35,437 $ 37,982 $ 8,918 $ 9,372
Operating income................ 651 1,010 1,088 198 214
TCC:
Revenues........................ $ 28,147 $ 29,876 $ 32,274 $ 8,711 $ 9,758
Operating income................ 693 639 1,197 543 677
GEAR & WHEEL:
Revenues........................ $ 20,710 $ 21,475 $ 23,727 $ 5,330 $ 6,113
Operating income................ 1,210 1,360 1,004 303 315
AMPARTS:
Revenues........................ $ 10,528 $ 14,806 $ 22,687 $ 4,707 $ 6,489
Operating income................ 1,040 1,202 2,590 487 832
COOK BROTHERS:
Revenues........................ $ 22,327 $ 21,204 $ 23,238 $ 5,689 $ 6,702
Operating income................ 988 1,282 2,130 275 704
PLAZA:
Revenues........................ $ 20,135 $ 19,960 $ 20,721 $ 5,163 $ 5,829
Operating income................ 661 735 1,021 345 421
UNIVERSAL:
Revenues........................ $ 12,766 $ 12,942 $ 13,891 $ 3,519 $ 4,384
Operating income................ 291 176 133 100 406
PERFECTION:
Revenues........................ $ 9,032 $ 11,346 $ 11,925 $ 2,869 $ 5,527
Operating income................ 164 566 439 127 533
DRIVE LINE:
Revenues........................ $ 5,259 $ 4,227 $ 5,997 $ 1,745 $ 1,719
Operating income................ 450 929 1,082 411 28
</TABLE>
- ------------
(1) The financial data are presented on a historical basis for the Founding
Companies. The years presented are as follows: Carter -- March 29, 1996 and
March 31, 1997 and 1998, respectively; Cook Brothers and Gear &
Wheel -- June 30, 1996 and 1997 and March 31, 1998, respectively;
Universal -- June 30, 1995, 1996 and 1997; Plaza -- August 31, 1995 and 1996
and December 31, 1997, respectively; Perfection and TCC -- September 30,
1995, 1996 and 1997; and Amparts and Drive Line -- December 31, 1995, 1996
and 1997.
9
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATING FOUNDING
COMPANIES. Transportation Components was founded in 1997 but has conducted no
operations and generated no revenues to date. The Company has entered into
definitive agreements to acquire the Founding Companies simultaneously with, and
as a condition to, the closing of this Offering. The Founding Companies have
been operating as separate independent entities, and there can be no assurance
that the Company will be able to integrate the operations of these businesses
successfully or to institute the necessary systems and procedures, including
accounting and financial reporting systems, to manage the combined enterprise on
a profitable basis and to report the results of the operations of the combined
entities on a timely basis. The Company's management group has been assembled
only recently, and there can be no assurance that the management group will be
able to manage the combined entity or to implement effectively the Company's
acquisition and internal growth strategies as well as its strategy to capitalize
on its new corporate structure. The pro forma combined historical financial
results of the Founding Companies cover periods when the Founding Companies and
Transportation Components were not under common control or management and may
not be indicative of the Company's future financial or operating results. The
inability of the Company to integrate the Founding Companies successfully would
have a material adverse effect on the Company's business, financial condition
and results of operations and would make it unlikely that the Company's
acquisition program will be successful. See "Business -- Strategy" and
"Management."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY. The Company intends
to grow significantly through the acquisition of additional companies in the
heavy duty parts and repair industry. The Company may face competition for
acquisition candidates, particularly from those companies that have announced or
intend to pursue an integration strategy. AutoZone, Inc. recently acquired
TruckPro, an independent distributor of heavy duty parts based in Arkansas, and
may continue to enter other markets through acquisitions or DE NOVO operations.
The Company is aware of at least two other parties who are attempting to acquire
independent distributors and pursue a consolidation strategy. In addition, one
of the industry buying groups, HD America, has stated an intention to purchase
businesses engaged in the heavy duty parts and repair industry. Additional
public or private companies may become competitors of the Company in the future.
Certain of these competitors and potential competitors may have greater
financial resources than the Company to finance acquisitions, pay higher prices
for companies or develop and support new locations. This competition may limit
the number of acquisition opportunities available to the Company and lead to
higher acquisition prices.
There can be no assurance that the Company will be able to identify,
acquire or manage profitably additional businesses or to integrate successfully
any acquired businesses into the Company without substantial costs, delays or
other operational or financial problems. Acquisitions involve a number of
special risks, including failure of the acquired business to achieve expected
results, diversion of management's attention, failure to retain key personnel of
the acquired business and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Customer
dissatisfaction or performance problems at a single acquired company could have
an adverse effect on the reputation of the Company generally and render
ineffective the Company's national sales and marketing initiatives. The Company
may consider acquiring complementary businesses with service and repair
operations, and there can be no assurance that these complementary businesses
can be successfully integrated. In addition, there can be no assurance that the
Founding Companies or other businesses acquired in the future will achieve
anticipated revenues and earnings. See "Business -- Strategy" and
"-- Competition."
10
<PAGE>
RISKS RELATED TO ACQUISITION FINANCING. The timing, size and success of
the Company's acquisition efforts and the associated capital commitments cannot
be readily predicted. The Company currently intends to finance future
acquisitions by using shares of its Common Stock for all or a substantial
portion of the consideration to be paid. If the Common Stock does not maintain a
sufficient market value, or if potential acquisition candidates are otherwise
unwilling to accept Common Stock as part of the consideration for the sale of
their businesses, the Company may be required to utilize more of its cash
resources, if available, in order to initiate and maintain its acquisition
program. If the Company does not have sufficient cash resources to finance the
implementation of its acquisition strategy, its growth could be limited unless
it is able to obtain additional capital through debt or equity financings. The
Company has received a commitment for a credit facility of $75.0 million for
working capital and acquisitions, which is expected to be available upon
consummation of this Offering. However, there can be no assurance that the
Company will be able to obtain the line of credit or additional financing it
will need for its acquisition program on terms that the Company deems
acceptable. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Combined Liquidity and
Capital Resources."
RISKS RELATED TO CAPITALIZING ON NEW CORPORATE STRUCTURE AND INTERNAL
GROWTH STRATEGIES. Key elements of the Company's strategy are to improve the
profitability and to continue to expand the revenues of the Founding Companies
and subsequently acquired businesses. A key component of the Company's strategy
is to operate the Founding Companies and subsequently acquired businesses on a
decentralized basis, with local management retaining responsibility for the
day-to-day operations of the individual locations, profitability and the
internal growth of the business. If proper overall business controls are not
implemented, this decentralized operating strategy could result in inconsistent
operating and financial practices at the Founding Companies and subsequently
acquired businesses and the Company's overall profitability could be adversely
affected. The Company intends to seek to improve the profitability of the
Founding Companies and any subsequently acquired businesses by various means,
including reducing, in some cases, duplicative facilities, operating costs and
overhead and achieving purchasing efficiencies. The Company's ability to
increase the revenues of the Founding Companies and any acquired businesses will
be affected by various factors, including the Company's ability to enter new
geographic markets successfully, to establish regional and national accounts and
to retain existing customer relationships. Many of the factors affecting the
Company's ability to improve the profitability of the Founding Companies are
beyond the control of the Company, and there can be no assurance that the
Company's strategies will be successful or that it will be able to generate
adequate cash flow from its operations to support internal growth. See
"Business -- Strategy."
MANAGEMENT OF GROWTH. The Company expects to grow both internally and
through acquisitions. Management expects to expend significant time and effort
in evaluating, completing and integrating acquisitions and opening new
facilities. There can be no assurance that the Company's systems, procedures and
controls will be adequate to support the Company's operations as they expand.
Any future growth also will impose significant additional responsibilities on
members of senior management, including the need to identify, recruit and
integrate new senior level managers and executives. There can be no assurance
that such additional management will be identified and retained by the Company.
To the extent that the Company is unable to manage its growth efficiently and
effectively, or is unable to attract and retain additional qualified management,
the Company's business, financial condition and results of operations could be
materially adversely affected. See "Business -- Strategy."
INTEGRATION OF COMPUTER SYSTEMS AND RELIANCE ON COMPUTER SYSTEMS. The
Company's success will be dependent in part on the Company's ability to
coordinate and integrate the management information systems of the Founding
Companies that are used for ordering products, recording and analyzing financial
results, controlling inventory and performing other important functions. There
can be no assurance that the Company will be able to coordinate and integrate
the management information systems economically or that the Company will not
experience delays, disruptions and unanticipated expenses in doing so. Any such
event could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company will not be able to achieve
contemplated operating efficiencies and competitive advantages until it has
fully coordinated and integrated the management information systems. Until the
11
<PAGE>
Company establishes coordinated and integrated management information systems,
which may not occur for several years, it will rely primarily on the separate
systems of the Founding Companies. After the management information systems are
integrated, the Company will rely heavily on them in its daily operations.
Consequently, any interruption in the operation of the management information
systems may have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Management Information
Systems."
RISKS RELATED TO IMPROVED PARTS QUALITY IN THE COMPONENT MANUFACTURING
INDUSTRY. As the quality of parts manufactured for heavy duty vehicles and
equipment improves, the useful lives of these parts are expected to increase,
and the parts may require less frequent replacement, reducing the demand for the
Company's products and services. Moreover, the improved quality of original
parts is expected to allow component manufacturers, OEMs and OEM-authorized
dealerships to provide customers with extended vehicle and parts warranties. If
warranty coverage of parts is extended, vehicle owners would likely return to
the OEM-authorized dealership from which they purchased the vehicle for longer
periods of time to have warranty repair service performed or parts replaced. In
addition, improved quality of replacement parts may extend the replacement
cycles of heavy duty parts. If parts replacement cycles increase, the Company
would experience a decrease in the frequency with which customers require
replacement parts and repair service. Such a decrease could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Operations and Services."
COMPETITION. The Company is engaged in a highly-fragmented and competitive
industry. The principal competitive factors are availability and quality of
parts, services and price. The Company competes with a large number of
independent distributors on a regional and local basis, some of which may have
greater financial resources than the Company, and several of which are public
companies. Independent distributors are facing increased competition from OEMs
and OEM-authorized dealerships who offer many of the same parts to owners of
vehicles and fleets, particularly during the warranty period. Freightliner
Corporation, an OEM, has formed a subsidiary, Alliance, to provide heavy duty
parts and service for all brands of trucks in the aftermarket. The Company also
competes with OEM-authorized dealerships such as Navistar, Freightliner, Mack,
PACCAR and Volvo. OEM-authorized dealerships typically sell parts to customers
who have purchased vehicles from their dealerships in addition to pursuing the
aftermarket in competition with the Company. Certain OEMs have introduced, on a
limited basis, offers for lifetime service contracts on trucks. The effect of
these contracts is to motivate truck owners to return to OEM-authorized
dealerships for parts and repair services. Lifetime service contracts could
limit the size of the parts and repair aftermarket in which the Company
currently competes. The members of the National Auto Parts Association
("NAPA") comprise a network of locations that compete with the Company
primarily for "over-the-counter" parts sales. In addition, certain owners of
leased fleets have increased their capacity to provide leased vehicles and
ancillary fleet services to businesses requiring a private fleet for their
operations. Owners of leased fleets may have sufficient purchasing leverage to
purchase replacement parts directly from component manufacturers or to negotiate
larger volume discounts from independent distributors. The expanded use of
leased fleets to replace private fleets owned and operated by businesses could
have an adverse effect on the demand for the parts and services offered by the
Company or on the profit margins of the Company. The Company's existing and new
competitors may have lower overhead cost structures and may be able to provide
their parts and services at lower rates than those of the Company. Moreover,
certain of the Company's competitors and potential competitors may have greater
financial resources than the Company to finance acquisition and development
opportunities, to pay higher prices for those opportunities or to develop and
support their own heavy duty parts distribution and repair operations.
Consequently, the Company may encounter significant competition in its efforts
to achieve both its acquisition and internal growth objectives as well as its
operating strategy to increase the profitability of the Founding Companies and
subsequently acquired businesses. See "Business -- Competition."
AVAILABILITY OF QUALIFIED EMPLOYEES. The Company needs knowledgeable sales
staff and skilled technicians to provide customers with high-quality services on
a timely basis. Unlike automobiles that are manufactured as standard models with
customized options, heavy duty vehicles and equipment are typically manufactured
entirely to an owner's specifications. Therefore, the Company's sales staff and
technicians
12
<PAGE>
must have the requisite expertise to understand a vehicle's specifications to
select the correct parts for customers. Certain of the value-added services the
Company offers require Company employees to inspect heavy duty vehicles and
equipment operated by customers and develop databases to record parts used on
the customer's vehicles. Accordingly, the Company's ability to increase its
productivity and profitability will be limited by its ability to employ, train
and retain skilled personnel necessary to meet the Company's requirements. There
can be no assurance that the Company will be able to maintain an adequate
skilled labor force necessary to operate efficiently, that the Company's labor
expenses will not increase as a result of a shortage in the supply of skilled
personnel or that the Company will not have to curtail its planned internal
growth as a result of labor shortages. See "Business -- Employees" and
" -- Recruiting, Training and Safety."
INTERNATIONAL BUSINESS RISKS. The Company derives approximately 7.6% of
its revenues from its operations in Mexico and approximately 3.4% of its
revenues from exporting heavy duty parts and supplies to customers in countries
in South and Central America, Southeast Asia and the Pacific Rim. The risks of
doing business in foreign countries include currency exchange rate fluctuations,
potential adverse changes in the diplomatic relations of foreign countries with
the United States, hostility from local populations, adverse effects of currency
exchange controls, restrictions on the withdrawal of foreign investment and
earnings, government policies against businesses owned by non-nationals,
expropriations of property, the potential instability of foreign governments and
the risk of insurrections that could result in losses against which the Company
is not insured. The Company's international operations also are subject to
economic uncertainties, including, among others, risks of renegotiation or
modification of existing agreements or arrangements with governmental
authorities, exportation and transportation tariffs, foreign exchange
restrictions and changes in taxation structure. See "Business -- Strategy" and
" -- Operations and Services."
UNCERTAINTY OF PRODUCT AVAILABILITY; ABSENCE OF CONTRACTS WITH
SUPPLIERS. As independent distributors of commercial heavy duty vehicle parts,
the Founding Companies purchase commercial vehicle parts from a number of
component manufacturers. The Founding Companies have no franchise agreements or
supply contracts with these component manufacturers that assure the Company a
continued supply of parts to sell in the future. The Company believes a key
component of its business strategy is to maintain a large inventory and a wide
selection of parts. Therefore, the Company's strategy could be impaired if the
Company is not able to obtain access to many brands of parts in sufficient
volumes for its operating locations. While there are many component
manufacturers in the marketplace, there can be no assurance that the Company
will be able to obtain an adequate supply of commercial vehicle parts. The
Company's inability to obtain an adequate supply of commercial vehicle parts
could have a material adverse effect on its business, financial condition and
results of operations. Some of the Founding Companies remanufacture worn parts
for resale to repair shops and end-users. The Company has no contractual
assurance that the worn parts used for remanufacturing will be available to the
Company in the future. If the Company cannot obtain an adequate supply of worn
parts, the resulting loss of sales could have a material adverse effect on the
Company's profitability. See "Business -- Suppliers."
CONCENTRATION OF CUSTOMERS. In fiscal 1996, one of the Founding Companies,
Perfection Equipment Company, Inc. ("Perfection"), began to assemble specialty
truck equipment for Dowell Schlumberger Corporation for oil field services
applications. This relationship represented approximately 38% of Perfection's
revenues in the first quarter of calendar 1998 and is expected to represent a
significant amount of Perfection's revenues in 1998. There can be no assurance
the relationship with Dowell Schlumberger Corporation will continue in the
future. See "Management's Discussion and Analysis of Financial Condition and
Result of Operations -- Perfection -- Results of Operations."
ECONOMIC FACTORS. Many of the Company's products are sold to customers in
industries that experience fluctuations in demand based on economic conditions,
energy prices, consumer demand and other factors. The trucking industry has
historically been highly cyclical as a result of various economic factors such
as excess capacity in the industry, the availability of qualified drivers,
changes in fuel prices and the supply of fuel, increases in fuel or energy
taxes, interest rate fluctuations, insurance costs, fluctuations in the resale
value of revenue equipment, economic recession and downturns in customers'
13
<PAGE>
business cycles and shipping requirements. The Company has little or no control
over these economic factors. No assurance can be given that the Company will be
able to increase or maintain its level of sales in periods of economic
stagnation or downturn.
SEASONALITY; FLUCTUATION IN QUARTERLY EARNINGS. Weather extremes cause
increased parts wear and breakdowns; however, extreme weather, particularly
during winter months, could inhibit general business activity. These seasonal
trends may cause fluctuations in the Company's earnings. Additionally, quarterly
results may be materially affected by the timing of acquisitions, variations in
the margins of products sold and services performed during any particular
quarter, the timing and magnitude of acquisition assimilation projects and
regional economic conditions. Accordingly, the Company's operating results in
any particular quarter may not be indicative of the results that can be expected
for any other quarter or for the entire year. See "Management's Discussion and
Analysis -- Seasonality" and "Business -- Strategy."
ENVIRONMENTAL REGULATION. The Company's operations are subject to various
federal and state environmental laws and regulations. In particular, stringent
environmental regulations govern the handling of chemicals and substances
commonly utilized in certain of the Founding Companies' service and
remanufacturing operations including items such as solvents and lubricants.
Environmental regulations also require the proper management and disposal of
many of the waste products resulting from these operations. Additionally,
several of the Company's facilities operate above-ground and underground storage
tanks for fuels and similar substances. The operation of these tanks is subject
to a variety of environmental regulatory controls. Failure to comply with the
above-referenced regulatory requirements can result in liability to the Company
in the form of administrative, civil or criminal enforcement by government
agencies or other parties. In addition, releases to the environment of the
substances described above, whether at facilities operated by the Company or at
facilities where the Company has arranged for disposal of such substances, may
subject the Company to liability for cleaning up contamination which results
from such releases. Certain of the Company's operations, including the use of
certain of the above-referenced substances, will subject the Company to
environmental regulation and potential liability for releases of such substances
to the environment. There can be no assurance that the Company will remain in
compliance with the regulations described above and there can be no assurance
that the regulations described above will not be revised or amended to the
detriment of the Company. There also can be no assurance that new regulations
will not be enacted and enforced to the detriment of the Company. Any change to
current regulations or enactment of future regulations could require further
capital investments or make many of the Company's operations unprofitable. Any
material change in regulations could have a material adverse affect on the
Company's business, financial condition and results of operations. See
"Business -- Government Regulation and Environmental Matters."
YEAR 2000 COMPLIANCE. The Company intends to implement a Year 2000 program
to ensure that the Company's computer systems and applications will function
properly beyond 1999. The Company expects its Year 2000 date conversion program
will be successfully completed on a timely basis. There can, however, be no
assurance that this will be the case. The Company does not expect to incur
significant expenditures to address this issue. The ability of third parties
with whom the Company transacts business to address adequately their Year 2000
issues is outside of the Company's control. There can be no assurance that the
failure of the Company or such third parties to address adequately their
respective Year 2000 issues will not have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
See "Business -- Management Information Systems; Year 2000."
UNIONIZED WORKFORCE. Approximately five percent of the Company's U.S.
employees are covered by collective bargaining agreements. Although the majority
of these agreements prohibit strikes and work stoppages, there can be no
assurance that strikes or work stoppages will not occur in the future. Certain
of the Company's foreign employees are members of unions based in Mexico.
Strikes or work stoppages could have a material adverse effect on the Company's
relationship with its customers and on the Company's business, financial
condition and results of operations. In addition, the Company's acquisition
strategy could be adversely affected by its union status for a variety of
reasons, including without limitation,
14
<PAGE>
incompatibility with a target's existing unions and reluctance of non-union
targets to become affiliated with a unionized company. See
"Business -- Employees."
RELIANCE ON KEY PERSONNEL. The Company will be highly dependent on the
continuing efforts of the Company's executive officers, including Messrs. Young,
Gooch, McConnell, Pryzant and Bucaro, and the senior management of the Founding
Companies. The Company likely will depend on the senior management of any
significant business it acquires in the future. The business or prospects of the
Company could be affected adversely if any of these persons does not continue in
the employment of the Company until a qualified replacement is found. See
"Management." Until August 2000, Messrs. Young and Bucaro are subject to an
agreement that prohibits each of them from acting in any manner or capacity in
or for any business that engages as its primary line of business in the sale of
automotive parts or accessories to retail customers or to commercial auto repair
outlets in the geographic area served by this former employer at the time their
respective employment ceased. The geographic area affected includes parts of
Texas, Louisiana and California. See "Management -- Prior Employment
Relationships of Messrs. Young and Bucaro."
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS. Following the completion
of the Merger and this Offering, the Company's executive officers and directors,
former stockholders of the Founding Companies and entities affiliated with them
will beneficially own approximately 67.6% of the outstanding shares of Common
Stock (64.4% if the Underwriters' over-allotment option is exercised in full).
These persons or a group of these persons acting together will be able to
exercise control over the Company's affairs, elect the entire Board of Directors
and control the outcome of any matter submitted to a vote of stockholders. See
"Principal Stockholders."
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES OF FOUNDING
COMPANIES. Of the net proceeds of this Offering, $21.0 million, or
approximately 41.1%, of the net proceeds of this Offering will be paid as the
cash portion of the purchase price for the Founding Companies. Some of the
recipients of these funds will become officers and directors of the Company or
holders of more than five percent of the outstanding Common Stock. Additionally,
Notre has advanced to Transportation Components certain organization expenses
and Offering costs and will be reimbursed approximately $3.0 million from the
proceeds of this Offering. See "Use of Proceeds" and "Certain Transactions."
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE; POTENTIAL STOCK
PRICE VOLATILITY. Prior to this Offering, there has been no public market for
the Common Stock. The initial public offering price for the Common Stock will be
determined by negotiation between the Company and the Representatives of the
Underwriters and may bear no relationship to the price at which the Common Stock
will trade after the Offering. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
Company has prepared and submitted an application to the New York Stock Exchange
for the listing of its Common Stock. However, there can be no assurance that an
active trading market will develop subsequent to this Offering or, if it
develops, that it will be sustained. After this Offering, the market price of
the Common Stock may be subject to significant fluctuations in response to
numerous factors, including the timing of any acquisitions by the Company,
variations in the Company's annual or quarterly financial results or those of
its competitors, changes by financial research analysts in their estimates of
the future earnings of the Company, conditions in the economy in general or in
the Company's industry in particular, unfavorable publicity or changes in
applicable laws and regulations (or judicial or administrative interpretations
thereof) affecting the Company or the trucking and commercial vehicle parts
distribution industries. From time to time, the stock market experiences
significant price and volume volatility, which may affect the market price of
the Common Stock for reasons unrelated to the Company's performance.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK. Upon consummation of the Merger and this Offering, 16,262,611 shares of
Common Stock will be outstanding. The 5,500,000 shares sold in this Offering
(other than shares that may be purchased by affiliates of the Company) will be
freely tradeable. The remaining outstanding shares may be resold publicly only
following their registration under the Securities Act of 1933, as amended (the
"Securities Act"), or pursuant to an available exemption from registration
(such as provided by Rule 144 following a one year holding period for previously
15
<PAGE>
unregistered shares). The holders of these remaining shares have certain rights
to have their shares registered in the future under the Securities Act, but may
not exercise such registration rights, and have agreed with the Company that
they will not sell, transfer or otherwise dispose of any of their shares, for
two years following the closing of this Offering. See "Shares Eligible for
Future Sale." On completion of this Offering, the Company also will have
outstanding options to purchase up to a total of 1,795,465 shares of Common
Stock and warrants to purchase 669,894 shares of Common Stock. The Company
intends to register all the shares subject to these options under the Securities
Act for public resale. The Company intends to register 10,000,000 additional
shares of Common Stock under the Securities Act within 90 days after completion
of its offering for issuance in connection with future acquisitions. These
shares generally will be freely tradeable after their issuance by persons not
affiliated with the Company unless the Company contractually restricts their
resale. Sales, or the availability for sale of, substantial amounts of Common
Stock in the public market could adversely affect prevailing market prices and
the future ability of the Company to raise equity capital and complete any
additional acquisitions for Common Stock. See "Shares Eligible for Future
Sales."
POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS. TransCom
USA's Certificate of Incorporation (the "Certificate of Incorporation")
authorizes the Board of Directors to issue, without stockholder approval, one or
more series of preferred stock having such preferences, powers and relative,
participating, optional and other rights (including preferences over the Common
Stock respecting dividends and distributions and voting rights) as the Board of
Directors may determine. The existence of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise. In
addition, the Certificate of Incorporation provides for a classified Board of
Directors, which may also have the effect of inhibiting or delaying a change in
control of the Company. Certain provisions of the Delaware General Corporation
Law may also discourage takeover attempts that have not been approved by the
Board of Directors. See "Description of Capital Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of Common Stock in this
Offering will experience immediate, substantial dilution in the net tangible
book value of their stock of $7.76 per share and may experience further dilution
in that value from issuances of Common Stock in connection with future
acquisitions. See "Dilution."
SIGNIFICANT MATERIALITY OF GOODWILL. The Company's balance sheet
immediately following the Offering and consummation of the acquisition of the
Founding Companies will include an amount designated as "goodwill" that
represents 42.2% of total assets and 58.0% of stockholders' equity. Goodwill
arises when an acquiror pays more for a business than the fair value of the
tangible and separately measurable intangible net assets. Generally accepted
accounting principles require that this and all other intangible assets be
amortized over the period benefited. Management has determined that the period
benefited by the goodwill will be no less than 40 years. If management were not
to separately recognize a material intangible asset having a benefit period less
than 40 years, or were not to give effect to shorter benefit periods of factors
giving rise to a material portion of the goodwill, earnings reported in periods
immediately following the acquisition would be overstated. In later years, the
Company would be burdened by a continuing charge against earnings without the
associated benefit to income valued by management in arriving at the
consideration paid for the businesses. Earnings in later years also could be
significantly affected if management determined then that the remaining balance
of goodwill was impaired. Management has reviewed with its independent
accountants all of the factors and related future cash flows which it considered
in arriving at the amount incurred to acquire each of the Founding Companies.
Management concluded that the anticipated future cash flows associated with
intangible assets recognized in the acquisitions will continue indefinitely, and
there is no persuasive evidence that any material portion will dissipate over a
period shorter than 40 years.
16
<PAGE>
THE COMPANY
TransCom USA was founded in 1997 to become a leading national, value-added
independent distributor of replacement parts and supplies for Class III through
Class VIII commercial trucks, trailers and other types of specialized heavy duty
vehicles and equipment and to pursue aggressively the consolidation of this
highly-fragmented industry. TransCom USA has entered into agreements to acquire
the Founding Companies simultaneously with, and as a condition to, the
consummation of the Offering. In 1997, the Founding Companies, which have been
in business an average of 40 years, had pro forma revenues of $208 million,
servicing over 18,000 customers. For a description of the transactions pursuant
to which these businesses will be acquired, see "Certain
Transactions -- Organization of the Company." The following is a description of
the Founding Companies.
CHARLES W. CARTER CO. -- LOS ANGELES -- Charles W. Carter Co. -- Los
Angeles ("Carter"), headquartered in Placentia, California, was founded in
1929 and serves customers principally in California, Hawaii, Nevada and Arizona.
Carter primarily distributes commercial vehicle parts and, to a lesser extent,
auto parts. For the year ended March 31, 1997, Carter had revenues of $35.4
million and operating income of $1.0 million. Carter currently has approximately
185 employees. Thomas A. Work, a Co-President of Carter, has over 30 years of
industry experience, all of which has been with Carter. Thomas H. Ketchum, a
Co-President of Carter, has over 27 years of industry experience, all of which
has been with Carter. Following consummation of this Offering, Mr. Work and Mr.
Ketchum will sign five-year employment agreements with Carter to continue in
their present positions and Mr. Work will become a director of the Company.
TRANSPORTATION COMPONENTS CO. -- Transportation Components Co. ("TCC"),
headquartered in St. Paul, Minnesota, was founded in 1946 and serves customers
principally in Wisconsin, Minnesota, North Dakota, South Dakota and Iowa. TCC
primarily distributes commercial vehicle parts and also performs installation
and maintenance services and relines brake shoes. In fiscal 1997, TCC had
revenues of $32.3 million and operating income of $1.2 million. TCC currently
has approximately 171 employees. Peter D. Lund, the President of TCC, has been
employed by TCC for over 24 years and has over 26 years of industry experience.
Following consummation of this Offering, Mr. Lund will sign a five-year
employment agreement with TCC to continue in his present position and will
become a director of the Company.
GEAR & WHEEL, INC. -- Gear & Wheel, Inc. ("Gear & Wheel"), headquartered
in Orlando, Florida, was founded in 1981 and serves customers principally in
Florida. Gear & Wheel primarily distributes commercial vehicle parts and also
remanufactures brakes, clutches, drive train components and turbochargers. For
the year ended June 30, 1997, Gear & Wheel had revenues of $21.5 million and
operating income of $1.4 million. Gear & Wheel currently has approximately 123
employees. Everett W. Petry, the founder and President of Gear & Wheel, has been
employed by Gear & Wheel for over 17 years and has over 35 years of industry
experience. Following consummation of this Offering, Mr. Petry will sign a
five-year employment agreement with Gear & Wheel to continue in his present
position and will become a director of the Company.
AMPARTS INTERNATIONAL, INC. -- Amparts International, Inc. headquartered in
Laredo, Texas, was founded in 1990 and, together with its affiliates Amparts,
Inc. and Proveedor Mayorista al Refaccionario S.A. de C.V. (collectively,
"Amparts"), serves customers principally in Mexico and countries in South and
Central America, Southeast Asia and the Pacific Rim from its locations in
Washington, Texas and Florida. Amparts primarily exports commercial vehicle
parts. In 1997, Amparts had revenues of $22.7 million and operating income of
$2.6 million. Amparts currently has approximately 70 employees. Rodolfo A.
Duemichen, a co-founder and the President of Amparts, has been employed by
Amparts for over eight years and has over 17 years of industry experience.
Following consummation of this Offering, Mr. Duemichen will sign a five-year
employment agreement with Amparts to continue in his present position and will
become a director of the Company.
THE COOK BROTHERS COMPANIES, INC. -- The Cook Brothers Companies, Inc.
("Cook Brothers"), headquartered in Binghamton, New York, was founded in 1918
and serves customers principally in New York and Pennsylvania. Cook Brothers
primarily distributes commercial vehicle parts and sells Mack
17
<PAGE>
trucks. For the year ended June 30, 1997, Cook Brothers had revenues of $21.2
million and operating income of $1.3 million. Cook Brothers currently has
approximately 155 employees. Henry B. Cook, Jr., the President of Cook Brothers,
has over 25 years of industry experience, all of which has been with Cook
Brothers. Following consummation of this Offering, Mr. Cook will sign a
five-year employment agreement with Cook Brothers to continue in his present
position and will become Vice President of Purchasing and a director of the
Company.
PLAZA AUTOMOTIVE, INC. -- Plaza Automotive, Inc. ("Plaza"), headquartered
in St. Louis, Missouri, was founded in 1946 and serves customers principally in
Missouri, Illinois, Colorado and Tennessee. Plaza primarily distributes
commercial vehicle parts and also performs installation and maintenance services
and relines brake shoes. In 1997, Plaza had revenues of $20.7 million and
operating income of $1.0 million. Plaza currently has approximately 115
employees. Louis J. Boggeman, Jr., the President of Plaza, has over 22 years of
industry experience, all of which has been with Plaza. Following consummation of
this Offering, Mr. Boggeman will sign a five-year employment agreement with
Plaza to continue in his present position and will become Senior Vice President,
Chief Operating Officer and a director of the Company.
UNIVERSAL FLEET SUPPLY, INC. -- Universal Fleet Supply, Inc.
("Universal"), headquartered in Fremont, California, was founded in 1978 and
serves customers principally in California and Nevada. Universal primarily
distributes commercial vehicle parts and also relines brake shoes. In fiscal
1997, Universal had revenues of $13.9 million and operating income of $0.1
million. Universal currently has approximately 75 employees. Ronald G. Short,
the President of Universal, has been employed by Universal for over 20 years and
has over 22 years of industry experience. Following consummation of this
Offering, Mr. Short will sign a five-year employment agreement with Universal to
continue in his present position and will become a director of the Company.
PERFECTION EQUIPMENT COMPANY, INC. -- Perfection, headquartered in Oklahoma
City, Oklahoma, was founded in 1946 and serves customers principally in
Oklahoma. Perfection primarily distributes commercial vehicle parts and
assembles specialty commercial vehicle equipment and also performs installation
and maintenance services. In fiscal 1997, Perfection had revenues of $11.9
million and operating income of $0.4 million. Perfection currently has
approximately 87 employees. Christopher A. Simpson, the President of Perfection,
has been employed by Perfection for over 10 years and has over 18 years of
industry experience. Maura L. Berney, the Chairman of the Board and
Vice-President of Finance and Administration of Perfection, has been employed by
Perfection for over five years and has over eight years of industry experience.
C. Peter Voogt, the Vice President of Sales of Perfection, has been employed by
Perfection for over 15 years and has over 23 years of industry experience.
Following consummation of this Offering, Mr. Simpson, Ms. Berney and Mr. Voogt
will sign five-year employment agreements with Perfection to continue in their
present positions, and Ms. Berney will become a director of the Company.
DRIVE LINE, INC. -- Drive Line, Inc. ("Drive Line"), headquartered in
Sunrise, Florida, was founded in 1988 and serves customers nationally from its
facility in Florida. Drive Line primarily distributes commercial vehicle parts
to OEMs and other end-users and military vehicle parts to the United States
military. In 1997, Drive Line had revenues of $6.0 million and operating income
of $1.1 million. Drive Line currently has approximately 12 employees. James R.
Davis, the co-founder and President of Drive Line, has been employed by Drive
Line for over 10 years and has over 27 years of industry experience. Joseph P.
Akra, the co-founder and Vice-President of Drive Line, has been employed by
Drive Line for over 10 years and has over 23 years of industry experience.
Following consummation of this Offering, Mr. Davis and Mr. Akra will sign
five-year employment agreements with Drive Line to continue in their present
positions.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,500,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and estimated Offering and Merger expenses, are estimated to be
$51.3 million ($59.7 million if the Underwriters' over-allotment option is
exercised in full).
Of the net proceeds, $21.0 million will be used to pay the cash portion of
the purchase price for the Founding Companies, $6.3 million of which will be
paid to persons who will become directors of the Company or will become holders
of more than 5% of the Common Stock.
The remaining net proceeds from this Offering of $30.2 million will be
used, together with borrowings of $13.3 million from the Company's revolving
credit facility discussed below, to repay or refinance substantially all of the
indebtedness of the Founding Companies. The majority of the Founding Companies'
indebtedness is comprised of revolving credit facilities, which mature at
various dates through October 1, 1999 and bear interest at rates ranging from
LIBOR plus 225 basis points to prime plus 100 basis points. The current
revolving credit facilities of the Founding Companies were used to refinance
previous credit facilities and for current working capital and general corporate
purposes. A portion of the outstanding Founding Company indebtedness incurred
during the past year was used to purchase property and equipment and to fund the
S Corporation Distributions. See "Prospectus Summary -- Recent Developments"
and Note 10 to the Summary Pro Forma Combined Financial Information. The Company
will use the remaining portion of the revolving credit facility, estimated to be
$61.7 million, for general corporate purposes, working capital requirements and
the cash portion of acquisitions. The Company currently has no binding or
non-binding agreements to effect any future acquisitions.
The Company has received a commitment for a credit facility of at least
$75.0 million, which is expected to be available upon consummation of this
Offering. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations Combined -- Combined Liquidity
and Capital Resources."
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions and, therefore, does not anticipate paying any cash dividends on
its Common Stock for the foreseeable future. In addition, the Company expects
that its working capital and acquisitions credit facility will include
restrictions on the ability of the Company to pay cash dividends without the
consent of the lender.
Prior to the Mergers, certain of the Founding Companies will make S
Corporation Distributions aggregating $5.4 million and distributions of the
Other Assets having a net book value of approximately $0.9 million to their
stockholders. To fund the S Corporation Distributions, the Founding Companies
will borrow approximately $4.8 million from existing sources.
19
<PAGE>
CAPITALIZATION
The following table sets forth the current maturities of long-term
obligations and capitalization at March 31, 1998 (i) on a pro forma combined
basis to give effect to the Mergers, the S Corporation Distributions and the
distribution of the Other Assets and the repayment of outstanding indebtedness,
and (ii) pro forma combined, as adjusted, to give effect to the Mergers, the S
Corporation Distributions, the distribution of the Other Assets, the repayment
of outstanding indebtedness, the receipt of proceeds from the sale of a building
to a stockholder, this Offering and the application of a portion of the
estimated net proceeds therefrom. This table should be read in conjunction with
the Company's Unaudited Pro Forma Combined Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
MARCH 31, 1998
---------------------------
PRO FORMA
COMBINED AS ADJUSTED
---------- -----------
(IN THOUSANDS OF DOLLARS)
Current maturities of long-term
obligations(1)..................... $ 28,297 $ 113
========== ===========
Long-term obligations, less current
maturities(2)...................... $ 17,914 $ 14,341
Stockholders' equity:
Preferred Stock: $0.01 par
value, 5,000,000 shares
authorized; none issued or
outstanding................ -- --
Common Stock: $0.01 par value,
102,000,000 shares
authorized; 10,762,611
shares issued and
outstanding pro forma
combined; and 16,262,611
shares issued and
outstanding, pro forma as
adjusted(3)................ 108 163
Additional paid-in capital........... 85,057 136,267
Retained earnings.................... (10,947) (10,947)
---------- -----------
Total stockholders' equity.... 74,218 125,483
---------- -----------
Total capitalization.... $ 92,132 $ 139,824
========== ===========
- ------------
(1) Includes the Company's lines of credit and payables to related parties of
approximately $2.1 million pro forma combined and $0.1 million as adjusted.
See detail of related party amounts in individual financial statements and
accompanying notes thereto.
(2) Includes long-term obligations and long-term payables to related parties of
approximately $1.4 million pro forma combined and $1.0 million as adjusted.
See detail of related party amounts in individual financial statements and
accompanying notes thereto.
(3) Excludes 1,795,465 shares of Common Stock subject to options to be granted
upon consummation of this Offering with an exercise price equal to the
initial public offering price and warrants to purchase 669,894 shares of
common stock at an exercise price of $8.42 per share. See
"Management -- 1998 Long-Term Incentive Plan" and " -- 1998 Non-Employee
Directors' Stock Plan."
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at March 31, 1998 was
approximately $1.5 million, or $0.14 per share of Common Stock. The net tangible
book value per share represents the amount of the Company's stockholders'
equity, less intangible assets, divided by the number of shares of Common Stock
issued and outstanding after giving effect to the Mergers. Net tangible book
value dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock in the Offering and the pro forma
net tangible book value per share of Common Stock immediately after the
completion of the Offering. After giving effect to the sale of 5,500,000 shares
of Common Stock by the Company in the Offering and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of March 31, 1998 would have been $52.7 million, or $3.24 per share.
This represents an immediate increase in pro forma net tangible book value of
$3.10 per share to stockholders as of March 31, 1998, and an immediate dilution
in pro forma net tangible book value of $7.76 per share to purchasers of Common
Stock in the Offering. The following table illustrates the dilution per share:
Assumed initial public offering price
per share.......................... $ 11.00
Pro forma net tangible book
value per share before the
Offering....................... $ 0.14
Increase in pro forma net
tangible book value per share
attributable to new
investors...................... 3.10
Pro forma net tangible book value per
share after the Offering........... 3.24
---------
Dilution per share to new
investors.......................... $ 7.76
=========
The following table sets forth, on a pro forma basis to give effect to the
Mergers as of March 31, 1998, the number of shares of Common Stock purchased
from the Company, the aggregate cash consideration paid and the average price
per share paid to the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL AVERAGE
---------------------- CONSIDERATION PRICE
NUMBER PERCENT AMOUNT(1) PER SHARE
------------ ------- -------------- ----------
<S> <C> <C> <C> <C>
Existing stockholders................ 10,762,611 66.2% $ 1,468,000 $ 0.14
New investors........................ 5,500,000 33.8 60,500,000 11.00
------------ ------- --------------
Total........................... 16,262,611 100.0% $ 61,968,000
============ ======= ==============
- ------------
</TABLE>
(1) Total consideration paid by existing stockholders represents the pro forma
net tangible book value of the Company, after giving effect to the Mergers.
21
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Transportation Components will acquire the Founding Companies
simultaneously with and as a condition to the consummation of this Offering. The
following selected financial data for Transportation Components as of March 31,
1998 and for the period from inception to December 31, 1997 and the three months
ended March 31, 1998 have been derived from audited Financial Statements of
Transportation Components included elsewhere in this Prospectus. The selected
unaudited pro forma combined financial data present data for the Company,
adjusted for (i) the effects of the Mergers, (ii) the effects of certain pro
forma adjustments to the historical Financial Statements described below and
(iii) the consummation of this Offering and the application of the net proceeds
therefrom. See the Unaudited Pro Forma Combined Financial Statements and the
Notes thereto and the historical Financial Statements of Transportation
Components and certain of the Founding Companies and the Notes thereto included
elsewhere in this Prospectus.
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------- ------------
STATEMENT OF OPERATIONS DATA:
TRANSPORTATION COMPONENTS
Revenues........................ $ -- $ --
Selling, general and
administrative expenses....... 4,276 6,671
------------- ------------
Loss before income taxes........ (4,276) (6,671)
------------- ------------
Net loss........................ $ (4,276) $ (6,671)
============= ============
PRO FORMA COMBINED(1)
Revenues(2)..................... $ 207,588 $ 56,097
Cost of sales................... 147,111 38,699
------------- ------------
Gross profit.................... 60,477 17,398
Selling, general and
administrative expenses(3).... 45,315 12,503
Goodwill amortization(4)........ 1,819 455
------------- ------------
Operating income................ 13,343 4,440
Interest and other income
(expense), net(5)............. (69) (404)
------------- ------------
Income before income taxes...... 13,274 4,036
Provision for income tax(6)..... 5,972 1,792
------------- ------------
Net income...................... $ 7,302 $ 2,244
============= ============
Net income per share............ $ 0.45 $ 0.14
============= ============
Shares used in computing pro
forma net income per
share(7)...................... 16,262,611 16,262,611
MARCH 31, 1998
-------------------------------
PRO FORMA AS
COMBINED ADJUSTED(8)
------------- ------------
BALANCE SHEET DATA(9):
Working capital(10).................. $ 3,070(11) $ 55,249
Total assets......................... 177,006 172,519
Long-term debt, net(10).............. 17,914 14,341
Stockholders' equity(10)............. 74,218 125,483
- ------------
(1) The Pro Forma Combined Statement of Operations Data assume that the Mergers
and the Offering were closed on January 1, 1997 and are not necessarily
indicative of the results the Company would have obtained had these events
actually then occurred or of the Company's future results.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
22
<PAGE>
(2) Reflects pro forma revenues of approximately $13.1 million and $0.2 million
for the year ended December 31, 1997 and the three months ended March 31,
1998, respectively, associated with the acquisition of two parts
distribution businesses and a truck dealership by certain Founding
Companies.
(3) Reflects the Compensation Differential of approximately $3.5 million and
$0.7 million for the year ended December 31, 1997 and the three months
ended March 31, 1998, respectively. These data do not include the
nonrecurring portion of the Compensation Charge of $4.2 million and $6.5
million for the year ended December 31, 1997 and the three months ended
March 31, 1998, respectively.
(4) Consists of amortization of goodwill to be recorded as a result of the
Mergers computed on the basis described in Notes to the Unaudited Pro Forma
Combined Financial Statements.
(5) Reflects the Interest Differential of $2.5 million and $0.7 million for the
year ended December 31, 1997 and the three months ended March 31, 1998,
respectively.
(6) Assumes all income is subject to an effective corporate tax rate of 39%,
and the non-deductibility of goodwill.
(7) Includes (i) 7,493,394 shares to be issued to owners of the Founding
Companies, (ii) 1,106,829 shares issued to the management and directors of,
and consultants to, Transportation Components, (iii) 2,162,388 shares
issued to Notre and (iv) 5,500,000 shares to be sold in the Offering.
Excludes options to purchase 1,795,465 shares to be granted upon
consummation of this Offering at the initial public offering price and
warrants to purchase 669,894 shares of common stock at $8.42 per share.
(8) Adjusted for the sale of 5,500,000 shares of Common Stock offered hereby
and the application of the net proceeds therefrom. See "Use of Proceeds."
(9) The Pro Forma Combined Balance Sheet Data assumes that the Mergers were
consummated on March 31, 1998.
(10) Prior to the Mergers, certain of the Founding Companies will make
Distributions to their stockholders totaling $5.4 million. In order to fund
the S Corporation Distributions, the Founding Companies will borrow $4.8
million form existing sources. Additionally, prior to the Mergers, certain
of the Founding Companies will distribute to their stockholders the Other
Assets having a net book value of $0.9 million. Accordingly, pro forma
working capital has been decreased by $0.6 million and pro forma net income
has been increased by $0.1 million.
(11) Includes a $21.0 million payable, representing the cash portion of the
Merger consideration.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Financial Data" and the Founding Companies' Financial Statements and related
Notes thereto appearing elsewhere in this Prospectus.
INTRODUCTION
The Company engages in the distribution of replacement parts for commerical
trucks and trailers and other types of specialized heavy duty vehicles and
equipment. The Company purchases heavy duty parts from component manufacturers,
inventories these parts in over 60 facilities across the United States and
Mexico and distributes them to over 18,000 customers. The Company also exports
parts and supplies to customers located in countries in South and Central
America, Southeast Asia and the Pacific Rim. The Company serves a diverse set of
customers including regional and national private, common carrier and rental
fleets, independent repair shops, resellers, specialty OEMs, municipal and other
governmental entities and other end users. Approximately 94% of the Company's
pro forma combined revenues in 1997 was attributable to the sale of parts
(including remanufactured parts), supplies and equipment; approximately 4% was
attributable to installation and repair, with the remaining 2% attributable to
truck sales, leasing and rental income.
The Founding Companies operated throughout the periods presented as
independent, privately-owned entities, and their results of operations reflect
varying tax structures (S Corporations or C Corporations) which have influenced
the historical level of owners' compensation. Accordingly, selling, general and
administrative expenses as a percentage of revenue may not be comparable among
the individual Founding Companies. The owners of the Founding Companies have
contractually agreed to certain reductions in both their compensation and
benefits. The Compensation Differential for 1997 of $3.5 million has been
reflected as a pro forma adjustment in the Unaudited Pro Forma Combined
Statement of Operations presented elsewhere in this Prospectus.
The Company has received a commitment for a credit facility of $75.0
million, which is expected to be available upon consummation of this Offering.
This credit facility will result in lower borrowing costs and will be used for
working capital and acquisitions. The Company intends to use a portion of the
net proceeds from the Offering to repay a portion of the indebtedness of the
Founding Companies. The Interest Differential for 1997 of $2.5 million has been
reflected as a pro forma adjustment in the Unaudited Pro Forma Combined
Statements of Operations presented elsewhere in this Prospectus. The Company
also believes that following the Mergers, significant opportunities exist to
increase the profitability of the Founding Companies and subsequently acquired
businesses through the implementation of the Company's operating strategy,
emphasizing continued internal growth and expanding through acquisitions. It is
anticipated that the potential increase in profitability associated with the
Company's operating strategy will initially be offset by the costs related to
the Company's new corporate management and by the costs attributable to being a
public company. However, because these costs cannot be accurately quantified at
this time, they have not been considered in the pro forma financial information
included herein.
From October 1997 through March 1998, the Company sold an aggregate of
1,106,829 shares of Common Stock to management, directors and certain
consultants of the Company for $0.01 per share. As a result, the Company
recorded a nonrecurring, noncash compensation charge of $4.3 million and $6.7
million during 1997 and the first quarter of 1998, respectively, representing
the difference between the amount paid for the shares and the estimated fair
value of the shares on the date of the sale.
The Mergers will be accounted for using the purchase method of accounting.
Accordingly, the excess of the fair value of the Merger consideration paid of
$72.8 million over the fair value of the net assets acquired by TransCom USA
from the Founding Companies will be recorded as "goodwill." The goodwill will
be amortized over its estimated useful life of 40 years as a noncash charge to
operating income. The pro forma effect of this amortization expense, which is
not deductible for tax purposes, is expected to be approximately $1.8 million
per year. The amount of goodwill to be recorded and the related amortization
24
<PAGE>
expense will depend in part on the actual Offering price. See "Certain
Transactions -- Organization of the Company."
Descriptions of the accounting classifications used to present the results
of operations of the Founding Companies are as follows:
REVENUES. The Founding Companies' revenues consist primarily of parts
sales (including remanufactured parts), installation and repair income. Parts
sales include the sales of parts, supplies, accessories and equipment for
commercial heavy-duty vehicles and equipment, including braking systems, axles,
wheels, rims, drive train systems, hydraulic components and engine parts.
Remanufacturing revenues are derived from the sales of brake shoes, clutches and
drive-line components which have been remanufactured by the Founding Companies.
Service revenues are derived from providing repair service to vehicles and
equipment and installing parts, supplies and equipment.
COST OF SALES. Cost of sales consists of the cost, including incoming
freight, of vehicles, parts, supplies and equipment sold and direct labor costs
incurred to provide remanufacturing and service, partially offset by
volume-related rebates received from component manufacturers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include the cost of personnel conducting sales,
warehousing, delivery and administrative activities (including commissions and
other forms of incentive compensation), advertising and marketing expenses,
rent, delivery expenses, repairs, utilities, maintenance costs, professional
fees, property taxes and other costs not included in cost of sales that are
directly attributable to operations.
RESULTS OF OPERATIONS -- COMBINED
The combined results of operations of the Founding Companies for the
periods presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the revenues, cost of sales, gross profit, selling, general and
administrative expenses and income from operations of the individual Founding
Companies on a historical basis. The combined results also exclude the effect of
pro forma adjustments and, therefore, may not be indicative of the Company's
postcombination results of operations for a number of the following reasons: (i)
the Founding Companies were not under common control or management during the
periods presented, (ii) the Founding Companies used different tax structures (S
Corporations or C Corporations) during the periods presented, (iii) the Company
will incur incremental costs related to its new corporate management and the
costs of being a publicly-traded company, (iv) the Company will use the purchase
method of accounting to record the Mergers, resulting in the recording and
amortization of goodwill, (v) the combined data do not include the
preacquisition results of operations of certain businesses acquired by the
Founding Companies prior to the Offering and (vi) the combined data do not
reflect the Compensation Differential, Interest Differential or potential
benefits and cost savings the Company expects to realize once Transportation
Components and the Founding Companies begin operating as a combined entity.
25
<PAGE>
The following table sets forth the historical results of operations for the
combined companies:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR(1) MARCH 31,
---------------------------------------------------------------- --------------------
1995 1996 1997 1997
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 164,728 100.0% $ 171,273 100.0% $ 192,442 100.0% $ 46,651 100.0%
Cost of sales........................ 117,303 71.2 120,724 70.5 134,650 70.0 32,696 70.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 47,425 28.8 50,549 29.5 57,792 30.0 13,955 29.9
Selling, general and administrative
expenses........................... 41,277 25.1 42,650 24.9 47,108 24.4 11,168 23.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 6,148 3.7% $ 7,899 4.6% $ 10,684 5.6% $ 2,787 6.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1998
--------------------
Revenues............................. $ 55,893 100.0%
Cost of sales........................ 38,733 69.3
--------- ---------
Gross profit......................... 17,160 30.7
Selling, general and administrative
expenses........................... 13,029 23.3
--------- ---------
Income from operations............... $ 4,131 7.4%
========= =========
- ------------
(1) The financial data are presented on a historical basis for the Founding
Companies. The years presented are as follows: Carter -- March 29, 1996 and
March 31, 1997 and 1998, respectively; Cook Brothers and Gear &
Wheel -- June 30, 1996 and 1997 and March 31, 1998, respectively;
Universal -- June 30, 1995, 1996 and 1997; Plaza -- August 31, 1995 and 1996
and December 31, 1997, respectively; Perfection and TCC -- September 30,
1995, 1996 and 1997; and Amparts and Drive Line -- December 31, 1995, 1996
and 1997.
COMBINED RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1997
REVENUES. Combined revenues increased $9.2 million, or 19.8%, from $46.7
million in the three months ended March 31, 1997 to $55.9 million in the
corresponding period in 1998. This increase was primarily attributable to an
increase in sales by Amparts of $1.8 million, Gear & Wheel of $0.8 million,
Perfection of $2.7 million, Plaza of $0.7 million, TCC of $1.0 million and
Universal of $0.9 million. Amparts' increase of $1.8 million was primarily
attributable to increased parts sales in Mexico. Perfection's increase of $2.7
million was primarily attributable to an increase in its equipment assembly
business.
GROSS PROFIT. Combined gross profit increased $3.2 million, or 23.0%, from
$14.0 million in the three months ended March 31, 1997 to $17.2 million in the
corresponding period in 1998. As a percentage of revenues, gross profit
increased from 29.9% in the 1997 period to 30.7% in the 1998 period. This
increase was primarily attributable to improved gross profit margins at Amparts,
Carter, Cook Brothers, Gear & Wheel, TCC and Universal.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $1.8 million, or 16.7%, from $11.2 million
in the three months ended March 31, 1997 to $13.0 million in the corresponding
period in 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 23.9% in the 1997 period to 23.3% in the 1998 period.
This decrease was primarily attributable to an increase in revenues without a
commensurate increase in expenses at Amparts, Cook Brothers, Plaza, Perfection
and Universal, partially offset by an increase in selling, general and
administrative expenses of $0.5 million at Gear & Wheel as a result of a move to
a larger facility.
COMBINED RESULTS FOR 1997 COMPARED TO 1996
REVENUES. Combined revenues increased $21.1 million, or 12.4%, from $171.3
million in 1996 to $192.4 million in 1997. All of the Founding Companies
contributed to the increase in combined revenues. Amparts accounted for $7.9
million of the increase, primarily as a result of increased parts sales to
customers in South America and the continuing improvement in the Mexican
economy. In addition, Carter opened a new facility and Gear & Wheel acquired a
distribution operation in May 1997.
GROSS PROFIT. Combined gross profit increased $7.3 million, or 14.3%, from
$50.5 million in 1996 to $57.8 million in 1997. As a percentage of revenues,
gross profit increased from 29.5% in 1996 to 30.0% in 1997. This increase was
primarily attributable to improved gross profit margins at Amparts, Carter, TCC,
Gear & Wheel, Cook Brothers, Perfection and Plaza.
26
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $4.4 million, or 10.5%, from $42.7 million
in 1996 to $47.1 million in 1997. As a percentage of revenues, selling, general
and administrative expenses decreased from 24.9% in 1996 to 24.4% in 1997. This
decrease was primarily attributable to an increase in revenues without a
commensurate increase in selling, general and administrative expenses at TCC,
Amparts, Cook Brothers and Universal, partially offset by an increase in
selling, general and administrative expenses as a percentage of revenues at
Carter, Perfection, Plaza, Gear & Wheel and Drive Line.
COMBINED RESULTS FOR 1996 COMPARED TO 1995
REVENUES. Combined revenues increased $6.6 million, or 4.0%, from $164.7
million in 1995 to $171.3 million in 1996. This increase was primarily
attributable to an increase in parts sales at Amparts of $4.3 million,
Perfection of $2.3 million and TCC of $1.7 million, partially offset by a
decrease in parts sales at Cook Brothers of $1.1 million and Drive Line of $1.0
million. Amparts' increase of $4.3 million was primarily a result of its
increased sales in Mexico.
GROSS PROFIT. Combined gross profit increased $3.1 million, or 6.6%, from
$47.4 million in 1995 to $50.5 million in 1996. As a percentage of revenues,
gross profit increased from 28.8% in 1995 to 29.5% in 1996. This increase was
primarily attributable to improved gross profit margins at Carter, Cook, Drive
Line Gear & Wheel, Plaza, TCC and Universal.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Combined selling, general
and administrative expenses increased $1.4 million, or 3.3%, from $41.3 million
in 1995 to $42.7 million in 1996. As a percentage of revenues, selling, general
and administrative expenses decreased from 25.1% in 1995 to 24.9% in 1996. This
decrease was primarily attributable to an increase in revenues without a
commensurate increase in selling, general and administrative expenses at Carter
and Perfection, partially offset by an increase in selling, general and
administrative expenses as a percentage of revenues at TCC, Cook, Drive Line,
Gear & Wheel, Plaza and Universal.
COMBINED LIQUIDITY AND CAPITAL RESOURCES
On a combined basis, the Founding Companies used $1.9 million of net cash
from operating activities for the three months ended March 31, 1998. Net cash
used in investing activities was $2.2 million, representing $0.8 million to
purchase property and equipment and $1.7 million to acquire three parts
distribution operations, offset by $0.3 million in proceeds from the sale of
property and equipment. Net cash provided by financing activities was $4.4
million, representing additional borrowings of debt. As of March 31, 1998, the
Founding Companies had working capital of $26.0 million and total debt of $42.6
million.
On a combined basis, the Founding Companies generated $1.9 million of net
cash from operating activities during 1997. Net cash used in investing
activities was $3.8 million, primarily to purchase property and equipment. Net
cash provided by financing activities totaled $1.6 million and was comprised of
additional borrowings of debt totaling $3.3 million offset by S Corporation
shareholder distributions totaling $1.5 million. As of December 31, 1997, the
Founding Companies had working capital of $31.0 million and total debt of $37.6
million.
The Company intends to pursue an aggressive acquisition program. The
Company expects to fund future acquisitions through the issuance of additional
Common Stock, borrowings under the proposed credit facility discussed below and
cash flow from operations. The Company anticipates that its cash flow from
operations will provide cash in excess of its working capital and debt service
requirements and planned capital expenditures for the foreseeable future.
The Company has received a commitment for a credit facility of $75.0
million, which is expected to be available upon consummation of the Offering.
The credit facility will be used to fund acquisitions and working capital
requirements. The credit facility is subject to various loan covenants
including: (i) maintenance of certain financial ratios regarding total debt to
cash flow, fixed charge coverage and
27
<PAGE>
consolidated net worth, (ii) restrictions on additional indebtedness and (iii)
restrictions on liens, guarantees, advances and dividends. The credit facility
is subject to customary drawing conditions.
CARTER -- RESULTS OF OPERATIONS
Carter, headquartered in Placentia, California, was founded in 1929 and
serves customers principally in California, Hawaii, Nevada and Arizona. Carter
primarily distributes commercial vehicle parts and, to a lesser extent, auto
parts.
The following table sets forth the historical results of operations for
Carter:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
MARCH 29, 1996 MARCH 31, 1997 MARCH 31, 1998
-------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 35,824 100.0% $ 35,437 100.0% $ 37,982 100.0%
Cost of sales........................... 24,463 68.3 24,049 67.9 25,633 67.5
--------- --------- --------- --------- --------- ---------
Gross profit............................ 11,361 31.7 11,388 32.1 12,349 32.5
Selling, general and administrative
expenses.............................. 10,710 29.9 10,378 29.3 11,261 29.6
--------- --------- --------- --------- --------- ---------
Income from operations.................. $ 651 1.8% $ 1,010 2.8% $ 1,088 2.9%
========= ========= ========= ========= ========= =========
</TABLE>
CARTER RESULTS FOR THE YEAR ENDED MARCH 31, 1998 COMPARED TO THE YEAR ENDED
MARCH 31, 1997
REVENUES. Revenues increased $2.6 million, or 7.2%, from $35.4 million in
1997 to $38.0 million in 1998. This increase was primarily attributable to $1.5
million of revenues generated from a new facility in Rialto, California which
was opened in May 1997 and a $0.8 million increase in part sales in Hawaii.
GROSS PROFIT. Gross profit increased $0.9 million, or 8.4%, from $11.4
million in 1997 to $12.3 million in 1998. As a percentage of revenues, gross
profit increased from 32.1% in 1997 to 32.5% in 1998. This increase was
primarily attributable to an inventory charge taken in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.9 million, or 8.5%, from $10.4 million in
1997 to $11.3 million in 1998. As a percentage of revenues, selling, general and
administrative expenses increased from 29.3% in 1997 to 29.6% in 1998. This
increase was primarily attributable to a $0.3 million increase in owners'
compensation, a $0.3 million increase in expenses from the new facility in
Rialto, California and a $0.2 million increase in wages and personnel expenses.
CARTER RESULTS FOR THE YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR ENDED
MARCH 29, 1996
REVENUES. Revenues decreased $0.4 million, or 1.1%, from $35.8 million in
1996 to $35.4 million in 1997. This decrease was primarily attributable to
decreased parts sales in California.
GROSS PROFIT. Gross profit was $11.4 million in 1996 and in 1997. As a
percentage of revenues, gross profit increased from 31.7% in 1996 to 32.1% in
1997. This increase was primarily attributable to lower purchasing costs and
increased sales of higher margin products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $0.3 million, or 3.1%, from $10.7 million in
1996 to $10.4 million in 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 29.9% in 1996 to 29.3% in 1997. This
decrease was attributable to reduced professional fees of $0.1 million, salaries
of $0.1 million, bad debts of $0.1 million and lease expense of $0.1 million.
CARTER LIQUIDITY AND CAPITAL RESOURCES
Carter used $0.4 million of net cash from operating activities for the year
ended March 31, 1998. Net cash used in investing activities was $0.2 million,
primarily to purchase property and equipment. Net cash provided by financing
activities was $0.4 million, primarily representing additional borrowings of
debt. As of March 31, 1998, Carter had working capital of $4.9 million and total
debt of $6.1 million.
28
<PAGE>
TCC -- RESULTS OF OPERATIONS
TCC, headquartered in St. Paul, Minnesota, was founded in 1946 and serves
customers principally in Wisconsin, Minnesota, North Dakota, South Dakota and
Iowa. TCC primarily distributes commercial vehicle parts and also performs
installation and maintenance services and relines brake shoes.
The following table sets forth the historical results of operations for
TCC:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------------------------------- --------------------
1995 1996 1997 1997
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 28,147 100.0% $ 29,876 100.0% $ 32,274 100.0% $ 15,871 100.0%
Cost of sales........................ 20,460 72.7 21,677 72.6 23,331 72.3 11,577 72.9
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 7,687 27.3 8,199 27.4 8,943 27.7 4,294 27.1
Selling, general and administrative
expenses........................... 6,994 24.8 7,560 25.3 7,746 24.0 3,565 22.5
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 693 2.5% $ 639 2.1% $ 1,197 3.7% $ 729 4.6%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1998
--------------------
Revenues............................. $ 17,645 100.0%
Cost of sales........................ 12,552 71.1
--------- ---------
Gross profit......................... 5,093 28.9
Selling, general and administrative
expenses........................... 4,108 23.3
--------- ---------
Income from operations............... $ 985 5.6%
========= =========
TCC RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO THE SIX MONTHS
ENDED MARCH 31, 1997
REVENUES. Revenues increased $1.7 million, or 11.2%, from $15.9 million in
the six months ended March 31, 1997 to $17.6 million in the corresponding period
in 1998. This increase was primarily attributable to a $0.4 million increase in
sales generated by a parts distribution and service center acquired in January
1998 and an increase in part sales to specialty OEMs.
GROSS PROFIT. Gross profit increased $0.8 million, or 18.6%, from $4.3
million in the six months ended March 31, 1997 to $5.1 million in the
corresponding period in 1998. As a percentage of revenues, gross profit
increased from 27.1% in the 1997 period to 28.9% in the 1998 period. This
increase was primarily attributable to an increase in purchase rebates
negotiated with vendors.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.5 million, or 15.2%, from $3.6 million in
the six months ended March 31, 1997 to $4.1 million in the corresponding period
in 1998. As a percentage of revenues, selling, general and administrative
expenses increased from 22.5% in the 1997 period to 23.3% in the 1998 period.
This increase was primarily attributable to a $0.2 million increase in sales
commissions and expenses, a $0.1 million increase in salaries for warehouse
employees as a result of increased personnel needed to service increased sales
volume, and a $0.1 million increase attributable to the parts distribution and
service center acquired in January 1998.
TCC RESULTS FOR THE YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO THE YEAR ENDED
SEPTEMBER 30, 1996
REVENUES. Revenues increased $2.4 million, or 8.0%, from $29.9 million in
1996 to $32.3 million in 1997. This increase was primarily attributable to
increased parts sales to specialty OEMs.
GROSS PROFIT. Gross profit increased $0.7 million, or 9.1%, from $8.2
million in 1996 to $8.9 million in 1997. As a percentage of revenues, gross
profit remained relatively unchanged between the corresponding periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 2.5%, from $7.6 million in
1996 to $7.8 million in 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 25.3% in 1996 to 24.0% in 1997. This
decrease was primarily attributable to an increase in revenues without a
commensurate increase in selling, general and administrative expenses.
TCC RESULTS FOR THE YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO THE YEAR ENDED
SEPTEMBER 30, 1995
REVENUES. Revenues increased $1.8 million, or 6.1%, from $28.1 million in
1995 to $29.9 million in 1996. This increase was primarily attributable to
increased parts sales to specialty OEMs.
29
<PAGE>
GROSS PROFIT. Gross profit increased $0.5 million, or 6.7%, from $7.7
million in 1995 to $8.2 million in 1996. As a percentage of revenues, gross
profit remained relatively unchanged between the corresponding periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 8.1%, from $7.0 million in
1995 to $7.6 million in 1996. As a percentage of revenues, selling, general and
administrative expenses increased from 24.8% in 1995 to 25.3% in 1996. This
increase was primarily attributable to a $0.2 million increase in wages, a $0.2
million increase in advertising and a $0.2 million asset write-off in 1996
related to the discontinuation of a product line.
TCC LIQUIDITY AND CAPITAL RESOURCES
TCC used $0.2 million of net cash from operating activities for the six
months ended March 31, 1998. Net cash used by investing activities was $0.5
million, primarily to acquire a parts distribution and service center in January
1998. Net cash provided by financing activities was $0.2 million, representing
$0.3 million in additional borrowings of debt, partially offset by $0.1 million
in distributions to shareholders. As of March 31, 1998, TCC had working capital
of $2.6 million and total debt of $2.6 million.
TCC generated $0.7 million of net cash from operating activities for the
year ended September 30, 1997. Net cash used in investing activities was $0.3
million, primarily to purchase property and equipment. Net cash used by
financing activities was $0.3 million, representing $0.2 million in the payment
of long-term debt and $0.1 million in distributions to shareholders. As of
September 30, 1997, TCC had working capital of $2.2 million and total debt of
$2.3 million.
GEAR & WHEEL -- RESULTS OF OPERATIONS
Gear & Wheel, headquartered in Orlando, Florida, was founded in 1981 and
serves customers principally in Florida. Gear & Wheel primarily distributes
commercial vehicle parts and also remanufactures brakes, clutches, drive train
components and turbochargers.
The following table sets forth the historical results of operations for
Gear & Wheel:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
------------------------------------------ ------------------------------------------
1996 1997 1997 1998
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 20,710 100.0% $ 21,475 100.0% $ 15,672 100.0% $ 17,924 100.0%
Cost of sales........................... 14,299 69.0 14,644 68.2 11,024 70.3 12,388 69.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 6,411 31.0 6,831 31.8 4,648 29.7 5,536 30.9
Selling, general and administrative
expenses.............................. 5,201 25.2 5,471 25.5 3,508 22.4 4,752 26.5
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations.................. $ 1,210 5.8% $ 1,360 6.3% $ 1,140 7.3% $ 784 4.4%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
GEAR & WHEEL RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE
NINE MONTHS ENDED MARCH 31, 1997.
REVENUES. Revenues increased $2.2 million, or 14.4%, from $15.7 million in
the nine months ended March 31, 1997 to $17.9 million in the corresponding
period in 1998. This increase was primarily attributable to the acquisition of a
distribution operation in Daytona, Florida in May 1997 and an increase in sales
at the Tallahassee, Florida location which was opened in mid-1996.
GROSS PROFIT. Gross profit increased $0.9 million, or 19.1%, from $4.6
million in the nine months ended March 31, 1997 to $5.5 million in the
corresponding period in 1998. As a percentage of revenues, gross profit
increased from 29.7% in the 1997 period to 30.9% in the 1998 period. This
increase was primarily attributable to increased sales of truck accessories and
paint that produce slightly higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.3 million, or 35.5%, from $3.5 million in
the nine months ended March 31, 1997 to $4.8 million in the corresponding period
in 1998. As a percentage of revenues, selling, general and administrative
expenses increased from 22.4% in the 1997 period to 26.5% in the 1998 period.
This increase was primarily
30
<PAGE>
attributable to a $0.5 million increase in wages as a result of increased
personnel needed to service increased sales volume, a $0.5 million increase in
expenses as a result of relocation to a new facility and a $0.2 million increase
in occupancy costs as a result of opening the new facility.
GEAR & WHEEL RESULTS FOR THE YEAR ENDED JUNE 30, 1997 COMPARED TO THE YEAR ENDED
JUNE 30, 1996
REVENUES. Revenues increased $0.8 million, or 3.7%, from $20.7 million in
1996 to $21.5 million in 1997. This increase was primarily attributable to the
opening of a parts distribution center in Tallahassee, Florida.
GROSS PROFIT. Gross profit increased $0.4 million, or 6.6%, from $6.4
million in 1996 to $6.8 million in 1997. As a percentage of revenues, gross
profit increased from 31.0% in 1996 to 31.8% in 1997. This increase was
primarily attributable to an increase in volume discounts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 5.2%, from $5.2 million in
1996 to $5.5 million in 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 25.2% in 1996 to 25.5% in 1997. This
increase was primarily attributable to an increase in expenses associated with
opening a new location in Tallahassee, Florida.
GEAR & WHEEL LIQUIDITY AND CAPITAL RESOURCES
Gear & Wheel used $0.3 million of net cash from operating activities for
the nine months ended March 31, 1998. Net cash used in investing activities was
$0.5 million, primarily to purchase property and equipment. Net cash provided by
financing activities was $0.5 million, primarily representing additional
borrowings of debt. As of March 31, 1998, Gear & Wheel had working capital of
$5.6 million and debt of $3.7 million.
Gear & Wheel generated $0.3 million of net cash from operating activities
for the year ended June 30, 1997. Net cash used in investing activities was $0.2
million, primarily to purchase property and equipment. Net cash provided by
financing activities was $0.2 million, representing additional borrowings of
debt totaling $0.3 million offset by $0.1 million in distributions to
shareholders. As of June 30, 1997, Gear & Wheel had working capital of $5.5
million and debt of $3.2 million.
AMPARTS -- RESULTS OF OPERATIONS
Amparts International, Inc., headquartered in Laredo, Texas, was founded in
1990 and, together with its affiliates, Amparts, Inc., and Proveedor Mayorista
al Refaccionario S.A. de C.V., serves customers principally in Mexico and
countries in South and Central America, Southeast Asia and the Pacific Rim from
its locations in Washington, Texas and Florida. Amparts primarily exports
commercial vehicle parts.
The following table sets forth the historical results of operations for
Amparts:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------- --------------------
1995 1996 1997 1997
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 10,528 100.0% $ 14,806 100.0% $ 22,687 100.0% $ 4,707 100.0%
Cost of sales........................ 7,709 73.2 11,278 76.2 17,240 76.0 3,545 75.3
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,819 26.8 3,528 23.8 5,447 24.0 1,162 24.7
Selling, general and administrative
expenses........................... 1,779 16.9 2,326 15.7 2,857 12.6 675 14.4
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 1,040 9.9% $ 1,202 8.1% $ 2,590 11.4% $ 487 10.3%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
1998
--------------------
Revenues............................. $ 6,489 100.0%
Cost of sales........................ 4,768 73.5
--------- ---------
Gross profit......................... 1,721 26.5
Selling, general and administrative
expenses........................... 889 13.7
--------- ---------
Income from operations............... $ 832 12.8%
========= =========
AMPARTS RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1997
REVENUES. Revenues increased $1.8 million, or 37.9%, from $4.7 million in
the three months ended March 31, 1997 to $6.5 million in the corresponding
period in 1998. This increase was primarily
31
<PAGE>
attributable to increased parts sales to customers located in Mexico as a result
of the continuing improvement in the Mexican economy and the opening of two new
facilities in Mexico.
GROSS PROFIT. Gross profit increased $0.5 million, or 48.1%, from $1.2
million in the three months ended March 31, 1997 to $1.7 million in the
corresponding period in 1998. As a percentage of revenues, gross profit
increased from 24.7% in the 1997 period to 26.5% in the 1998 period. This
increase was primarily attributable to increased sales to customers in Mexico
who paid purchase prices resulting in higher profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 31.7%, from $0.7 million in
the three months ended March 31, 1997 to $0.9 million in the corresponding
period in 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 14.4% in the 1997 period to 13.7% in the 1998 period.
This decrease was primarily attributable to an increase in revenues without a
commensurate increase in selling, general and administrative expenses.
AMPARTS RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996
REVENUES. Revenues increased $7.9 million, or 53.2%, from $14.8 million in
1996 to $22.7 million in 1997. This increase was primarily attributable to
increased parts sales to customers located in South America and the continuing
improvement in the Mexican economy.
GROSS PROFIT. Gross profit increased $1.9 million, or 54.4%, from $3.5
million in 1996 to $5.4 million in 1997. As a percentage of revenues, gross
profit increased from 23.8% in 1996 to 24.0% in 1997. This increase is primarily
attributable to increased sales to customers located in Mexico which
historically have relatively higher gross profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.6 million, or 22.8%, from $2.3 million in
1996 to $2.9 million in 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 15.7% in 1996 to 12.6% in 1997. This
decrease was primarily attributable to an increase in revenues without a
commensurate increase in selling, general and administrative expenses.
AMPARTS RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1995
REVENUES. Revenues increased $4.3 million, or 40.6%, from $10.5 million in
1995 to $14.8 million in 1996. This increase was primarily the result of the
improved economy in Mexico. In December 1994 and early 1995, the Mexican peso
suffered significant devaluations, which caused a dramatic slowdown in sales of
imported parts in Mexico during 1995.
GROSS PROFIT. Gross profit increased $0.7 million, or 25.2%, from $2.8
million in 1995 to $3.5 million in 1996. As a percentage of revenues, gross
profit decreased from 26.8% in 1995 to 23.8% in 1996. This decrease was
primarily attributable to sales of products during 1995 with higher margins and
management's efforts to compensate for the risk associated with exchange rate
fluctuations occurring in Mexico during 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.5 million, or 30.7%, from $1.8 million in
1995 to $2.3 million in 1996. As a percentage of revenues, selling, general and
administrative expenses decreased from 16.9% in 1995 to 15.7% in 1996. This
decrease was primarily attributable to an increase in revenues without a
commensurate increase in selling, general and administrative expenses.
AMPARTS LIQUIDITY AND CAPITAL RESOURCES
Amparts provided $0.4 million of net cash from operating activities for the
three months ended March 31, 1998. Net cash used by financing activities was
$0.2 million, representing $0.4 million in payment of dividends, partially
offset by $0.2 million in additional borrowings of debt. As of March 31, 1998,
Amparts had working capital of $3.2 million and total debt of $1.8 million.
32
<PAGE>
Amparts used $0.3 million of net cash from operating activities for the
year ended December 31, 1997. Net cash used in investing activities was $0.3
million, primarily to purchase property and equipment. Net cash used in
financing activities was $0.4 million, representing $0.3 million in payment of
dividends, partially offset by $0.1 million in additional borrowings of debt. As
of December 31, 1997, Amparts had working capital of $3.0 million and total debt
of $1.6 million.
COOK BROTHERS -- RESULTS OF OPERATIONS
Cook Brothers, headquartered in Binghamton, New York, was founded in 1918
and serves customers principally in New York and Pennsylvania. Cook Brothers
primarily distributes commercial vehicle parts and sells Mack trucks.
The following table sets forth the historical results of operations for
Cook Brothers:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
------------------------------------------ ------------------------------------------
1996 1997 1997 1998
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 22,327 100.0% $ 21,204 100.0% $ 16,357 100.0% $ 18,391 100.0%
Cost of sales........................ 15,885 71.1 14,473 68.3 11,504 70.3 12,517 68.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 6,442 28.9 6,731 31.7 4,853 29.7 5,874 31.9
Selling, general and administrative
expenses........................... 5,454 24.5 5,449 25.7 4,122 25.2 4,294 23.3
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 988 4.4% $ 1,282 6.0% $ 731 4.5% $ 1,580 8.6%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
COOK BROTHERS RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE
NINE MONTHS ENDED MARCH 31, 1997
REVENUES. Revenues increased $2.0 million, or 12.4%, from $16.4 million in
the nine months ended March 31, 1997 to $18.4 million in the corresponding
period in 1998. This increase was primarily attributable to a $1.1 million
increase in sales at recently acquired facilities in Scranton, Pennsylvania and
Wilkes Barre, Pennsylvania.
GROSS PROFIT. Gross profit increased $1.0 million, or 21.0%, from $4.9
million in the nine months ended March 31, 1997 to $5.9 million in the
corresponding period in 1998. As a percentage of revenues, gross profit
increased from 29.7% in the 1997 period to 31.9% in the 1998 period. This
increase was primarily attributable to an increase in higher margin service
revenues at the recently acquired facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.2 million, or 4.2%, from $4.1 million in
the nine months ended March 31, 1997 to $4.3 million in the corresponding period
in 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 25.2% in the 1997 period to 23.3% in the 1998 period.
This decrease was primarily attributable to an increase in revenues without a
commensurate increase in selling, general and administrative expenses.
COOK BROTHERS RESULTS FOR THE YEAR ENDED JUNE 30, 1997 COMPARED TO THE YEAR
ENDED JUNE 30, 1996
REVENUES. Revenues decreased $1.1 million, or 5.0%, from $22.3 million in
1996 to $21.2 million in 1997. This decrease was primarily attributable to
several large truck sales made in 1996 that were not repeated in 1997.
GROSS PROFIT. Gross profit increased $0.3 million, or 4.5%, from $6.4
million in 1996 to $6.7 million in 1997. As a percentage of revenues, gross
profit increased from 28.9% in 1996 to 31.7% in 1997. This increase was
primarily attributable to higher vendor rebates for parts combined with a
decline in lower-margin truck sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses remained relatively unchanged between the corresponding
periods. As a percentage of revenues, selling, general and administrative
expenses increased from 24.5% in 1996 to 25.7% in 1997. This increase was
primarily
33
<PAGE>
attributable to a decrease in revenues from truck sales without a commensurate
decrease in selling, general and administrative expenses related to truck sales.
COOK BROTHERS LIQUIDITY AND CAPITAL RESOURCES
Cook Brothers used $1.2 million of net cash from operating activities for
the nine months ended March 31, 1998. Net cash used in investing activities was
$1.9 million primarily to purchase $1.0 million of property and equipment and to
acquire additional facilities in Scranton, Pennsylvania and Wilkes Barre,
Pennsylvania for $1.2 million. Net cash provided by financing activities was
$3.8 million, primarily representing additional borrowings of debt. As of March
31, 1998, Cook Brothers had working capital of $2.3 million and total debt of
$16.8 million.
Cook Brothers generated $0.7 million net cash from operating activities for
the year ended June 30, 1997. Net cash used in investing activities was $0.7
million, primarily to purchase property and equipment. Net cash provided by
financing activities was $0.1 million, primarily representing proceeds from
debt. As of June 30, 1997, Cook Brothers had working capital of $8.7 million and
debt of $13.0 million.
PLAZA FLEET PARTS -- RESULTS OF OPERATIONS
Plaza, headquartered in St. Louis, Missouri, was founded in 1946 and serves
customers principally in Missouri, Illinois, Colorado and Tennessee. Plaza
primarily distributes commercial vehicle parts and also performs installation
and maintenance services and relines brake shoes.
THREE MONTHS ENDED MARCH 31,
------------------------------------------
1997 1998
-------------------- --------------------
(DOLLARS IN THOUSANDS)
Revenues............................ $ 5,163 100.0% $ 5,829 100.0%
Cost of sales....................... 3,413 66.1 3,887 66.7
--------- --------- --------- ---------
Gross profit........................ 1,750 33.9 1,942 33.3
Selling, general and administrative
expenses.......................... 1,405 27.2 1,521 26.1
--------- --------- --------- ---------
Income from operations.............. $ 345 6.7% $ 421 7.2%
========= ========= ========= =========
PLAZA RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1997
REVENUES. Revenues increased $0.6 million, or 12.9%, from $5.2 million in
the three months ended March 31, 1997 to $5.8 million in the corresponding
period in 1998. This increase was primarily attributable to $0.3 million of
sales from a parts distribution center acquired in February 1998.
GROSS PROFIT. Gross profit increased $0.2 million, or 11.0%, from $1.7
million in the three months ended March 31, 1997 to $1.9 million in the
corresponding period in 1998. As a percentage of revenues, gross profit
decreased from 33.9% in the 1997 period to 33.3% in the 1998 period. This
decrease was primarily attributable to lower gross profits on revenues generated
from the parts distribution center acquired in February 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 8.3%, from $1.4 million in
the three months ended March 31, 1997 to $1.5 million in the corresponding
period in 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 27.2% in the 1997 period to 26.1% in the 1998 period.
This decrease was primarily attributable to an increase in revenues without a
commensurate increase in selling, general and administrative expenses.
PLAZA LIQUIDITY AND CAPITAL RESOURCES
Plaza generated $0.3 million of net cash from operating activities for the
three months ended March 31, 1998. Net cash used in investing activities was
$0.5 million, primarily to purchase property and equipment. Net cash provided by
financing activities was $0.2 million, representing additional borrowings of
debt. As of March 31, 1998, Plaza had working capital of $2.7 million and total
debt of $2.6 million.
34
<PAGE>
Plaza generated $0.3 million of net cash from operating activities for the
year ended December 31, 1997. Net cash used in investing activities was $0.3
million, primarily to purchase property and equipment. Net cash provided by
financing activities was $0.2 million, representing net changes in the line of
credit and long-term debt. As of December 31, 1997, Plaza had working capital of
$2.7 million and total debt of $2.5 million.
PERFECTION -- RESULTS OF OPERATIONS
Perfection, headquartered in Oklahoma City, Oklahoma, was founded in 1946
and serves customers principally in Oklahoma. Perfection primarily distributes
commercial vehicle parts and assembles specialty commercial vehicle equipment
and also performs installation and maintenance services.
The following table sets forth the historical results of operations for
Perfection:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------ ------------------------------------------
1996 1997 1997 1998
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 11,346 100.0% $ 11,925 100.0% $ 5,237 100.0% $ 10,627 100.0%
Cost of sales........................... 8,788 77.5 9,210 77.2 4,013 76.6 8,231 77.5
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit............................ 2,558 22.5 2,715 22.8 1,224 23.4 2,396 22.5
Selling, general and administrative
expenses.............................. 1,992 17.5 2,276 19.1 980 18.7 1,381 12.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations.................. $ 566 5.0% $ 439 3.7% $ 244 4.7% $ 1,015 9.6%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
PERFECTION RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO THE SIX
MONTHS ENDED MARCH 31, 1997
REVENUES. Revenues increased $5.4 million, or 102.9%, from $5.2 million in
the six months ended March 31, 1997 to $10.6 million in the corresponding period
in 1998. This increase was primarily attributable to a $4.8 million increase in
revenues associated with its equipment assembly business, $4.3 million of which
related to purchase orders with two oilfield service companies. In addition,
Perfection generated increased parts sales, including the sale of parts to a
major oilfield service company.
GROSS PROFIT. Gross profit increased $1.2 million, or 95.8%, from $1.2
million in the six months ended March 31, 1997 to $2.4 million in the
corresponding period in 1998. As a percentage of revenues, gross profit
decreased from 23.4% in the 1997 period to 22.5% in the 1998 period. This
decrease in the gross profit margin was primarily attributable to a change in
revenue mix toward the equipment assembly business in which Perfection typically
experiences lower margins in the early stages of the contract.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.4 million, or 40.9%, from $1.0 million in
the six months ended March 31, 1997 to $1.4 million in the corresponding period
in 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 18.7% in the 1997 period to 12.9% in the 1998 period.
This decrease was primarily attributable to a revenue increase without a
commensurate increase in selling, general and administrative expenses.
PERFECTION RESULTS FOR THE YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO THE YEAR
ENDED SEPTEMBER 30, 1996
REVENUES. Revenues increased $0.6 million, or 5.1%, from $11.3 million in
1996 to $11.9 million in 1997. This increase was primarily attributable to an
increase in the equipment assembly business.
GROSS PROFIT. Gross profit increased $0.1 million, or 6.1%, from $2.6
million in 1996 to $2.7 million in 1997. As a percentage of revenues, gross
profit increased from 22.5% in 1996 to 22.8% in 1997. This increase was
primarily attributable to $1.3 million of lower margin direct shipment equipment
sales in 1996 that was not repeated in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.3 million, or 14.3%, from $2.0 million in
1996 to $2.3 million in 1997. As a percentage of revenues,
35
<PAGE>
selling, general and administrative expenses increased from 17.5% in 1996 to
19.1% in 1997. This increase was primarily attributable to an increase in
owners' compensation and employee salaries and wages.
PERFECTION LIQUIDITY AND CAPITAL RESOURCES
Perfection used $0.8 million of net cash from operating activities for the
six months ended March 31, 1998. Net cash used in investing activities was $0.1
million, primarily to purchase property and equipment. Net cash provided by
financing activities was $0.9 million, primarily representing additional
borrowings of debt. As of March 31, 1998, Perfection had working capital of $3.1
million and total debt of $3.6 million.
Perfection generated $0.2 million of net cash from operating activities for
the year ended September 30, 1997. Net cash used in financing activities was
$0.2 million, representing primarily the purchase of treasury stock. As of
September 30, 1997, Perfection had working capital of $1.3 million and total
debt of $2.8 million.
DRIVE LINE -- RESULTS OF OPERATIONS
Drive Line, headquartered in Sunrise, Florida, was founded in 1988 and
serves customers nationally from its facility in Florida. Drive Line primarily
distributes commercial vehicle parts to OEMs and other end-users and military
vehicle parts to the United States military.
The following table sets forth the selected historical results of
operations for Drive Line:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------ ------------------------------------------
1996 1997 1997 1998
-------------------- -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 4,227 100.0% $ 5,997 100.0% $ 1,745 100.0% $ 1,719 100.0%
Cost of sales........................ 2,290 54.2 3,385 56.4 958 54.9 1,205 70.1
--------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 1,937 45.8 2,612 43.6 787 45.1 514 29.9
Selling, general and administrative
expenses........................... 1,008 23.8 1,530 25.6 376 21.6 486 28.3
--------- --------- --------- --------- --------- --------- --------- ---------
Income from operations............... $ 929 22.0% $ 1,082 18.0% $ 411 23.5% $ 28 1.6%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
DRIVE LINE RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 1997
REVENUES. Revenues remained relatively unchanged at $1.7 million in the
three months ended March 31, 1997 compared to the corresponding period in 1998.
Revenues from the sale of parts purchased from component manufacturers increased
while sales of surplus parts purchased from other sources decreased.
GROSS PROFIT. Gross profit decreased $0.3 million, or 34.6%, from $0.8
million in the three months ended March 31, 1997 to $0.5 million in the
corresponding period in 1998. As a percentage of revenues, gross profit
decreased from 45.1% in the 1997 period to 29.9% in the 1998 period. This
decrease was primarily attributable to the decline in sales of surplus parts
that typically have higher margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.1 million, or 29.2%, from $0.4 million in
the three months ended March 31, 1997 to $0.5 million in the corresponding
period in 1998. As a percentage of revenues, selling, general and administrative
expenses increased from 21.6% in the 1997 period to 28.3% in the 1998 period.
This increase was primarily attributable to an increase in owners' compensation.
DRIVE LINE RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1996
REVENUES. Revenues increased $1.8 million, or 41.9%, from $4.2 million in
1996 to $6.0 million in 1997. This increase was primarily attributable to a $1.3
million increase in sales of parts from one of its primary vendors.
GROSS PROFIT. Gross profit increased $0.7 million, or 34.8%, from $1.9
million in 1996 to $2.6 million in 1997. As a percentage of revenues, gross
profit decreased from 45.8% in 1996 to 43.6% in 1997. This
36
<PAGE>
decrease was primarily attributable to a $1.3 million increase in sales of one
product line which has a relatively lower gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.5 million, or 51.8%, from $1.0 million in
1996 to $1.5 million in 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 23.8% in 1996 to 25.6% in 1997. This
increase was primarily attributable to salaries for additional employees to
support the Company's growth and an increase in owner's compensation.
DRIVE LINE LIQUIDITY AND CAPITAL RESOURCES
Drive Line used $0.2 million of net cash from operating activities for the
three months ended March 31, 1998. Net cash used in investing activities was
$0.2 million, primarily to purchase property and equipment. Net cash provided by
financing activities was $0.4 million, primarily representing borrowings on
debt. As of March 31, 1998, Drive Line had working capital of $0.1 million and
total debt of $4.1 million.
Drive Line generated $0.9 million of net cash in operating activities for
the year ended December 31, 1997. Net cash used in investing activities was $1.2
million, primarily to purchase property and equipment. Net cash provided by
financing activities was $0.2 million, which represents proceeds from long-term
debt, net of repayments, of $1.2 million less distributions to shareholders in
the amount of $1.0 million. As of December 31, 1997, Drive Line had working
capital of $0.3 million and total debt of $3.7 million.
FOREIGN CURRENCY RATE FLUCTUATIONS
For the years ended December 31, 1995, 1996 and 1997, 3.6%, 6.6% and 8.3%,
respectively, of the Company's combined revenues were billed and collected in a
foreign currency. Substantially all of the expenses of operating the Company's
foreign subsidiary are incurred in a foreign currency. Consequently, the
Company's reported financial results are affected by fluctuations of foreign
currencies against the U.S. dollar. The Company periodically performs foreign
currency hedging to reduce its foreign currency transaction exposures. For the
years ended December 31, 1995, 1996 and 1997, currency rate fluctuations did not
have a material effect on the Company's financial position, results of
operations or cash flows.
SEASONALITY
The Company's business is seasonal in nature with revenues historically
running higher in the first quarter of each year than in the Company's fourth
quarter. However, in 1997 the Company's fourth quarter sales were approximately
9% higher than first quarter sales.
37
<PAGE>
BUSINESS
TransCom USA was founded in 1997 to become a leading national, value-added
independent distributor of replacement parts and supplies for Class III through
Class VIII commercial trucks, trailers and other types of specialized heavy duty
vehicles and equipment. Class III through Class VIII trucks range in size from
one-ton commercial vehicles to tractor-trailer combinations, and represent a $22
billion annual market for parts and repairs. Specialized heavy duty vehicles and
equipment include bulldozers, fork lifts, agricultural vehicles, airport
vehicles, government-operated vehicles and marine applications and represent a
significant additional market for parts and repairs. The Company believes that
this industry, which is generally referred to as the "heavy duty parts and
repair industry," includes approximately 14,100 participants in the United
States, consisting of 11,500 independent parts distributors and repair shops and
2,600 OEM-authorized dealerships. The Company intends to pursue aggressively the
consolidation of this highly-fragmented industry by combining a geographically
dispersed group of independent distributors offering a broad selection of
products and complementary services to a wide range of customers. Upon
consummation of this Offering, Transportation Components will acquire the nine
Founding Companies, which have been in business an average of 40 years and had
1997 pro forma revenues of $208 million.
The Company purchases heavy duty parts from component manufacturers,
inventories these parts in over 60 facilities across the United States and
Mexico and distributes them to over 18,000 customers. The Company also exports
heavy duty parts to customers located in countries in South and Central America,
Southeast Asia and the Pacific Rim. The Company's customers include regional and
national private fleets operated by businesses such as Dowell Schlumberger
Corporation, Browning-Ferris Industries, Inc., and Waste Management, Inc. and
common carrier and rental fleets, including United Parcel Service of America,
Inc., Roadway Package System, Inc. and U-Haul International, Inc. The Company
also distributes parts to independent repair shops, resellers, municipal and
other government entities, speciality OEMs and other end users.
The Company's comprehensive product line includes a broad selection of
parts for braking systems and suspension and steering systems, as well as axles,
wheels and rims, trailer parts, drive train components, hydraulic components and
engine parts. The useful lives of the parts range from those of brake pads and
filters, which are replaced at frequently scheduled intervals, to those of
transmissions and engines that have relatively lengthy useful lives and can be
remanufactured several times to or near original equipment specifications. The
parts are installed in vehicles such as tractor-trailers, construction vehicles,
waste disposal trucks, buses and light duty trucks. The Company maintains a
large volume and wide selection of inventory, thereby increasing customers'
accessibility to parts and assisting the Company in meeting its goal of serving
its customers on a same-day basis. As a result of its broad product selection,
the Company believes that it has established a reputation with its customers as
being more likely than its competitors to have in stock the parts requested by
the customer. To complement its parts distribution business, the Company also
provides customers with value-added services, such as parts installation and
repair, fleet maintenance management, training, machine shop services and
remanufacturing.
The Company seeks to enable its customers to reduce expenses by reducing
material and labor costs, decreasing capital required for parts inventory and
minimizing lost productivity and costs attributable to vehicle and equipment
breakdowns. The Company believes that the combination of its comprehensive
product line, wide array of value-added services and national and international
distribution capabilities provide it with a competitive advantage over other
independent distributors and OEM-authorized dealerships.
INDUSTRY OVERVIEW
The heavy duty parts and repair industry consists of: (i) component
manufacturers, (ii) OEMs and OEM-authorized dealerships, (iii) independent
distributors and (iv) repair shops and other end users. Component manufacturers
produce parts for original and replacement use in heavy duty vehicles and
equipment. OEMs assemble heavy duty vehicles and equipment using parts purchased
from component manufacturers and sell the assembled products through
OEM-authorized dealerships. In addition, OEM-
38
<PAGE>
authorized dealerships service the customer-operated vehicles and equipment they
sell, and distribute replacement parts to end-user customers, generally during
the initial warranty period. Independent distributors often have a larger
inventory and wider selection of products available to customers than the
typical OEM-authorized dealership. In fact, OEM-authorized dealerships often
purchase out-of-stock heavy duty parts from independent distributors.
The loss of productivity and costs associated with the breakdown of
commercial vehicles and equipment operated by most customers of independent
distributors make timely access to a broad selection of replacement parts
essential. To service these customers, independent distributors typically carry
a large volume of inventory, including parts from many different component
manufacturers, to service a wide variety of vehicles and equipment. With the
size and depth of the inventory maintained, independent distributors strive to
deliver parts to customers on the same day on a more cost-effective basis. In
contrast, OEM-authorized dealerships typically inventory parts for use primarily
in vehicles assembled by their respective OEMs.
Moreover, independent distributors provide customers with replacement parts
not covered by the OEM warranty, either because the warranty period has expired
or the part was never covered by a warranty. The warranties provided for new
equipment sold by an OEM generally are "pass through" warranties from the
original component manufacturer for each major component. The length of the
warranty on covered components varies based on the reasonable expected useful
life of the component.
The heavy duty parts and repair industry currently is experiencing the same
trends that have influenced other distribution industries in favor of integrated
single-source suppliers, strategic alliances, supply chain management and
enhanced management information systems. These trends have led to shorter
delivery cycles, increased use of electronic data interchange ("EDI"),
"partnering" relationships with customers, expansion of product offerings,
vendor-managed inventory, the growth of regional and national accounts and other
types of value-added services to meet customer demand for more services from
their suppliers. In response, some independent distributors have developed
databases to track the scheduled maintenance of customer-operated vehicles or
fleets and arrange to deliver when required the parts necessary to perform
scheduled maintenance procedures. Some independent distributors have also
installed sophisticated EDI systems to automate order entry, inventory tracking,
management and sourcing and delivery scheduling. Independent distributors are
increasingly committing the capital and resources necessary to develop and
maintain a large volume and wide selection of inventory at geographically
dispersed distribution sites, expand product offerings, implement management
information systems and pursue regional and national accounts. As a result, some
independent distributors have initiated acquisition programs to enable them to
increase the volume and selection of inventory, to expand product offerings and
to leverage their fixed costs.
BENEFITS OF CONSOLIDATION
Based on the experience of management of the Founding Companies, the number
of independent distributors and repair shops in the industry and the acquisition
activity in the industry, the Company believes that the heavy duty parts and
repair industry is in the early stages of consolidation. The Company believes
that most of the approximately 11,500 independent distributors and repair shops
in this industry are small, owner-operated businesses with limited access to the
capital required to develop and maintain a large volume and wide selection of
inventory, expand product offerings, implement advanced management information
systems and service regional and national accounts. In addition, the owners of
these businesses traditionally have not had a viable exit strategy, leaving them
with few attractive liquidity options. The Company believes that many of these
businesses are potential acquisition candidates.
The Company expects to be a leader in the consolidation of the heavy duty
parts and repair industry. As the first public company formed to pursue
aggressively the consolidation of this industry, the Company believes that it
will have significant acquisition opportunities. Additionally, the Company
believes that the consolidation of the industry will provide it with the
following benefits:
39
<PAGE>
PARTS PURCHASING. Independent distributors have historically negotiated
parts pricing directly with the component manufacturers and have been unable to
negotiate volume discounts as large as those made available to OEMs. In
response, a number of independent distributors have formed buying groups in an
effort to obtain greater volume discounts from component manufacturers. Although
buying groups have been successful in achieving a moderate level of volume
discounts, each member's decision to purchase parts through its affiliated
buying group is voluntary. As a result, buying groups have not been able to
leverage the full purchasing power of their combined members. The Company
believes that a large, public independent distributor with national and
international operations will be able to negotiate volume discounts from
component manufacturers at least as great as those available to buying groups.
DISTRIBUTION AND OPERATING EFFICIENCIES. The Company believes the
consolidation of commonly-owned locations within a geographical area will
provide distribution efficiencies, including (i) more cost-effective delivery of
products from component manufacturers to independent distributors, (ii)
leveraged regional management of individual locations and (iii) a greater
availability of products enabling more timely delivery of products to customers.
In addition, the consolidation of independent distributors will enable companies
to make capital and personnel investments in advanced management and logistics
systems that could not be justified or afforded on an individual location basis.
As an example, the Company intends to install a common management information
system among the Founding Companies and subsequently acquired businesses to
track and manage inventory, connect with customers and suppliers on a real time
basis and provide on-line cataloging. The Company expects measurable cost
savings in such areas as vehicle leasing and maintenance and information
systems. Moreover, the Company intends to review the Founding Companies'
operating and training programs and those of subsequently acquired businesses to
identify those "best practices" that can be successfully implemented
throughout its operations. The Company also believes that there are significant
opportunities to improve operating margins by consolidating administrative
functions such as inventory financing, marketing, insurance, employee benefits,
accounting and risk management.
NATIONAL SALES AND MARKETING. The Company expects the consolidation of the
heavy duty parts and repair industry to result in increased opportunities to
market itself to regional and national fleets as a single source parts provider.
Currently, independent distributors are constrained from supplying some fleets
because of the need for distribution centers in all parts of the United States
to meet customer expectations for rapid delivery times. The Company believes
that its broad distribution capabilities will provide it with a competitive
advantage in pursuing single source provider relationships with regional and
national fleets.
CROSS-SELL PRODUCTS AND SERVICES. The Company also believes that the
Founding Companies and subsequently acquired businesses will benefit from
cross-selling opportunities to existing customers. Individual Founding Companies
and subsequently acquired businesses will be able to access additional component
brands, thereby expanding the range of brands available and increasing the
likelihood that existing customers will consider the Company to be a single
source provider. Moreover, the Company expects to be able to offer its customers
a warranty on parts sold and services provided that would be honored by any of
the Company's locations across the United States.
STRATEGY
The Company's objective is to be a leading national, value-added
independent distributor of replacement parts and supplies for commercial trucks
and trailers and other types of specialized heavy duty vehicles and equipment,
and to pursue aggressively the consolidation of the highly fragmented heavy duty
parts and repair industry. Management plans to achieve this goal by:
EXPANDING THROUGH ACQUISITIONS. The key elements of this strategy are:
ENTER NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets not currently served by the Founding Companies by
acquiring well-established value-added independent distributors that, like
the Founding Companies, are leaders in their regional markets. By expanding
into these markets, the Company intends to expand its national distribution
network. The Company also
40
<PAGE>
may pursue acquisition opportunities as a means to enter international
markets not currently served by the Company.
EXPAND WITHIN EXISTING GEOGRAPHIC MARKETS. The Company also plans to
acquire additional value-added independent distributors in many of the
markets in which it currently operates in order to expand the volume and
scope of the Company's operations in a particular market. The Company also
intends to pursue "tuck-in" acquisitions of smaller operations to improve
operating efficiencies and more effectively use its capital without a
proportionate increase in administrative costs.
ACQUIRE COMPLEMENTARY BUSINESSES. The Company intends to acquire
companies offering complementary services to those currently offered. This
will enable existing and future customers to obtain a broader range of
value-added services from the Company. The Company also intends to acquire
larger repair operations that will provide additional conduits for parts
sales.
OPERATING ON A DECENTRALIZED BASIS. The Company intends to manage the
Founding Companies and subsequently acquired companies on a decentralized basis,
with local management retaining responsibility for day-to-day operations,
profitability and growth of the business. The Company believes that, while
maintaining strong operating and financial controls, a decentralized structure
will retain the entrepreneurial culture present in each of the Founding
Companies and will allow the Company to capitalize on the considerable local and
regional market knowledge, goodwill, name recognition and customer relationships
possessed by each Founding Company and subsequently acquired business.
ACCELERATING INTERNAL SALES GROWTH. The key elements of this strategy are:
ESTABLISH NATIONAL MARKET COVERAGE. Based on the national fleet
service provided by one of the Founding Companies, the Company believes
that demand exists from larger fleets to utilize the services of
independent distributors capable of providing comprehensive services on a
regional or national basis. Many of the Founding Companies already provide
local or regional services to companies with nationwide locations. The
Company intends to market itself to these regional and national accounts as
a single-source, preferred provider for replacement parts and installation
and repair services.
CROSS-SELL AND EXPAND PRODUCTS AND SERVICES. The Company believes it
will be able to cross-sell the products and services it offers to its
customers by leveraging the specialized and diverse product, service and
marketing expertise of the individual Founding Companies. Additionally, the
Company believes that there are significant opportunities to accelerate
internal growth by making capital investments in areas such as inventory
management, logistics systems and other technology.
IMPROVING OPERATING MARGINS. The key elements of this strategy are:
ACHIEVE OPERATING EFFICIENCIES. The Company believes the
consolidation of commonly-owned locations within a geographical area will
provide distribution efficiencies, including (i) more cost-effective
delivery of products from component manufacturers to independent
distributors, (ii) leveraged regional management of individual locations
and (iii) a greater availability of products enabling more timely delivery
of products to customers. The Company intends to install a common
management information system among the Founding Companies and subsequently
acquired businesses to track and manage inventory, connect with customers
and suppliers on a real time basis and provide on-line cataloging. In
addition, the Company expects measurable cost savings in such areas as
parts purchasing, vehicle leasing and maintenance and information systems.
Moreover, the Company intends to review its operating and training programs
among the Founding Companies and subsequently acquired businesses to
identify those "best practices" that can be successfully implemented
throughout its operations.
CENTRALIZE APPROPRIATE ADMINISTRATIVE FUNCTIONS. The Company believes
that there are significant opportunities to improve operating margins by
consolidating administrative functions such as inventory financing,
marketing, insurance, employee benefits, accounting and risk management.
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<PAGE>
ACQUISITION PROGRAM
The Company believes it will be regarded by acquisition candidates as an
attractive acquiror because of: (i) the Company's strategy for creating a
regional and national distribution network and providing cross-selling
opportunities, (ii) the Company's decentralized operating strategy that
emphasizes an ongoing role for owners, management and key personnel of acquired
businesses, (iii) the opportunity for meaningful equity positions in the Company
for the owners of acquired businesses, thereby allowing them to participate in
the Company's growth, (iv) the Company's increased visibility and its access to
financial resources as a public company and (v) the potential for increased
profitability and sales of the acquired company through access to capital to
maintain a large volume and wide selection of inventory at geographically
dispersed distribution sites, expand product offerings, implement management
information systems and pursue regional and national accounts.
The principals of certain of the Founding Companies have substantial
experience in the industry, have leadership roles in the Council of Fleet
Specialists, the major industry trade organization, and ViPar, Truck Pride and
HD America, the major industry buying groups, and are personally acquainted with
the owners of numerous acquisition targets. Within the past several months, the
Company has contacted the owners of a number of acquisition candidates, several
of whom have expressed interest in having their businesses acquired by the
Company. The most important criteria for choosing an acquisition candidate will
be (i) the candidate's sales and profitability, (ii) the caliber of the
candidate's management and sales personnel, (iii) the market area, customer base
and expansion potential of the candidate, (iv) the value-added services offered
by the candidate and (v) the brands of parts carried by the candidate. The
Company currently has no agreements to effect any acquisitions other than the
acquisition of the Founding Companies.
As consideration for future acquisitions, the Company intends to use
combinations of its Common Stock, cash and notes. The consideration for each
future acquisition will vary on a case-by-case basis, with the major factors in
establishing the purchase price being historical operating results, future
prospects of the candidate and the ability of the candidate to complement the
products and services offered by the Company. The Company has received a
commitment for a credit facility of $75.0 million for working capital and
acquisitions which is expected to be available upon the closing of this
Offering. Within 90 days following the completion of this Offering, the Company
intends to register up to 10,000,000 additional shares of Common Stock under the
Securities Act for its use in connection with future acquisitions. The Company
believes that it can structure its larger acquisitions as tax-free
reorganizations by using its Common Stock as consideration, which will be
attractive to those acquisition candidates with a low tax basis in the stock of
their businesses.
OPERATIONS AND SERVICES
DISTRIBUTION AND RELATED SERVICES. The Company engages in the distribution
of replacement parts for commercial trucks and trailers and other types of
specialized heavy duty vehicles and equipment. The Company purchases heavy duty
parts from component manufacturers, inventories these parts in over 60
facilities across the United States and Mexico and distributes them to over
18,000 customers. The Company also exports parts and supplies to customers
located in Australia and New Zealand and countries in South and Central America
and Southeast Asia. The Company maintains a large volume and wide selection of
inventory, thereby increasing customers' accessibility to parts and assisting
the Company in meeting its goal of serving its customers on a same-day basis. As
a result of its broad product selection, the Company believes that it has
established a reputation with its customers as being more likely than its
competitors to have in stock the parts requested by the customer. To complement
its parts distribution business, the Company also provides customers with
value-added services, such as parts installation and repair, fleet maintenance
management, training, machine shop services and remanufacturing. The Company
seeks to enable its customers to reduce expenses by reducing material and labor
costs, decreasing capital required for parts inventory and minimizing lost
productivity and costs attributable to vehicle and equipment breakdowns.
42
<PAGE>
The Company's comprehensive product line includes a broad selection of
parts for braking systems and suspension and steering systems, as well as axles,
wheels and rims, trailer parts, drive train components, hydraulic components and
engine parts. The useful lives of the parts range from those of brake pads and
filters, which are replaced at frequently scheduled intervals, to those of
transmissions and engines that have relatively lengthy useful lives and can be
remanufactured several times to or near original equipment specifications. The
parts are installed in vehicles such as tractor-trailers, construction vehicles,
waste disposal trucks, buses, light duty trucks and other types of specialized
vehicles and equipment. The Company also provides parts for various types of
off-road vehicles and equipment that support the oil field service,
construction, mining, timber and agriculture industries as well as the United
States military and ground support for commercial airlines. In addition, the
Company sells parts for various industrial applications that use brakes,
clutches, cables and other components similar to those utilized in vehicles. The
Company provides customers with replacement parts not covered by the OEM
warranty, either because the warranty period has expired or the part was never
covered by a warranty. The warranties provided for new equipment sold by an OEM
generally are "pass through" warranties from the original component
manufacturer for each major component. The length of the warranty on covered
components varies based on the reasonable expected useful life of the component.
The Company's customers include regional and national private fleets
operated by businesses such as Dowell Schlumberger Corporation, Browning-Ferris
Industries, Inc. and Waste Management, Inc. and common carrier and rental
fleets, including United Parcel Service of America, Inc., Roadway Package
System, Inc. and U-Haul International, Inc. The Company also distributes parts
to independent repair shops, resellers, municipal and other government entities,
speciality OEMs and other end users. The Company's typical customer is a
regional fleet operator that operates from 10 to 100 trucks. Most of the trucks
in a typical customer's fleet experience frequent stop-and-go travel which
subjects vehicle parts to heavier wear and leads to more frequent repair and
replacement. The Company has a diverse customer base of more than 18,000
customers, with no single customer accounting for more than 2% of the Company's
pro forma revenues in 1997.
Most of the Founding Companies have a fleet of vehicles to deliver parts
directly to customers. For typical customers, the Company will make one or more
daily scheduled stops for delivery of ordered parts and pick-up of worn parts
for repair. If a customer makes infrequent purchases, a requested stop will be
added to the regular routes of the Company's vehicles. If a customer requests
expedited service, the Company will provide special delivery services.
In addition to its broad selection of parts for distribution, the Company
provides the following value-added distribution services:
o The Company acts as a distributor for component manufacturers
interested in outsourcing the distribution of a low-volume or
discontinued item. In exchange for purchasing the annual production
(in the case of low-volume components) or last-call production (in the
case of discontinued components), the Company obtains a significant
purchase discount.
o The Company offers fleet maintenance management services in which it
develops a customized database to record all the component parts used
on the individual vehicles in a customer's fleet to enable the Company
to provide a replacement part on a timely basis.
o The Company supplies specialty OEMs with assemblies of component parts
on a just-in-time basis.
o The Company acts as a just-in-time inventory supplier for one of its
national fleet customers by warehousing frequently needed parts, such
as brake repair kits, and shipping these parts upon request to the
fleet's various maintenance centers.
To complement their parts distribution business, several of the Founding
Companies provide commercial vehicle parts installation and repair services.
These Founding Companies employ mechanics and technicians who can diagnose
needed repairs and make the repairs using parts inventoried by the Company. As
part of its value-added services, the Company offers machine shop services to
repair and rebuild parts for customers. In some cases, the Company can advise
the customer when particular vehicles need
43
<PAGE>
scheduled maintenance. The Company believes this full service capability
provides savings to its customers enabling its customers to reduce expenses by
reducing material and labor costs, and to minimize lost productivity and costs
attributable to vehicle and equipment breakdowns. These full service
capabilities have resulted in instances where fleets have outsourced their
entire maintenance operations to the Company. The maintenance services can be
provided on-site at a customer's facility or at the Company's facilities.
Several of the Founding Companies have facilities to remanufacture parts
for sale to customers. In these operations, the Founding Company takes in
damaged or worn parts and remanufactures these parts. When complete, the
remanufactured part meets either the original specifications or specifications
acceptable to the customer and is resold at a discount to new parts with a
warranty specified by the Company. The Company remanufactures brakes,
turbochargers, drive axles, transmissions and steering gears. The sale of parts
remanufactured by the Company accounts for approximately 5% of the revenues of
the Company and a proportionate amount of cost of sales. The Company generally
provides a six month to one year warranty on parts it remanufactures.
COMPLEMENTARY SERVICES. In addition to their distribution businesses, some
of the Founding Companies have historically been involved in niche businesses.
One of the Founding Companies, Perfection, contracts with customers to assemble
specialty truck beds and trailers for vehicles such as oil field service trucks.
Perfection begins with a truck cab and chassis or a trailer chassis built by an
OEM. Pursuant to the customer's specifications, Perfection obtains specialized
equipment from various manufacturers and assembles it onto the truck bed or
trailer. After assembly and delivery of the new specialty trucks and trailers,
Perfection continues to provide replacement parts and service to these
customers. Another of the Founding Companies, Cook Brothers, has a Mack truck
dealership through which Cook Brothers offers new and used Mack trucks for sale
and provides service and parts. Additionally, Carter distributes auto parts as
part of its Hawaii operations. Other Founding Companies purchase truck
accessories such as mirrors, hitches and bed caps and liners for sale to
commercial fleets and to "over-the-counter" customers. The Company intends to
continue operating these businesses and to assess whether opportunities exist to
expand these operations into the Company's other operating locations and
subsequently acquired businesses.
The following table sets forth information on parts distribution and other
services offered by each Founding Company:
<TABLE>
<CAPTION>
<S> <C>
COOK DRIVE GEAR &
AMPARTS CARTER BROTHERS LINE WHEEL PERFECTION PLAZA TCC
------- ------ -------- ----- ------ ---------- ----- ---------
Distribution of Parts
Braking Parts................... x x x x x x x x
Axles........................... x x x x x x x
Wheels and Rims................. x x x x x x
Suspension and Steering System
Parts......................... x x x x x x x x
Drive Train Components.......... x x x x x
Engine Parts.................... x x x x x x
Hydraulic Components............ x x x x x x x
Installation/Repair.................. x x x x x x
Remanufacturing...................... x x x x x
Fleet Maintenance Management......... x x x x x
Distribution for National Fleets.....
Mack Truck Dealerships............... x
Truck Accessories.................... x x x x x x x
Automobile Parts..................... x
Assembly of Specialized Equipment.... x
</TABLE>
UNIVERSAL
---------
Distribution of Parts
Braking Parts................... x
Axles........................... x
Wheels and Rims................. x
Suspension and Steering System
Parts......................... x
Drive Train Components.......... x
Engine Parts.................... x
Hydraulic Components............
Installation/Repair.................. x
Remanufacturing...................... x
Fleet Maintenance Management.........
Distribution for National Fleets..... x
Mack Truck Dealerships...............
Truck Accessories.................... x
Automobile Parts.....................
Assembly of Specialized Equipment....
44
<PAGE>
SUPPLIERS
The Company purchases heavy duty parts directly from over 300 component
manufacturers. During 1997, the Company purchased no more than six percent of
its heavy duty parts from any single source. Several of the Founding Companies
are members of either ViPar, Truck Pride or HD America, the major industry
buying groups. By participating in these buying groups, these Founding Companies
have been able to obtain volume discounts from component manufacturers.The
Company may not be eligible to participate in buying groups following the
consummation of the Offering and the Mergers; however, the Company believes that
it will purchase heavy duty parts in sufficient quantities to permit it to
obtain volume discounts from component manufacturers at least as great as those
available to buying groups. The Company believes it is not materially dependent
on any one of its suppliers for heavy duty parts and that its relations with its
suppliers are good.
SALES AND MARKETING
The Company believes that its commitment to consistent quality, service and
availability of parts has enabled it to develop and maintain long-term
relationships with existing customers, while expanding its market penetration
through its sales and marketing program. The Company's sales and marketing
program focuses on the identification of fleets and other end-users that could
benefit from the Company's broad selection of parts and large inventory and that
could achieve significant cost savings through the use of the Company's
value-added services. The Company uses a variety of methods to identify these
target customers, including the utilization of databases, telemarketing, direct
mail and participation in industry trade shows. Customer referrals and the
knowledge of the Company's sales force about regional end-users also result in
the identification of target customers. Once a target customer is identified,
the Company's outside salespeople assume responsibility for visiting the
appropriate person at the target, typically the fleet director or the parts
manager.
The Company employs a sales force consisting of "inside" and "outside"
salespeople. "Inside" salespeople are primarily responsible for maintaining
customer relationships, receiving and soliciting individual orders and
responding to service and other inquiries by customers. The Company's
"outside" sales force is primarily responsible for identifying target
customers and calling on them to explain the Company's services. The sales force
is trained and knowledgeable about parts as well as the value-added services
offered by the Company. The Company believes that its high level of interaction
with its customers provides it with meaningful feedback and information about
sales opportunities.
In 1997, the Company served over 18,000 customers, with no one customer
representing more than 2% of sales.
COMPETITION
The Company is engaged in a highly-fragmented and competitive industry. The
principal competitive factors are availability and quality of parts, services
and price. The Company competes with a large number of independent distributors
on a regional and local basis, some of which may have greater financial
resources than the Company, and several of which are public companies.
Independent distributors are facing increased competition from OEMs and
OEM-authorized dealerships who offer many of the same parts to owners of
vehicles and fleets, particularly during the warranty period. Freightliner
Corporation, an OEM, has formed a subsidiary, Alliance, to provide heavy duty
parts and service for all brands of trucks in the aftermarket. The Company also
competes with OEM-authorized dealerships such as Navistar, Freightliner, Mack,
PACCAR and Volvo. OEM-authorized dealerships typically sell parts to customers
who have purchased vehicles from their dealerships in addition to pursuing the
aftermarket in competition with the Company. Certain OEMs have introduced, on a
limited basis, offers for lifetime service contracts on trucks. The effect of
these contracts is to motivate truck owners to return to OEM-authorized
dealerships for parts and repair services. Lifetime service contracts could
limit the size of the parts and repair aftermarket in which the Company
currently competes. The members of NAPA comprise a network of locations that
compete with the Company primarily for "over-the-counter" parts sales. In
addition, certain owners of leased fleets have increased their capacity to
provide leased vehicles and ancillary fleet services to
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<PAGE>
businesses requiring a private fleet for their operations. Owners of leased
fleets may have sufficient purchasing leverage to purchase replacement parts
directly from component manufacturers or to negotiate larger volume discounts
from independent distributors. The expanded use of leased fleets to replace
private fleets owned and operated by businesses could have an adverse effect on
the demand for the parts and services offered by the Company or on the profit
margins of the Company. The Company's existing and new competitors may have
lower overhead cost structures and may be able to provide their parts and
services at lower rates than those of the Company. Moreover, certain of the
Company's competitors and potential competitors may have greater financial
resources than the Company to finance acquisition and development opportunities,
to pay higher prices for those opportunities or to develop and support their own
heavy duty parts distribution and repair operations. Consequently, the Company
may encounter significant competition in its efforts to achieve both its
acquisition and internal growth objectives as well as its operating strategy to
increase the profitability of the Founding Companies and subsequently acquired
businesses.
The Company may face competition for acquisition candidates, particularly
from those companies that have announced or intend to pursue an integration
strategy. Autozone, Inc. recently acquired TruckPro, an independent distributor
of heavy duty parts based in Arkansas, and may continue to enter other markets
through acquisitions or DE NOVO operations. The Company is aware of at least two
other parties who are attempting to acquire independent distributors and pursue
a consolidation strategy. In addition, one of the industry buying groups, HD
America, has stated an intention to purchase businesses engaged in the heavy
duty parts and repair industry. Additional public or private companies may
become competitors of the Company in the future. Certain of these competitors
and potential competitors may have greater financial resources than the Company
to finance acquisitions, pay higher prices for companies or develop and support
new locations. This competition may limit the number of acquisition
opportunities available to the Company and lead to higher acquisition prices.
The Company believes that the combination of its comprehensive product
offerings, wide array of value-added services and national and international
distribution capabilities provide it with a competitive advantage over other
independent distributors and OEM-authorized dealerships. The Company intends to
seek to differentiate itself from its competition in terms of service and
quality by investing in information systems and the modernization of equipment
and by offering a broad range of parts and services as well as through its
entrepreneurial culture and decentralized operating structure.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to a number of federal, state and
local regulations relating to the protection of the environment and to workplace
health and safety. In particular, the Company's operations are subject to
extensive federal, state and local laws and regulations governing waste
disposal, air emissions, water discharges, the handling of hazardous substances,
environmental protection, remediation, workplace exposure and other matters.
Hazardous materials the Company uses in its operations include various fuels,
solvents, cleaners, lubricants, and comparable materials commonly used in the
operation and servicing of vehicles and/or the remanufacturing of vehicle parts.
Improper disposal, spills or releases of such materials could result in
substantial liabilities to the Company including the cost of environmental
remediation.
The Company's management believes that the Company is in substantial
compliance with all such laws and does not currently anticipate that the Company
will be required to expend any substantial amounts in the foreseeable future in
order to meet current environmental or workplace health and safety requirements.
A number of facilities affiliated with the Company are located in industrialized
areas and the Company cannot rule out the possibility that the operations of
predecessors at such facilities or the current or former activities at
neighboring facilities have resulted in contamination potentially affecting
those facilities. Prior to entering into the agreements relating to the Mergers,
the Company evaluated the properties owned or leased by the Founding Companies
and engaged an independent environmental consulting firm to conduct or review
assessments of environmental conditions at these properties.
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<PAGE>
MANAGEMENT INFORMATION SYSTEMS; YEAR 2000
Each of the Founding Companies operates a management information system
that is used to purchase, monitor and allocate inventory throughout its
distribution facilities. The Company believes that these systems enable it to
manage inventory effectively and to achieve appropriate inventory turnover
rates. Many of these systems also include computerized order entry, sales
analysis, inventory status, bar-code tracking, invoicing and payment. These
systems are designed to improve productivity for both the Company and its
customers. Most of the Founding Companies use EDI, through which they offer
their customers a paperless process for order entry, shipment tracking, customer
billing, remittance processing and other routine matters.
The Company intends to install a common management information system among
the Founding Companies and subsequently acquired businesses to track and manage
inventory, connect with customers and suppliers on a real time basis and provide
on-line cataloging. The Company anticipates that the system it adopts on a
Company-wide basis will be designed to address the Year 2000 issues associated
with computer systems that use only two digits to identify a year in the date
field. These issues include not only the possibility of computer system failure
or erroneous results by or at the Year 2000, but also the necessity of
coordinating with the computer systems of the Company's suppliers, customers,
lenders and other parties with which the Company does business.
EMPLOYEES
As of December 31, 1997, the Founding Companies employed a total of 989
persons. Of these employees, 190 were in administration, 323 were in sales and
476 were in service and warehousing. The Company believes the expertise of its
sales force is a competitive advantage. Unlike automobiles that are manufactured
to standard models, trucks are manufactured to individual specification. A sales
person must be familiar with the various brands and specifications for truck
parts to determine properly a customer's parts needs. This knowledge and
expertise is generally gained through on-the-job training.
In the U.S., approximately 53 employees at two sites were members of the
Aerospace Workers AFL-CIO, the Automotive, Petroleum and Allied Industries
Employee Union Local 618 or the Hawaii Teamsters and Allied Workers Local 996.
In Mexico, approximately 55 employees at six sites were members of the Sindicato
de Trabajadores del Comericio e Industria y Similares de Jalisco. The Company's
relationship with these unions generally has been satisfactory. The Company
currently is a party to four collective bargaining agreements which expire at
various times from 1998 to 2000. Collective bargaining agreements expiring in
1998 cover 15 employees. Historically, the Founding Companies have succeeded in
negotiating new collective bargaining agreements without a strike.
From time to time, there are shortages of qualified service technicians and
sales staff. In addition, turnover among less skilled workers is relatively
high. Following the Mergers, the Company intends to adopt "best practices" for
its employee benefits programs and human relations functions.
The Company believes it will be able to attract and retain quality
employees by providing them (i) an enhanced career path as a result of working
for a larger public company, (ii) additional training, education and
apprenticeships to allow talented employees to advance to higher-paying
positions, (iii) the opportunity to realize a more stable income and (iv)
improved benefits packages.
RECRUITING, TRAINING AND SAFETY
The Company's future success will depend, in part, on its ability to
continue to attract, retain and motivate qualified employees. The Company
believes that its success in retaining qualified employees will be based on the
quality of its recruiting, training, compensation, employee benefits programs
and opportunities for advancement. The Company recruits at local technical
schools, community colleges and universities and provides on-the-job training,
improved benefit packages, steady employment and opportunities for advancement.
The Company intends to establish "best practices" throughout its
operations to ensure that all employees comply with safety standards established
by the Company, its insurance carriers and federal,
47
<PAGE>
state and local laws and regulations. The Company's employment screening process
seeks to determine that prospective employees have the requisite skills,
sufficient background references and acceptable driving records, if applicable.
The Company believes that these employment criteria effectively identify
potential employees committed to safety and quality.
FACILITIES AND VEHICLES
The Company operates 63 heavy duty parts and repair facilities in the U.S.
and six facilities in Mexico, of which two are owned by the Company and the
balance are leased. These facilities are used to receive and ship parts and
provide related services. Many of the Company's facilities are capable of being
utilized at higher capacities, if necessary. The Company believes that its
facilities will be adequate for its expected needs over the next several years.
See "Certain Transactions."
The following table sets forth the geographic locations of the Company's
heavy duty parts and repair facilities in the United States and Mexico:
STATE/COUNTRY CITY
- ----------------------------------------------------------
Arizona Phoenix
California Fremont, Los Angeles(2), Oakland,
Placentia, Rialto, San Francisco, San
Jose and Stockton
Colorado Denver
Florida Dayton, Miami, Ocala(2), Orlando,
Sunrise and Tallahassee
Hawaii Honolulu(3) and Kauai(2)
Illinois Litchfield
Indiana Martinsville
Iowa Des Moines
Minnesota Brainerd, Eagan, Mahtomedi, Red Wing,
St. Paul(2) and Wauwatosa
Missouri Columbia, Kansas City, Rolla and St.
Louis(3)
STATE/COUNTRY CITY
- ----------------------------------------------------------
Nevada Las Vegas and Sparks
New York Binghamton, Deposit, Elmira, Homer,
Rochester, Syracuse, Troy, Utica and
Watertown
North Dakota Fargo
Oklahoma Oklahoma City(2)
Pennsylvania Kingston, Pittston and Scranton
South Dakota Sioux Falls
Tennessee Memphis
Texas Laredo
Washington Vancouver
Wisconsin Appleton, Black River Falls and
Milwaukee
Mexico Aguascalientes, Caliacan, Cordova,
Guadalajara, Mexico City and Monterey
The Company operates a fleet of approximately 235 owned or leased trucks,
trailers and other support vehicles. It believes these vehicles generally are
well-maintained and adequate for the Company's current operations. The Company
expects it will be able to purchase or lease vehicles at lower prices due to its
combined purchasing and leasing volume.
RISK MANAGEMENT AND INSURANCE
The primary risks in the Company's operations are bodily injury, property
damage and injured workers' compensation. Upon completion of this Offering, the
Company intends to obtain and maintain liability insurance for bodily injury and
third-party property damage and workers' compensation coverage which it
considers sufficient to insure against these risks, subject to self-insured
amounts. The Company currently maintains and intends to continue maintaining
workers' compensation insurance policies that provide "first dollar" coverage.
LEGAL PROCEEDINGS
In March 1995, Drive Line and two of its officers and controlling persons,
James R. Davis and Joseph P. Akra, pled guilty to one felony count of submission
of a false document to the Defense Logistics Agency of the United States
government. Drive Line paid a fine of $200,000 and Mr. Davis and Mr. Akra each
paid a fine of $2,500 in satisfaction of the judgments against them. The
violation occurred during 1989 in the course of a transaction between Drive Line
and the Defense Logistics Agency involving heavy duty parts
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<PAGE>
valued at approximately $6,200. Drive Line remains a vendor to the United States
government and derives approximately 15% of its revenues from parts sales to the
United States government. Mr. Davis and Mr. Akra are currently executive
officers of Drive Line and will continue to serve in those capacities following
the consummation of the Offering.
The Company is, from time to time, a party to litigation arising in the
ordinary course of its business, most of which involves claims for personal
injury or property damage incurred in connection with its operations. The
Company is not currently involved in any litigation that the Company believes
either individually or in the aggregate will have a material adverse effect on
its financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- ---- ----------------------------------------------------
<S> <C>
T. Michael Young..................... 53 Chairman of the Board, Chief Executive Officer and
President
J. David Gooch....................... 60 Executive Vice President, Chief Development Officer
and Director
Louis J. Boggeman, Jr................ 44 Senior Vice President, Chief Operating Officer,
President of Plaza and Director*+
Hugh H. N. "Mac" McConnell, Jr....... 44 Senior Vice President, Chief Financial Officer and
Director
Paul E. Pryzant...................... 42 Senior Vice President, General Counsel and Secretary
Daniel T. Bucaro..................... 37 Senior Vice President--Merchandising
Henry B. Cook, Jr.................... 50 Vice President--Purchasing, President of Cook
Brothers and Director*+
Wayne S. Rachlen..................... 41 Vice President--Corporate Development
Marlise C. Skinner................... 36 Vice President and Controller
Louie A. Hamilton.................... 49 Vice President and Treasurer
Thomas A. Work....................... 52 President of Carter, Director*
Peter D. Lund........................ 45 President of TCC, Director*
Everett W. Petry..................... 61 President of Gear & Wheel, Director*
Rodolfo A. Duemichen................. 41 President of Amparts, Director*
Ronald G. Short...................... 39 President of Universal, Director*
Maura L. Berney...................... 35 Chairman of the Board and Vice President-- Finance
and Administration of Perfection, Director*
John R. Oren......................... 46 Director
Lawrence K. King..................... 41 Director*
I.T. "Tex" Corley.................... 53 Director*
- ------------
</TABLE>
* Election as a director of the Company effective as of the consummation of this
Offering.
+ Appointment as an officer of the Company effective as of the consummation of
this Offering.
T. Michael Young has served as Chairman of the Board, Chief Executive
Officer and President of the Company since February 1998. From October 1987
until its acquisition by O'Reilly Automotive, Inc. in February 1998, Mr. Young
served as Chairman of the Board, Chief Executive Officer and President of Hi-Lo
Automotive, Inc. ("Hi-Lo Automotive"), a publicly-traded retail and commercial
auto parts company. From May 1984 to May 1987, Mr. Young was Vice Chairman of
Jerold B. Katz Interests, Inc. ("Jerold B. Katz Interests"), a privately-held
financial services company. From September 1980 to February 1984, Mr. Young was
Senior Vice President, Chief Financial Officer and a director of Weatherford
International Incorporated ("Weatherford International"), a publicly-traded
international oil field service company. Prior to that, Mr. Young was with
Arthur Andersen LLP, most recently as a partner from 1976 to 1980.
J. David Gooch has served as Executive Vice President, Chief Development
Officer and director of the Company since December 1997. Mr. Gooch was primarily
responsible for introducing the consolidation opportunity in the heavy duty
parts and repair industry to Notre and has been active in the development of
acquisition opportunities for the Company. From 1991 until the present Mr. Gooch
has been President of FleetServe, a company involved in maintenance services for
fleets of heavy-duty equipment. From January 1984 until 1990, Mr. Gooch served
as Senior Vice President and General Counsel for Service Corporation
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International, a publicly-traded funeral and cemetery service company. From 1983
to 1984, Mr. Gooch was a principal and investor in Texas Capitol Oil Company, a
privately-held oil and gas exploration and drilling company. From 1976 to 1982,
Mr. Gooch was Senior Vice President and General Counsel of Houston Oil &
Minerals Corporation, a publicly-traded company involved in domestic and
international development of oil, gas and hard rock minerals properties. From
1973 to 1976, Mr. Gooch was the Senior Vice President and General Counsel of
Field International Drilling Company, a privately-held company engaged in
international drilling activities. From 1966 to 1973, Mr. Gooch was Associate
Counsel for Gulf+Western Industries, a diversified publicly-traded company.
Louis J. Boggeman, Jr. will become Senior Vice President, Chief Operating
Officer and a director of the Company upon consummation of this Offering. Mr.
Boggeman has served as President of Plaza since 1992 and will continue in that
capacity after consummation of the Offering. Prior to that, Mr. Boggeman served
in various positions with Plaza. Mr. Boggeman is the current President of the
Council of Fleet Specialists, an independent industry association serving the
heavy duty parts industry.
Hugh H. N. "Mac" McConnell, Jr. has served as Senior Vice President,
Chief Financial Officer and a director of the Company since February 1998. From
December 1992 to February 1998, Mr. McConnell served as Chief Financial Officer
of Sterling Electronics Corporation, a publicly-traded electronic parts
distributor that was acquired by Marshall Industries, Inc. in January 1998. From
1990 to 1992, Mr. McConnell was Vice President-Finance of Interpak Holdings,
Inc., a publicly-traded company involved in packaging and warehousing
thermoplastic resins. From 1976 to 1990, Mr. McConnell served in various
capacities, including partner, with Ernst & Young LLP, an international public
accounting firm.
Paul E. Pryzant has served as Senior Vice President, General Counsel and
Secretary of the Company since March 1998. From December 1994 to March 1998, Mr.
Pryzant was a shareholder in the law firm of Snell & Smith, P.C. with a practice
specializing in corporate, securities and mergers and acquisitions. From January
1990 to November 1994, Mr. Pryzant was a partner in the law firm of Butler &
Binion, L.L.P.
Daniel T. Bucaro has served as Senior Vice President -- Merchandising of
the Company since February 1998. From August 1994 to February 1998, Mr. Bucaro
was employed by Hi-Lo Automotive, serving as Vice President of Merchandising
beginning in May 1996. From 1983 to July 1994, Mr. Bucaro served in various
capacities with The Goodyear Tire and Rubber Company, a publicly-traded company.
Henry B. Cook, Jr. will become Vice President -- Purchasing and a director
of the Company upon consummation of this Offering. Mr. Cook has been employed by
Cook Brothers since 1972, has served as its President since 1987 and will
continue in that capacity after consummation of this Offering.
Wayne S. Rachlen has served as Vice President -- Corporate Development
since April 1998. From October 1992 to April 1998, Mr. Rachlen held various
employment and consulting positions, including Vice President of Financial
Operations -- Eastern Group and Director of Mergers and Acquisitions, with
American Medical Response, Inc., a publicly-traded consolidator of the
healthcare transportation industry. From September 1989 to October 1992, Mr.
Rachlen held various financial and accounting positions with Allwaste, Inc. and
its subsidiaries, a publicly-traded environmental services company. Mr. Rachlen
is a certified public accountant.
Marlise C. Skinner has served as Vice President and Controller of the
Company since March 1998. From July 1996 to March 1998, Ms. Skinner was Director
of Financial Reporting for Corporate Express Delivery Systems, Inc., a
publicly-traded delivery service company ("Corporate Express"). From July 1994
to June 1996, Ms. Skinner was Assistant Controller of U.S. Delivery Systems,
Inc., which was acquired by Corporate Express ("U.S. Delivery"). From March
1988 to July 1994, Ms. Skinner was Controller of Eastway Delivery Service, Inc.,
a company acquired in a consolidation by U.S. Delivery. Ms. Skinner is a
certified public accountant.
Louie A. Hamilton has served as Vice President and Treasurer of the Company
since February 1998. From March 1996 to February 1998, Mr. Hamilton was a
consultant to Hi-Lo Automotive. From February 1988 to December 1995, Mr.
Hamilton was President of Karlithography, Inc., a privately-held commercial
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<PAGE>
printing company. From October 1985 to February 1988, Mr. Hamilton served as
Treasurer of Jerold B. Katz Interests. Prior to that, Mr. Hamilton was Treasurer
of Weatherford International.
Thomas A. Work will become a director of the Company upon consummation of
this Offering. Mr. Work has been employed by Carter since 1968, has served as
its President since 1984 and will continue in that capacity after consummation
of this Offering.
Peter D. Lund will become a director of the Company upon consummation of
this Offering. Mr. Lund has been employed by TCC since 1974, has served as
President of TCC since 1987 and will continue in that capacity after
consummation of this Offering.
Everett W. Petry will become a director of the Company upon consummation of
this Offering. Mr. Petry founded Gear & Wheel in 1981. He has served as
President of Gear & Wheel since 1981 and will continue in that capacity after
consummation of this Offering.
Rodolfo A. Duemichen will become a director of the Company upon
consummation of this Offering. Mr. Duemichen has been employed by Amparts since
1990, has served as President of Amparts since 1990 and will continue in that
capacity after consummation of this Offering.
Ronald G. Short will become a director of the Company upon consummation of
this Offering. Mr. Short has been employed by Universal since 1978, has served
as President since 1998 and will continue in that capacity after consummation of
this Offering.
Maura L. Berney will become a director of the Company upon consummation of
this Offering. Ms. Berney has been employed by Perfection since 1993, has served
as Chairman of the Board and Vice President -- Finance and Administration of
Perfection since 1997 and will continue in that capacity after consummation of
this Offering.
John R. Oren has served as a director of the Company since December 1997.
Since May 1997, Mr. Oren has been a Managing Director of Notre. From May 1994 to
May 1997, Mr. Oren served as Founder, Chief Acquisition Officer and Senior Vice
President-Corporate Development for U.S. Delivery. From May 1976 until its
acquisition by U.S. Delivery in May 1994, Mr. Oren served as Chairman of the
Board and Chief Executive Officer of Eastway Group of Companies.
Lawrence K. King will become a director of the Company upon the
consummation of this Offering. Since December 1995, Mr. King has served as
Senior Vice President, Chief Financial Officer and a director of Coach USA,
Inc., a publicly-traded consolidator of the motorcoach industry. From 1992 until
September 1995, Mr. King was Executive Vice President, Secretary, Treasurer and
Chief Financial Officer of SI Diamond Technology, Inc., a publicly-traded
technology development company. From 1988 to 1991, he served as Assistant
Secretary and Treasurer of The Permian Corporation, the general partner of
Permian Partners L.P., a publicly-traded crude oil, trucking, transportation and
distribution master limited partnership. From 1979 to 1988, Mr. King served in a
number of positions as a certified public accountant with Arthur Andersen LLP.
I. T. "Tex" Corley will become a director of the Company upon the
consummation of this Offering. Since August 1995, Mr. Corley has served as
Chairman and Chief Executive Officer of Strategic Materials, Inc., a
privately-held glass recycling company. From January 1997 to January 1998, Mr.
Corley was a director of MacFrugal's Bargains Close-Outs, Inc., a publicly-held
retail department store company that merged with Consolidated Stores, Inc. in
January 1998. From April 1990 to July 1995, Mr. Corley was employed by and a
director of Allwaste, Inc., a publicly-traded environmental service company,
serving first as Chief Financial Officer, then as Chief Operating Officer. From
April 1989 to April 1990, Mr. Corley was the President and Chief Executive
Officer of Medcon, Inc., a privately held medical waste disposal company.
Effective upon consummation of this Offering, the Board of Directors will
be divided into three classes of five, five and four directors, respectively,
with directors serving staggered three-year terms, expiring at the annual
meeting of stockholders in 1999, 2000 and 2001, respectively. At each annual
meeting of stockholders, one class of directors will be elected for a full term
of three years to succeed that class of
52
<PAGE>
directors whose terms are expiring. The Company's Certificate of Incorporation
permits the holders of the Restricted Common Stock to elect one director. Mr.
Oren is the director elected by the holders of the Restricted Common Stock. All
officers serve at the discretion of the Board of Directors.
The Board of Directors has established an Audit Committee, a Compensation
Committee, a Nominating Committee, an Executive Committee and an Acquisition
Committee. Effective upon consummation of this Offering, the members of the
Audit Committee will be Messrs. King and Corley and the members of the
Compensation Committees will be Messrs. Oren, King and Corley. The members of
the Executive Committee, the Nominating Committee and the Acquisition Committee
will be selected following the consummation of this Offering. The Executive
Committee will include at least one outside director and the Nominating
Committee will include three members, two of whom will be directors from the
Founding Companies.
DIRECTORS COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive 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). In addition, under the Company's 1998 Non-Employee Directors' Stock
Plan, each non-employee director will automatically be granted an option to
acquire 10,000 shares of Common Stock upon such person's initial election as a
director, and an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains as a director, unless such annual meeting is held within three months of
such person's initial election as a director. Each non-employee director also
may elect to receive shares of Common Stock or credits representing "deferred
shares" in lieu of cash directors' fees. See " -- 1998 Non-Employee Directors'
Stock Plan." Directors are also reimbursed for out-of-pocket expenses incurred
in attending meetings of the Board of Directors or committees thereof.
EXECUTIVE COMPENSATION, EMPLOYMENT AGREEMENTS, COVENANTS NOT-TO-COMPETE
The Company was incorporated in 1997, has conducted no operations, other
than those associated with this Offering, has generated no revenue to date and
will not pay any of its executive officers any compensation prior to the
consummation of this Offering. The Company anticipates that during 1998 its five
most highly compensated executive officers (other than those employed by a
Founding Company) will be Messrs. Young, Gooch, McConnell, Pryzant and Bucaro.
Each of Messrs. Young, Gooch, McConnell and Pryzant will enter into an
employment agreement with the Company upon consummation of this Offering
providing for an annual base salary of $150,000 and Mr. Bucaro will enter into
an employment agreement providing for an annual base salary of $120,000. Each
employment agreement will be for a term of three years (the "Initial Term"),
and, unless terminated or not renewed, the term will continue thereafter on a
year-to-year basis on the same terms and conditions existing at the time of
renewal. Each of these employment agreements will provide that, in the event of
termination of employment by the Company without cause, the employee will be
entitled to receive from the Company a lump sum payment equal to his
then-current salary for one year. In the event of a change in control of the
Company (as defined) that occurs more than one year after the consummation of
this Offering, the employee may elect to terminate his employment and receive in
one lump sum the amount equal to two times his annual base salary then in
effect. Each employment agreement contains a covenant not to compete with the
Company for a period of two years immediately following termination of
employment or, in the case of termination by the Company without cause or a
termination after a change in control, for a period of one year immediately
following termination of employment.
Each of Messrs. Boggeman, Cook, Work, Ketchum, Lund, Petry, Duemichen,
Davis, and Akra will enter into an employment agreement with his Founding
Company upon consummation of this Offering providing for an annual base salary
of $150,000. Additionally each of Messrs. Work and Ketchum will be issued
warrants to purchase 334,947 shares of Common Stock at a price of $8.42 per
share. Each employment agreement will be for a term of five years, and, unless
terminated or not renewed, the term will
53
<PAGE>
continue thereafter on a year-to-year basis on the same terms and conditions
existing at the time of renewal. Each employment agreement will provide that, in
the event of termination of employment by the Founding Company without cause or
a termination by the employee for Good Reason (as defined) during the first
three years of the employment term (the "Initial Term"), the employee will be
entitled to receive from the Founding Company an amount equal to his or her
then-current salary for the remainder of the Initial Term or for one year,
whichever is greater. In the event of termination of employment by the Company
without cause or a termination by the employee for Good Reason (as defined)
after the Initial Term, the employee will be entitled to receive from the
Founding Company an amount equal to his or her then current salary for one year.
In either case, payment is due in one lump sum on the effective date of
termination. In the event of a change in control of the Company (as defined)
during the Initial Term, if the employee is not given notice at least five
business days prior to such change in control from the successor to all or a
substantial portion of the Company's business and/or assets, that such successor
is willing to assume and perform the Founding Company's obligations under the
employment agreement, then the employee may elect to terminate his or her
employment and receive in one lump sum an amount equal to three times his or her
annual base salary then in effect. The noncompetition provisions of the
employment agreement would apply for one year from the effective date of such
termination to a termination without such notice. For a one year period
following an event of a change in control the employee may elect to terminate
his employment for Good Reason (as defined) and receive in one lump sum an
amount equal to three times his or her annual base salary then in effect. Each
employment agreement contains a covenant not to compete with the Company for a
period of two years immediately following termination of employment or, in the
case of termination by the Founding Company without cause, a termination by the
employee for Good Reason, or after a change of control, for a period of one year
immediately following termination of employment. At least one principal
executive officer of each of the Founding Companies will enter into an
employment agreement with his or her respective Founding Company containing
substantially the same provisions, including a covenant not to compete, as those
described above.
PRIOR EMPLOYMENT RELATIONSHIPS OF MESSRS. YOUNG AND BUCARO
Until August 2000, Messrs. Young and Bucaro are subject to an agreement
that prohibits each of them from acting in any manner or capacity in or for any
business that engages as its primary line of business in the sale of automotive
parts or accessories to retail customers or to commercial auto repair outlets in
the geographic area served by this former employer at the time their respective
employment ceased. The geographic area affected includes parts of Texas,
Louisiana and California. The Company does not believe that these limitations
will have a material adverse effect on its business or operating strategy.
1998 LONG-TERM INCENTIVE PLAN
No stock options were granted to, exercised by or held by any executive
officer in 1997. In March 1998, the Board of Directors and the Company's
stockholders approved the Company's 1998 Long-Term Incentive Plan (the
"Plan"). The purpose of the Plan is to provide directors, officers, key
employees, consultants and other service providers 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 or
non-qualified stock options ("NQSOs"); (ii) stock appreciation rights; (iii)
restricted or deferred stock, (iv) dividend equivalents and (v) 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 select the
individuals who will receive awards and establish 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 2,500,000 shares or 15% 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 remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment,
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<PAGE>
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.
At the closing of this Offering, NQSOs to purchase a total of 800,000
shares of Common Stock will be granted as follows: 200,000 shares to Mr. Young,
200,000 shares to Mr. Gooch, 100,000 shares to Mr. McConnell, 75,000 shares to
Mr. Pryzant, 75,000 shares to Mr. Bucaro, 50,000 shares to Ms. Skinner, 50,000
shares to Mr. Hamilton and 50,000 to Mr. Rachlen. In addition, at the
consummation of this Offering, options to purchase approximately 970,465 shares
will be granted to certain employees of the Founding Companies. Each of the
foregoing options will have an exercise price equal to the initial public
offering price per share. These options will vest at the rate of 20% per year,
commencing on the first anniversary of this Offering, and will expire at the
earlier of ten years from the date of grant or three months following
termination of employment.
1998 NON-EMPLOYEE DIRECTORS' STOCK PLAN
The Company's 1998 Non-Employee Directors' Stock Plan (the "Directors'
Plan"), which was adopted by the Board of Directors and approved by the
Company's stockholders in March 1998, provides for (i) the automatic grant to
each non-employee director serving at the consummation of this Offering of an
option to purchase 10,000 shares, (ii) the automatic grant to each other
non-employee director of an option to purchase 10,000 shares upon such person's
initial election as a director, and (iii) an automatic annual grant to each
non-employee director of an option to purchase 5,000 shares at each annual
meeting of stockholders thereafter at which such director is re-elected or
remains as a director, unless such annual meeting is held within three months of
such person's initial election as a director. All options will have an exercise
price per share equal to the fair market value of the Common Stock on the date
of grant and are immediately vested and expire on the earlier of ten years from
the date of grant or one year after termination of service as a director. The
Directors' Plan also permits non-employee directors to elect to receive, in lieu
of cash, directors' fees, shares or credits representing "deferred shares" at
future settlement dates, as selected by the director. The number of shares or
deferred shares received will equal the number of shares of Common Stock which,
at the date the fees would otherwise be payable, will have an aggregate fair
market value equal to the amount of such fees.
55
<PAGE>
CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
In connection with the formation of the Company, Transportation Components
issued to Notre a total of 2,162,388 shares (as adjusted for a 108.1194-to-one
stock dividend) of Common Stock for an aggregate consideration of $21,623.88.
Mr. Oren is a Managing Director of Notre and a director of the Company. In April
1998, Notre exchanged 1,912,388 shares of Common Stock for 1,912,388 shares of
Restricted Common Stock. See "Description of Capital Stock." Notre has agreed
to advance whatever funds are necessary to effect the Mergers and this Offering,
all of which will be on a non-interest-bearing basis. As of March 31, 1998,
Notre had incurred expenses on behalf of the Company in the aggregate amount of
$3.0 million. All of Notre's advances will be repaid from the net proceeds of
this Offering.
From October 1997 through March 31, 1998, the Company issued a total of
929,829 shares of Common Stock (as adjusted for a 108.1194-to-one stock
dividend) at $0.01 per share to various members of management, as follows: Mr.
Young -- 250,000 shares, Mr. Gooch -- 275,329 shares, Mr. McConnell -- 100,000
shares, Mr. Pryzant -- 75,000 shares, Mr. Bucaro -- 75,000 shares, Mr.
Rachlen -- 50,000 shares, Ms. Skinner -- 50,000 shares, Mr. Hamilton -- 50,000
shares and an aggregate of 4,500 shares to other members of management. The
Company also issued 177,000 shares of Common Stock at $0.01 per share to
consultants to the Company, including a total of 20,000 shares of Common Stock
to persons who will become directors of the Company upon consummation of this
Offering. The Company also granted options to purchase 10,000 shares of Common
Stock under the Directors' Plan, effective upon the consummation of this
Offering, to Mr. Oren, a director of the Company, and to Messrs. King and
Corley, who will become directors of the Company upon the consummation of this
Offering.
Simultaneously with the consummation of this Offering, Transportation
Components indirectly will acquire, by merger with wholly-owned subsidiaries of
Transportation Components, all of the issued and outstanding stock of the
Founding Companies, at which time each Founding Company will become a
wholly-owned subsidiary of the Company. The aggregate consideration to be paid
by Transportation Components in the Mergers consists of approximately $21.0
million in cash and 7,493,394 shares of Common Stock. In addition, prior to the
Mergers certain of the Founding Companies will make the S Corporation
Distributions of $5.4 million and distribute to their Stockholders the Other
Assets having a net book value of $0.9 million.
The consummation of each Merger is subject to customary conditions. These
conditions include, among others, the continuing accuracy on the closing date of
the Mergers of the representations and warranties of the Founding Companies and
the principal stockholders thereof and of Transportation Components, the
performance by each of them of all covenants included in the agreements relating
to the Mergers and the absence of a material adverse change in the results of
operations, financial condition or business of each Founding Company.
There can be no assurance that the conditions to closing of the Mergers
will be satisfied or waived or that the acquisition agreements will not be
terminated prior to consummation. If any of the Mergers is terminated for any
reason, the Company does not intend to consummate this Offering on the terms
described herein.
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<PAGE>
The following table sets forth the consideration to be paid by
Transportation Components for each of the Founding Companies. These amounts do
not include the S Corporation Distributions or the distribution of Other Assets.
(Dollars in thousands.)
SHARES OF
COMPANY CASH COMMON STOCK
- ---------------------------------------- ------- ------------
Carter.................................. $ -- 871,006
TCC..................................... -- 1,042,909
Gear & Wheel............................ 4,475 793,163
Amparts................................. 6,465 881,574
Cook Brothers........................... -- 933,207
Plaza................................... 4,269 864,411
Universal............................... 1,650 476,364
Perfection.............................. 4,189 380,760
Drive Line.............................. -- 1,250,000
------- ------------
Total.............................. 21,048 7,493,394
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain officers, directors and holders of more than 5%
of the outstanding shares of the Company, together with trusts for which they
act as trustees, will receive cash and beneficial ownership of shares of Common
Stock of the Company as follows. These amounts do not include any S Corporation
Distributions or distributions of Other Assets. (Dollars in thousands.)
SHARES OF
NAME CASH COMMON STOCK
- ---------------------------------------- ----- ------------
Thomas A. Work.......................... -- 145,120
Peter D. Lund........................... -- 1,000,009
Rudolfo A. Duemichen.................... 2,135 293,858
Henry B. Cook, Jr....................... -- 280,357
Louis J. Boggeman, Jr................... 2,168 606,099
Ronald G. Short......................... 110 91,193
Maura L. Berney......................... 719 130,569
James R. Davis.......................... -- 918,163
Everett W. Petry........................ 1,165 500,000
Pursuant to the agreements to be entered into in connection with the
Mergers, the stockholders of the Founding Companies have agreed not to compete
with the Company for five years, commencing on the date of consummation of this
Offering.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders or by entities controlled by their
stockholders. At March 31, 1998, the aggregate amount of indebtedness of these
Founding Companies that was subject to personal guarantees was approximately
$29.3 million. The Company intends to use its revolving credit facility to
refinance this indebtedness.
LEASES OF REAL PROPERTY BY FOUNDING COMPANIES
Following the Mergers, certain of the Founding Companies will lease
facilities from former stockholders of the Founding Companies or their
affiliates, which are described below. Each of these leases will provide for an
initial term of five years, with three renewal options of five years each. The
rent for each lease will be adjusted at the end of each year during the initial
term and any renewal term in accordance with the change in the Consumer Price
Index during the prior year, with each yearly increase not to exceed 5%. The
tenant under each lease will pay for all utilities, taxes and insurance on the
leased property. The tenant also will have a right of first refusal to purchase
each leased property. The Company believes that the economic terms of each of
these leases do not exceed fair market value.
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Following the Mergers, Cook Brothers will lease the following facilities
from H & B Properties, L.L.C., a limited liability company of which Henry B.
Cook, Jr., who will become a director of the Company upon consummation of the
Offering, is a member: (i) 118 Brown Street, Pittston, Pennsylvania 18640; (ii)
69 Whitney Avenue, Binghamton, New York 13901; (iii) 123 Philo Road West,
Elmira, New York 14903; (iv) 206 South Main Street, Homer, New York 13077; (v)
156 Newbury Street, Rochester, New York 14613; (vi) 200 Curry Drive,
Martinsville, Indiana 46151; (vii) 67 Whitney Avenue, Binghamton, New York
13901; and (viii) 66 Oak Street, Deposit, New York 13865. The leases provide for
annual rent of $68,439, $27,735, $56,731, $21,309, $57,978, $27,678, $12,000 and
$45,600, respectively during the initial term.
Following the Mergers, Cook Brothers will lease its facility at 76
Frederick Street, Binghamton, New York 13901 from H & B Properties, L.L.C. which
is owned by various Cook family members including Henry B. Cook, Jr., who will
become a director of the Company upon consummation of the Offering. The lease
provides for a total annual rent of $91,733 during the initial term.
Following the Mergers, TCC will lease its facility at 2006 13th Street
South East, Brainerd, Minnesota 56401 from Lund Properties, L.L.C., a limited
liability company of which Peter D. Lund, who will become a director of the
Company upon consummation of the Offering, is a member. The lease provides for a
total annual rent of $48,000 during the initial term.
Following the Mergers, TCC will lease the following facilities from Lund
Properties, Ltd., a limited partnership of which Peter D. Lund, who will become
a director of the Company upon consummation of the Offering, is a partner: (i)
3924 12th Avenue North, Fargo, North Dakota 58102; (ii) 4001 North Cliff Avenue,
Sioux Falls, South Dakota 57104; (iii) 801 North Bluemound Drive, Appleton,
Wisconsin 54912; (iv) 3900 Delaware Avenue, Des Moines, Iowa 50313; (v) I-94 and
Highway 54, Black River Falls, Wisconsin 54615; (vi) 3275 Dodd Road, Eagan,
Minnesota 55121; and (vii) 4700 North 124th Street, Wauwatosa, Wisconsin 53213.
The leases provide for annual rent of $70,800, $37,200, $50,400, $42,000,
$72,000, $132,000 and $108,000, respectively during the initial term. Following
the Mergers, TCC will lease the following facilities from Mr. Lund: (i) 3275
Dodd Road, Eagan, Minnesota and (ii) 4700 North 124th Street, Wauwatosa,
Wisconsin 53213. The leases provide for annual rent of $132,000 and $108,000,
respectively during the initial term.
Within 14 days after consummation of the Offering, Plaza or one of its
wholly-owned subsidiaries will sell four facilities to Louis J. Boggeman, Jr.,
who will become a director and an executive officer of the Company upon
consummation of the Offering, and Mr. Boggeman will lease back such facilities
to Plaza or one of its wholly-owned subsidiaries. The sales prices for each
facility, and the corresponding annual rent during the initial term of the lease
are set forth below:
SALES ANNUAL
FACILITY PRICE RENT
- ---------------------------------------- ------------ --------
1534 & 1536 Broadway ...................
St. Louis, Missouri 63104 $ 345,878 $ 41,505
311 Marion Street ......................
St. Louis, Missouri 63104 $ 550,515 $ 66,062
1520 Broadway ..........................
St. Louis, Missouri 63104 $ 394,830 $ 47,380
1601 West Eilerman .....................
Litchfield, Illinois 62056 $ 227,910 $ 27,349
------------ --------
Totals............................. $ 1,519,133 $182,296
Following the Mergers, Gear & Wheel will lease 1419 SW 12th Street, Ocala,
Florida 34474 from Everett W. Petry, who will become a director of the Company
upon consummation of the Offering, for an annual rent of $66,780 during the
initial term. Gear & Wheel will also lease 1900 West New Hampshire Street,
Orlando, Florida 32804 from a company owned by Everett W. Petry and James R.
Davis for an annual rent during the initial term based on an independent
determination of the fair market rent for such facility.
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Following the Mergers, Universal will lease its facility at 2354 E. Minor
Street, Stockton, California 95205 from Terry V. Short and his spouse. Mr. Short
will continue as an officer of Universal upon consummation of the Offering. The
lease provides for a total annual rent of $54,000 during the initial term.
Immediately prior to the Mergers, Drive Line will transfer its facilities
at 5290 Hiatus Road, Sunrise, Florida 33351 and 410 E. Jackson, Marshfield,
Missouri 65706 to James R. Davis and Joseph P. Akra, who will lease back the
Sunrise, Florida facility to Drive Line. The Marshfield, Missouri facility is
not material to Drive Line's business. Mr. Davis and Mr. Akra will continue as
officers of Drive Line upon consummation of the Offering. The annual rent for
the initial term of the Sunrise, Florida lease will be based on an independent
determination of the fair market rent for such facility.
The Company has adopted a policy that, whenever possible, it will not own
any real estate. Accordingly, in connection with future acquisitions, the
Company may require the distribution of real property owned by acquired
companies to its stockholders and the leaseback of such property at fair market
value.
OTHER TRANSACTIONS
Amparts buys parts from and sells parts to KICI, KIC Worldwide, Inc. and
KIC Holdings, Inc. ("KIC Holdings") (collectively, the "KIC Companies").
Until December 31, 1997, Rodolfo A. Duemichen, who will become a director of the
Company upon consummation of this Offering, was a shareholder of one of the KIC
Companies, KIC Holdings. For the year ended December 31, 1995, Amparts purchased
a total of $410,000 of parts from the KIC Companies, sold a total of $83,000 of
parts to the KIC Companies and had accounts receivable from the KIC Companies of
$42,000 and accounts payable to the KIC Companies of $38,000. For the year ended
December 31, 1996, Amparts purchased a total of $646,000 of parts from the KIC
Companies, sold a total of $126,000 of parts to the KIC Companies and had
accounts receivable from the KIC Companies of $44,000 and accounts payable to
the KIC Companies of $28,000. For the year ended December 31, 1997, Amparts
purchased a total of $430,000 of parts from the KIC Companies, sold a total of
$85,000 of parts to the KIC Companies and had accounts receivable from the KIC
Companies of $328,000 and accounts payable to the KIC Companies of $49,000. Mr.
Duemichen sold all of his interest in KIC Holdings on December 31, 1997.
Additionally, Amparts has an agreement with KICI whereby KICI is permitted
to allocate to and charge Amparts for certain administrative expenses incurred
by KICI on Amparts' behalf. These administrative expenses include office rent
paid by KICI on Amparts' behalf, warehouse charges related to Amparts' products
shipped through KICI's facilities and direct personnel costs incurred by KICI on
Amparts' behalf. Total amounts charged to Amparts by KICI for these
administrative expenses were approximately $293,000, $343,000 and $299,000 for
the years ended December 31, 1995, 1996 and 1997, respectively. Similarly,
Amparts has agreed to provide KICI with certain parts assembly, sales and
administrative support services and product sourcing for a period, subject to
renewal, ending December 31, 1998. In addition, with respect to the sale of
trailer axles, hubs and drums, KICI has agreed not to compete with Amparts in
Mexico and South and Central America and Amparts has agreed not to compete with
KICI in any other countries for a period ending no later than April 30, 2003.
As of March 1998, Drive Line owed $1,053,659 to James R. Davis, who will
become an owner of more than 5% of the Common Stock owner of the Company upon
consummation of this Offering, payable on demand, including interest at the rate
of 10.0%. The Company intends to pay this obligation at the closing of the
Offering.
Plaza has a consulting services agreement with Louis J. Boggeman, Sr., the
father of Louis J. Boggeman, Jr., who will become a director and Chief Operating
Officer of the Company upon consummation of this Offering. This consulting
services agreement provides compensation of one-half of Mr. Boggeman's then
current salary. An additional agreement provides for monthly payments of $5,000
to Mrs. Boggeman, Louis J. Boggeman, Jr.'s mother, upon the death of Louis J.
Boggeman, Sr. The monthly payment is adjusted annually by the percentage
increase in the consumer price index over the base index of March 1990.
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Additionally, Plaza is a party to a buying group through which Plaza made
$4.0 million of inventory purchases. Louis J. Boggeman, Jr. is currently serving
a three-year term that expires in November 2000 on the board of directors of the
buying group.
During fiscal years 1995, 1996 and 1997, approximately $136,000, $176,000
and $750,000 or approximately 1.5%, 1.6% and 6.3%, respectively, of Perfection's
sales were made to UPCO Manufacturing, Inc. ("UPCO"), a company of which Maura
L. Berney, who will become a director of the Company upon consummation of this
Offering, was a shareholder. For the years ended September 30, 1995, 1996 and
1997, approximately $29,000, $42,000 and $196,000, respectively, included in
trade accounts receivable was due from UPCO. Ms. Berney sold all of her interest
in UPCO on February 27, 1998.
On May 1, 1994, Cook Brothers agreed to pay an annuity of $1,908.33 per
month to Ruth Cook, the mother of Henry B. Cook, Jr. Cook Brothers is obligated
under a note held by Janet Cook, the former wife of Henry B. Cook, Jr., which
bears interest at 10% and requires monthly payments of $2,750 until January 14,
2009.
On April 22, 1996, Mr. Cook executed a note that is held by Cook Brothers
in the principal amount of $149,237 with monthly payments of $1,491.67 until the
principal of the note is repaid. This note represented prior undocumented
amounts loaned to Mr. Cook since 1981. On April 15, 1998, this note was
refinanced and consolidated into a note executed by Mr. Cook and held by Cook
Brothers in the principal amount of $261,893. This note bears no interest and is
due June 30, 2003. The principal amount reflects loans made by Cook Brothers and
its affiliate, NEC Leasing, Inc., a company of which Mr. Cook is a shareholder,
to Mr. Cook at various times from 1981 to March 31, 1998.
At various times from June 30, 1989 through December 31, 1997, Cook
Brothers loaned an aggregate of $324,282 to Heavy Duty Diesel, Inc., a company
of which Mr. Cook is a stockholder. As of March 31, 1998, the outstanding
balance of this loan was $324,282. This loan bears no interest, is unsecured and
has no stated maturity date.
Cook Brothers is a party to a buying group through which Cook Brothers made
$4.5 million of inventory purchases. Henry B. Cook, Jr. is currently serving a
three year term that expires on April 23, 1999 on the board of directors of the
buying group.
TCC is the guarantor of approximately $1,000,000 of indebtedness incurred
on August 29, 1997 for the purchase of the properties at 3275 Dodd Road, Eagan,
Minnesota and 4700 North 124th Street, Wauwatosa, Wisconsin 53213 by Peter D.
Lund, who is the President of TCC and who will become a director of the Company
upon consummation of this Offering. Mr. Lund and the Company intend to seek the
termination of this guaranty shortly after the closing of this Offering. These
properties will be leased by TCC from Mr. Lund after the consummation of this
Offering.
TCC is a party to a buying group through which TCC made approximately $1.2
million of inventory purchases. Peter D. Lund, who will become a director of the
Company upon consummation of this Offering, is currently serving a three year
term that expires on April 23, 1998 on the board of directors of the buying
group.
COMPANY POLICY
Any future transactions with directors, officers, employees or affiliates
of the Company are anticipated to be minimal and must be approved in advance by
a majority of disinterested members of the Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of the Common Stock, after giving effect to the Mergers and this
Offering, by (i) each person known to own beneficially more than 5% of the
outstanding shares of Common Stock; (ii) each Company director and person who
has consented to be named as a director ("named directors"); (iii) each
executive officer and person who has consented to be named as an executive
officer ("named executive officers"); and (iv) all executive officers, named
executive officers, directors and named directors as a group. All persons listed
have an address c/o 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
--------------------
NUMBER PERCENT
-------- -------
Notre Capital Ventures II, L.L.C........ 2,162,388 12.7%
John R. Oren(1)......................... 2,172,388 12.8
Peter D. Lund........................... 1,000,009 5.9
James R. Davis(2)....................... 918,163 5.4
Louis J. Boggeman, Jr.(3)............... 606,099 3.6
Everett W. Petry(4)..................... 500,000 2.9
Thomas A. Work(5)....................... 469,362 2.8
Rodolfo A. Duemichen.................... 320,858 1.9
Henry B. Cook, Jr....................... 280,357 1.7
J. David Gooch.......................... 275,329 1.6
T. Michael Young(6)..................... 259,091 1.5
Maura L. Berney(7)...................... 155,726 *
Hugh H.N. McConnell, Jr................. 100,000 *
Ronald G. Short......................... 91,192 *
Paul E. Pryzant......................... 75,000 *
Daniel T. Bucaro........................ 75,000 *
Wayne S. Rachlen........................ 50,000 *
Marlise C. Skinner...................... 50,000 *
Louie A. Hamilton....................... 50,000 *
Lawrence K. King(8)(9).................. 24,545 *
I.T. Corley(9).......................... 20,000 *
All executive officers, directors and
named directors as a group (19
persons).............................. 6,518,054 38.3
- ------------
* Less than 1%.
(1) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan and 2,162,388 shares of Common Stock
issued to Notre. Mr. Oren is a Managing Director of Notre.
(2) Includes 145,930 shares of Common Stock issued to a trust of which Mr.
Davis' wife is the trustee and beneficiary of which Mr. Davis claims
beneficial ownership.
(3) Includes 269,732 shares of Common Stock held in custody by Mr. Boggeman for
the benefit of his minor children.
(4) Includes 250,000 shares of Common Stock issued to a trust of which Mr.
Petry's wife is the trustee and beneficiary of which Mr. Petry claims
beneficial ownership.
(5) Includes 334,947 shares of Common Stock issuable on the exercise of warrants
to purchase Common Stock having an exercise price of $8.42 per share.
(6) Includes 9,091 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(7) Includes 25,157 shares of Common Stock held in escrow as to which Ms. Berney
claims beneficial ownership.
(8) Includes 4,545 shares of Common Stock issuable on conversion of a
convertible note issued by Notre which is convertible into Common Stock of
the Company owned by Notre.
(9) Includes 10,000 shares of Common Stock issuable upon the exercise of options
granted under the Directors' Plan.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 107,000,000 shares
of capital stock, consisting of 100,000,000 shares of Common Stock, par value
$0.01 per share, 2,000,000 shares of Restricted Common Stock, par value $0.01
per share, and 5,000,000 shares of Preferred Stock, par value $0.01 per share
("Preferred Stock"). Upon completion of the Mergers and this Offering, the
Company will have outstanding 16,262,611 shares of Common Stock, including
1,912,388 shares of Restricted Common Stock and no shares of Preferred Stock.
The following discussion is qualified in its entirety by reference to the
Restated Certificate of Incorporation of Transportation Components, which is
included as an exhibit to the Registration Statement of which this Prospectus is
a part.
COMMON STOCK AND RESTRICTED COMMON STOCK
The holders of Common Stock are each entitled to one vote for each share
held on all matters to which they are entitled to vote, including the election
of directors. The holders of Restricted Common Stock, voting together as a
single class, are entitled to elect one member of the Company's Board of
Directors and to 0.75 of one vote for each share held on all other matters on
which they are entitled to vote. Holders of Restricted Common Stock are not
entitled to vote on the election of any other directors. Upon consummation of
this Offering, the Board of Directors will be classified into three classes as
nearly equal in number as possible, with the term of each class expiring on a
staggered basis. 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. Any director, or the entire Board of Directors, may be removed at any
time, with cause, by a majority of the aggregate number of votes which may be
cast by the holders of outstanding shares of Common Stock and Restricted Common
Stock entitled to vote for the election of directors, provided, however, that
only the holders of the Restricted Common Stock may remove the director such
holders are entitled to elect.
Subject to the rights of any then outstanding shares of Preferred Stock,
holders of Common Stock and Restricted Common Stock are entitled to participate
pro rata in such dividends as may be declared in the discretion of the Board of
Directors out of funds legally available therefor. Holders of Common Stock and
Restricted Common Stock are entitled to share ratably in the net assets of the
Company upon liquidation after payment or provision for all liabilities and any
preferential liquidation rights of any Preferred Stock then outstanding. Holders
of Common Stock and holders of Restricted 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. Shares of Restricted Common Stock are not subject to
any redemption provisions but are convertible into Common Stock, on the
occurrence of certain events. All outstanding shares of Common Stock and
Restricted Common Stock are, and the shares of Common Stock to be issued
pursuant to this Offering and the Mergers will be upon payment therefor, fully
paid and non-assessable.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (i) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners, or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (ii) in the
event any person acquires beneficial ownership of 15% or more of the outstanding
shares of Common Stock, or (iii) in the event any person offers to acquire 15%
or more of the total number of outstanding shares of Common Stock. After June
30, 1999, the Board of Directors may elect to convert any outstanding shares of
Restricted Common Stock into shares of Common Stock in the event 80% or more of
the originally outstanding shares of Restricted Common Stock have been
previously converted into shares of Common Stock.
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The Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE") under the symbol "TUI," subject to official notice of
issuance. The Restricted Common Stock will not be listed on any exchange.
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 and Restricted Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock. Accordingly, the issuance of
shares of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (iii) on or after such date, the
business combination is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. An "interested stockholder" is defined as any person that is (a)
the owner of 15% or more of the outstanding voting stock of the corporation or
(b) an affiliate or associate of the corporation and 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.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
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
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stock repurchases illegal under Delaware law or any transaction in which a
director has derived an improper personal benefit.
Additionally, the Certificate of Incorporation of the Company provides that
directors and officers of the Company shall be, and at the discretion of the
Board of Directors non-officer employees and agents may be, indemnified by the
Company to the fullest extent authorized by Delaware law, as it now exists or
may in the future be amended, against all expenses and liabilities actually and
reasonably incurred in connection with service for or on behalf of the Company
and further permits the advancing of expenses incurred in defense of claims.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at an annual or special
meeting of stockholders must be effected at a duly called meeting and may not be
taken or effected by a written consent of stockholders in lieu thereof. The
Company's Bylaws provide that a special meeting of stockholders may be called
only by the Chief Executive Officer, by a majority of the Board of Directors or
by a majority of the Executive Committee of the Board of Directors. The Bylaws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting. To amend or repeal the
Company's Bylaws, an amendment or repeal thereof must first be approved by the
Board of Directors or by the affirmative vote of the holders of at least 66 2/3%
of the total votes eligible to be cast by holders of voting stock with respect
to such amendment or repeal.
The Company's Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors (the "Nomination
Procedure") and with regard to other matters to be brought by stockholders
before an annual meeting of stockholders of the Company (the "Business
Procedure"). The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Company's Bylaws. If the Chairman of
the Board of Directors determines that a person was not nominated in accordance
with the Nomination Procedure, such person will not be eligible for election as
a director. Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Company's Bylaws. If the Chairman
of the Board of Directors determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
Although the Company's Bylaws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's Bylaws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, 46 Wall Street, New York, New York 10005.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Mergers and completion of this Offering, the
Company will have outstanding 16,262,611 shares of Common Stock. The 5,500,000
shares sold in this Offering (plus any additional shares sold upon exercise of
the Underwriters' over-allotment option) will be freely tradeable without
restriction unless acquired by affiliates of the Company. None of the remaining
outstanding shares of Common Stock or Restricted Common Stock have been
registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from an affiliate, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (i) one percent of the then outstanding shares of the Common Stock
(approximately 162,626 shares upon completion of this Offering) or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning the Company.
Affiliates may sell shares not constituting restricted securities in accordance
with the foregoing volume limitations and other requirements but without regard
to the one year holding period. Under Rule 144(k), if a period of at least two
years has elapsed between the later of the date on which restricted securities
were acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and who has not been an affiliate for at least three months
prior to the sale is entitled to sell the shares immediately without regard to
the volume limitations and other conditions described above.
The Company and its officers, directors and certain stockholders who
beneficially own 10,829,031 shares in the aggregate have agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Bear, Stearns &
Co. Inc. except that the Company may issue Common Stock in connection with
acquisitions or in connection with the Plan and the Directors' Plan (the
"Plans") or upon conversion of shares of the Restricted Common Stock. See
"Underwriting." In addition, all of the stockholders of the Founding
Companies, certain other stockholders and the Company's officers and directors
have agreed with the Company that they will not sell any of their shares for a
period of two years after the closing of this Offering.
Within 90 days after the consummation of this Offering, the Company intends
to register up to 10,000,000 shares of its Common Stock under the Securities Act
for use by the Company in connection with future acquisitions. Upon such
registration, these shares will generally be freely tradeable after their
issuance. In some instances, however, the Company may contractually restrict the
sale of shares issued in connection with future acquisitions.
Prior to this Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Bear, Stearns & Co. Inc., BT Alex. Brown Incorporated and Sanders Morris Mundy
Inc. (together, the "Representatives"), have severally agreed to purchase from
the Company the following respective number of shares of Common Stock at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus:
NUMBER OF
UNDERWRITERS SHARES
- ---------------------------------------- -----------
Bear, Stearns & Co. Inc.................
BT Alex. Brown Incorporated.............
Sanders Morris Mundy Inc................
Total.............................. 5,500,000
===========
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all of the shares of Common Stock offered hereby if
any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After commencement of the
initial public offering, the offering price and other selling terms may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 825,000
additional shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to 5,500,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 5,500,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity and contribution
between the Underwriters and the Company regarding certain liabilities,
including liabilities under the Securities Act.
To facilitate the Offering of the Common Stock, the Underwriters may engage
in transactions that stabilize, maintain or otherwise affect the market price of
the Common Stock. Specifically, the Underwriters may over-allot shares of the
Common Stock in connection with this Offering, thereby creating a short position
in the Underwriters' syndicate account. Additionally, to cover such
over-allotments or to stabilize the market price of the Common Stock, the
Underwriters may bid for, and purchase, shares of the Common Stock in the open
market. Any of these activities may maintain the market price of the Common
Stock at a level above that which might otherwise prevail in the open market.
The Underwriters are not required to
66
<PAGE>
engage in these activities, and, if commenced, any such activities may be
discontinued at any time. The Representatives, on behalf of the Underwriters,
also may reclaim selling concessions allowed to an Underwriter or dealer, if the
syndicate repurchases shares distributed by that Underwriter or dealer.
The Company has agreed that it will not sell or offer any shares of Common
Stock or options, rights or warrants to acquire any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Bear, Stearns & Co. Inc., except for shares issued (i) in connection with
acquisitions, (ii) pursuant to the exercise of options granted under the Plans,
and (iii) upon conversion of shares of Restricted Common Stock. Further, the
Company's directors, officers and certain stockholders who beneficially own
10,829,031 shares in the aggregate have agreed not to directly or indirectly
sell or offer for sale or otherwise dispose of any Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Bear, Stearns & Co. Inc.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Certain principals of Sanders Morris Mundy Inc., one of the
Representatives, are investors in Notre. In March 1998, two of those principals
purchased notes from Notre which are convertible into shares of Common Stock
upon consummation of this Offering. The shares of Common Stock issuable on
conversion of such note beneficially owned by those principals represent less
than 1% of the Common Stock to be outstanding after the consummation of this
Offering.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were prevailing market conditions,
the results of operations of the Founding Companies in recent periods, the
market capitalization and stages of development of other companies which the
Company and the Representatives believed to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant by the Company and the
Representatives.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed on for the
Company by Bracewell & Patterson, L.L.P., Houston, Texas. Certain members of
Bracewell & Patterson, L.L.P. are investors in Notre and own in the aggregate an
approximate 2% interest in Notre. Certain legal matters related to this Offering
will be passed on for the Underwriters by Piper & Marbury L.L.P., Baltimore,
Maryland.
EXPERTS
The financial statements of TCC, Gear & Wheel, Amparts, Cook Brothers,
Plaza, Perfection and Drive Line included in this Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Carter included elsewhere in the Prospectus
have been audited by Ernst & Young LLP, independent auditors, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
67
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement (which term
shall encompass any and all amendments thereto) on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
is part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and regulations
of the SEC. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. For further
information with respect to the Company, reference is hereby made to the
Registration Statement and such exhibits and schedules filed as a part thereof,
which may be inspected, without charge, at the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The SEC maintains a web
site that contains reports, proxy and information statements regarding
registrants that file electronically with the SEC. The address of this web site
is (http://www.sec.gov). Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC, upon
payment of the prescribed fees.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
Basis of Presentation........... F-3
Unaudited Pro Forma Combined
Balance Sheet as of March 31,
1998........................... F-4
Unaudited Pro Forma Combined
Statement of Operations for the
Year Ended December 31, 1997... F-5
Unaudited Pro Forma Combined
Statement of Operations for the
Three Months Ended March 31,
1998........................... F-6
Notes to Unaudited Pro Forma
Combined Financial
Statements..................... F-7
HISTORICAL FINANCIAL STATEMENTS
TRANSPORTATION COMPONENTS, INC.
Report of Independent Public
Accountants.................... F-12
Balance Sheets.................. F-13
Statements of Operations........ F-14
Statements of Stockholders'
Equity......................... F-15
Statements of Cash Flows........ F-16
Notes to Financial Statements... F-17
CHARLES W. CARTER CO. -- LOS
ANGELES
Report of Independent
Auditors....................... F-20
Consolidated Balance Sheets..... F-21
Consolidated Statements of
Operations..................... F-22
Consolidated Statements of
Stockholders' Equity........... F-23
Consolidated Statements of Cash
Flows.......................... F-24
Notes to Consolidated Financial
Statements..................... F-25
TRANSPORTATION COMPONENTS GROUP
(TCC)
Report of Independent Public
Accountants.................... F-33
Combined Balance Sheets......... F-34
Combined Statements of
Operations..................... F-35
Combined Statements of
Shareholders' Equity........... F-36
Combined Statements of Cash
Flows.......................... F-37
Notes to Combined Financial
Statements..................... F-38
GEAR & WHEEL GROUP
Report of Independent Public
Accountants.................... F-45
Combined Balance Sheets......... F-46
Combined Statements of
Operations..................... F-47
Combined Statements of
Shareholders' Equity........... F-48
Combined Statements of Cash
Flows.......................... F-49
Notes to Combined Financial
Statements..................... F-50
AMPARTS GROUP
Report of Independent Public
Accountants.................... F-56
Combined Balance Sheets......... F-57
Combined Statements of
Operations..................... F-58
Combined Statements of
Shareholders' Equity........... F-59
Combined Statements of Cash
Flows.......................... F-60
Notes to Combined Financial
Statements..................... F-61
F-1
<PAGE>
PAGE
-----
THE COOK BROTHERS COMPANIES, INC.
Report of Independent Public
Accountants.................... F-68
Consolidated Balance Sheets..... F-69
Consolidated Statements of
Operations..................... F-70
Consolidated Statements of
Stockholders' Equity........... F-71
Consolidated Statements of Cash
Flows.......................... F-72
Notes to Consolidated Financial
Statements..................... F-73
PLAZA AUTOMOTIVE, INC.
Report of Independent Public
Accountants.................... F-81
Consolidated Balance Sheets..... F-82
Consolidated Statements of
Operations..................... F-83
Consolidated Statements of
Shareholders' Equity........... F-84
Consolidated Statements of Cash
Flows.......................... F-85
Notes to Consolidated Financial
Statements..................... F-86
PERFECTION GROUP
Report of Independent Public
Accountants.................... F-93
Consolidated Balance Sheets..... F-94
Consolidated Statements of
Operations..................... F-95
Consolidated Statements of
Shareholders' Equity........... F-96
Consolidated Statements of Cash
Flows.......................... F-97
Notes to Consolidated Financial
Statements..................... F-98
DRIVE LINE, INC.
Report of Independent Public
Accountants.................... F-104
Balance Sheets.................. F-105
Statements of Operations........ F-106
Statements of Shareholders'
Equity......................... F-107
Statements of Cash Flows........ F-108
Notes to Financial Statements... F-109
F-2
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma combined financial statements give effect
to the mergers by Transportation Components, Inc. (TransCom USA or the Company),
of substantially all of the outstanding capital stock of Charles W. Carter
Co. -- Los Angeles (Carter), Transportation Components Group (TCC), The Cook
Brothers Companies, Inc. (Cook Brothers), Gear & Wheel Group (Gear & Wheel),
Amparts International, Inc. (Amparts), Plaza Automotive, Inc. (Plaza),
Perfection Group (Perfection), Drive Line, Inc. (Drive Line), and Universal
Fleet Supply, Inc. (Universal), (together, the Founding Companies). TransCom USA
and the Founding Companies are hereinafter referred to as the Company. These
mergers (the Mergers) will occur simultaneously with the closing of TransCom
USA's initial public offering (the Offering) and will be accounted for using the
purchase method of accounting. TransCom USA has been identified as the
accounting acquiror in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 97 which states that the combining company which
receives the largest portion of voting rights in the combined corporation is
presumed to be the acquiror for accounting purposes. The unaudited pro forma
combined financial statements also give effect to the issuance of common stock
in connection with the Offering and as partial consideration for the
acquisitions to the sellers of the Founding Companies. These pro forma
statements are based on the historical financial statements of the Founding
Companies included elsewhere in this Prospectus and the estimates and
assumptions set forth below and in the notes to the unaudited pro forma combined
financial statements.
The unaudited pro forma combined balance sheet gives effect to the Mergers
and the Offering as if they had occurred on March 31, 1998. The unaudited pro
forma combined statement of operations give effect to these transactions as if
they had occurred on January 1, 1997.
TransCom USA has preliminarily analyzed the benefits that it expects to be
realized from reductions in salaries, bonuses and certain benefits to the
owners. To the extent the owners of the Founding Companies have agreed
prospectively to reductions in salary, bonuses and benefits, these reductions
have been reflected in the unaudited pro forma combined statement of operations.
Additionally, reductions in interest expense as the result of the planned
repayment of a portion of the Founding Companies' existing debt have been
reflected in the unaudited pro forma combined statement of operations. With
respect to other potential benefits, TransCom USA has not and cannot quantify
these benefits until completion of the combination of the Founding Companies. It
is anticipated that these benefits will be offset by costs related to TransCom
USA's new corporate management and by the costs associated with being a public
company. However, because these costs cannot be accurately quantified at this
time, they have not been included in the pro forma financial information of
TransCom USA.
The purchase price of the Founding Companies has been allocated based on
the estimated fair value of assets acquired and liabilities assumed. The pro
forma adjustments are based on estimates, available information and certain
assumptions and may be revised as additional information becomes available. In
the opinion of management, the final allocation of the purchase price will not
materially differ from these preliminary estimates. The unaudited pro forma
combined financial data presented herein do not purport to represent what the
Company's financial position or results of operations would have actually been
had such events occurred at the beginning of the periods presented, as assumed,
or to project the Company's financial position or results of operations for any
future period or the future results of the Founding Companies. The unaudited pro
forma combined financial statements should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
Prospectus. Also see "Risk Factors" included elsewhere herein.
F-3
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET -- MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSCOM GEAR & COOK
USA CARTER TCC WHEEL AMPARTS BROTHERS PLAZA UNIVERSAL
-------- ------- ------- ------- ------- ------- ------ ---------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......... $ 12 $ 14 $ 153 $ 212 $ 320 $ 1,225 $ 267 $ 192
Accounts receivable, net.......... -- 4,085 3,647 2,710 2,920 4,256 3,171 1,940
Receivable(s) from related
parties......................... -- 99 34 423 418 439 -- --
Notes receivable, current......... -- -- -- -- -- 764 -- --
Inventories....................... -- 9,935 4,785 7,688 5,836 10,313 3,986 2,348
Prepaid expenses and other........ -- 90 865 14 90 379 12 73
Deferred tax asset................ -- 423 189 -- -- 146 -- --
-------- ------- ------- ------- ------- ------- ------ ---------
Total current assets.......... 12 14,646 9,673 11,047 9,584 17,522 7,436 4,553
PROPERTY AND EQUIPMENT, net.......... -- 772 1,146 842 384 3,065 1,431 328
NOTES RECEIVABLE, net................ -- -- -- -- -- 2,207 -- --
DEFERRED TAX ASSET................... -- -- -- -- 277 -- 243 116
OTHER ASSETS......................... 2,968 662 155 67 33 27 535 30
GOODWILL............................. -- -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------ ---------
Total assets.................. $ 2,980 $16,080 $10,974 $11,956 $10,278 $22,821 $9,645 $ 5,027
======== ======= ======= ======= ======= ======= ====== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 2,947 $ 5,135 $ 4,989 $ 1,987 $3,708 $ 3,122 $2,966 $ 1,994
Payable(s) to related parties..... -- 107 5 606 58 31 183 --
Line(s) of credit................. -- 4,313 1,981 1,940 1,736 7,922 1,400 1,000
Current maturities of long-term
debt............................ -- 145 87 239 -- 4,152 67 90
Deferred tax liability............ -- -- -- 636 857 -- 77 --
Other current liabilities......... -- 89 -- 30 -- -- -- --
Payable to Founding Companies'
stockholders.................... -- -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------ ---------
Total current liabilities..... 2,947 9,789 7,062 5,438 6,359 15,227 4,693 3,084
LONG-TERM DEBT, net.................. -- 1,523 558 572 -- 4,436 211 108
PAYABLE TO RELATED PARTY............. -- -- -- 381 -- 249 787 --
DEFERRED TAX LIABILITY............... -- -- 354 332 -- 327 -- --
-------- ------- ------- ------- ------- ------- ------ ---------
Total liabilities............. 2,947 11,312 7,974 6,723 6,359 20,239 5,691 3,192
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY.......................... -- -- -- -- -- -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock................... -- -- 717 -- -- -- -- --
Common stock...................... 33 265 40 8 713 424 11 10
Additional paid-in capital........ 10,947 207 13 -- -- -- --
Retained earnings................. (10,947) 5,387 2,243 5,287 3,206 3,010 3,943 1,825
Deferred compensation............. -- (1,091) -- -- -- -- -- --
Treasury stock, at cost........... -- -- -- (75) -- (852) -- --
-------- ------- ------- ------- ------- ------- ------ ---------
Total stockholders' equity.... 33 4,768 3,000 5,233 3,919 2,582 3,954 1,835
-------- ------- ------- ------- ------- ------- ------ ---------
Total liabilities and
stockholders' equity......... $ 2,980 $16,080 $10,974 $11,956 $10,278 $22,821 $9,645 $ 5,027
======== ======= ======= ======= ======= ======= ====== =========
PRO FORMA POST MERGER
PERFECTION DRIVE LINE TOTAL ADJUSTMENTS PRO FORMA ADJUSTMENTS
---------- ---------- -------- ----------- --------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 47 $ 28 $ 2,470 $ (684) $ 1,786 $ --
Accounts receivable, net.......... 2,534 1,011 26,274 (100) 26,174 --
Receivable(s) from related
parties......................... 26 604 2,043 (599) 1,444 --
Notes receivable, current......... -- -- 764 -- 764 --
Inventories....................... 3,414 2,016 50,321 4,042 54,363 --
Prepaid expenses and other........ 14 4 1,541 -- 1,541 --
Deferred tax asset................ 101 -- 859 -- 859 --
---------- ---------- -------- ----------- --------- ------------
Total current assets.......... 6,136 3,663 84,272 2,659 86,931 --
PROPERTY AND EQUIPMENT, net.......... 1,586 1,768 11,322 (847) 10,475 (1,519)
NOTES RECEIVABLE, net................ -- -- 2,207 -- 2,207 --
DEFERRED TAX ASSET................... 51 -- 687 18 705 --
OTHER ASSETS......................... 1 -- 4,478 (540) 3,938 (2,968)
GOODWILL............................. -- -- -- 72,750 72,750 --
---------- ---------- -------- ----------- --------- ------------
Total assets.................. $7,774 $5,431 $102,966 $ 74,040 $177,006 $ (4,487)
========== ========== ======== =========== ========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $2,833 $ 819 $ 30,500 $ (99) $ 30,401 $ (2,947)
Payable(s) to related parties..... -- 1,705 2,695 (599) 2,096 (1,983)
Line(s) of credit................. -- 984 21,276 -- 21,276 (21,276)
Current maturities of long-term
debt............................ 196 62 5,038 (113) 4,925 (4,925)
Deferred tax liability............ -- -- 1,570 2,426 3,996 --
Other current liabilities......... -- -- 119 -- 119 --
Payable to Founding Companies'
stockholders.................... -- -- -- 21,048 21,048 (21,048)
---------- ---------- -------- ----------- --------- ------------
Total current liabilities..... 3,029 3,570 61,198 22,663 83,861 (52,179)
LONG-TERM DEBT, net.................. 3,439 1,351 12,198 4,299 16,497 (3,191)
PAYABLE TO RELATED PARTY............. -- -- 1,417 -- 1,417 (382)
DEFERRED TAX LIABILITY............... -- -- 1,013 -- 1,013 --
---------- ---------- -------- ----------- --------- ------------
Total liabilities............. 6,468 4,921 75,826 26,962 102,788 (55,752)
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY.......................... 178 -- 178 (178) -- --
STOCKHOLDERS' EQUITY:
Preferred stock................... -- -- 717 (717) -- --
Common stock...................... 10 -- 1,514 (1,406) 108 55
Additional paid-in capital........ 606 37 11,810 73,247 85,057 51,210
Retained earnings................. 653 473 15,080 (26,027) (10,947) --
Deferred compensation............. -- -- (1,091) 1,091 -- --
Treasury stock, at cost........... (141) -- (1,068) 1,068 -- --
---------- ---------- -------- ----------- --------- ------------
Total stockholders' equity.... 1,128 510 26,962 47,256 74,218 51,265
---------- ---------- -------- ----------- --------- ------------
Total liabilities and
stockholders' equity......... $7,774 $5,431 $102,966 $ 74,040 $177,006 $ (4,487)
========== ========== ======== =========== ========= ============
</TABLE>
AS ADJUSTED
-----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 1,786
Accounts receivable, net.......... 26,174
Receivable(s) from related
parties......................... 1,444
Notes receivable, current......... 764
Inventories....................... 54,363
Prepaid expenses and other........ 1,541
Deferred tax asset................ 859
-----------
Total current assets.......... 86,931
PROPERTY AND EQUIPMENT, net.......... 8,956
NOTES RECEIVABLE, net................ 2,207
DEFERRED TAX ASSET................... 705
OTHER ASSETS......................... 970
GOODWILL............................. 72,750
-----------
Total assets.................. $ 172,519
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses........................ $ 27,454
Payable(s) to related parties..... 113
Line(s) of credit................. --
Current maturities of long-term
debt............................ --
Deferred tax liability............ 3,996
Other current liabilities......... 119
Payable to Founding Companies'
stockholders.................... --
-----------
Total current liabilities..... 31,682
LONG-TERM DEBT, net.................. 13,306
PAYABLE TO RELATED PARTY............. 1,035
DEFERRED TAX LIABILITY............... 1,013
-----------
Total liabilities............. 47,036
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY.......................... --
STOCKHOLDERS' EQUITY:
Preferred stock................... --
Common stock...................... 163
Additional paid-in capital........ 136,267
Retained earnings................. (10,947)
Deferred compensation............. --
Treasury stock, at cost........... --
-----------
Total stockholders' equity.... 125,483
-----------
Total liabilities and
stockholders' equity......... $ 172,519
===========
See accompanying notes to unaudited pro forma combined financial statements.
F-4
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSCOM GEAR & COOK
USA CARTER TCC WHEEL AMPARTS BROTHERS PLAZA
-------- ------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $37,528 $ 33,001 $ 22,944 $22,687 $22,225 $ 20,721
COST OF SALES........................ -- 25,467 23,619 15,972 17,240 14,999 14,125
-------- ------- --------- -------- ------- -------- --------
Gross profit........................ -- 12,061 9,382 6,972 5,447 7,226 6,596
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 4,276 11,087 8,063 5,980 2,857 5,524 5,575
-------- ------- --------- -------- ------- -------- --------
Income from operations.............. (4,276) 974 1,319 992 2,590 1,702 1,021
OTHER INCOME (EXPENSE):
Interest expense.................... -- (530) (222) (210) (115) (1,182) (119)
Other income (expense), net......... -- 207 57 69 (126) 101 88
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY............. -- -- -- -- -- -- --
-------- ------- --------- -------- ------- -------- --------
INCOME BEFORE INCOME TAXES........... (4,276) 651 1,154 851 2,349 621 990
PROVISION FOR INCOME TAXES........... -- 154 419 437 292 259 396
-------- ------- --------- -------- ------- -------- --------
NET INCOME........................... $(4,276) $ 497 $ 735 $ 414 $2,057 $ 362 $ 594
======== ======= ========= ======== ======= ======== ========
DRIVE PRO FORMA
UNIVERSAL PERFECTION LINE TOTAL ADJUSTMENTS PRO FORMA
---------- ---------- --------- --------- ------------ ----------
REVENUES............................. $ 14,716 $ 14,657 $ 5,997 $ 194,476 $ 13,112 $ 207,588
COST OF SALES........................ 10,083 11,322 3,385 136,212 10,899 147,111
---------- ---------- --------- --------- ------------ ----------
Gross profit........................ 4,633 3,335 2,612 58,264 2,213 60,477
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 4,005 2,531 1,530 51,428 (4,294) 47,134
---------- ---------- --------- --------- ------------ ----------
Income from operations.............. 628 804 1,082 6,836 6,507 13,343
OTHER INCOME (EXPENSE):
Interest expense.................... (115) (269) (191) (2,953) 2,413 (540)
Other income (expense), net......... 3 -- 47 446 25 471
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY............. -- (33) -- (33) 33 --
---------- ---------- --------- --------- ------------ ----------
INCOME BEFORE INCOME TAXES........... 516 502 938 4,296 8,978 13,274
PROVISION FOR INCOME TAXES........... 158 200 -- 2,315 3,657 5,972
---------- ---------- --------- --------- ------------ ----------
NET INCOME........................... $ 358 $ 302 $ 938 $ 1,981 $ 5,321 $ 7,302
========== ========== ========= ========= ============ ==========
NET INCOME PER SHARE...................................................................................... $ 0.45
==========
SHARES USED IN COMPUTING PRO FORMA NET INCOME PER SHARE(1)................................................ 16,262,611
</TABLE>
(1) Includes (i) 2,162,388 shares issued to Notre Capital Ventures II, L.L.C.
(ii) 1,106,829 shares issued to management, directors and consultants of
TransCom USA, (iii) 7,493,394 shares issued to owners of the Founding
Companies and (iv) 5,500,000 shares sold in the Offering. Basic and diluted
income per share are the same for the year ended December 31, 1997.
See accompanying notes to unaudited pro forma combined financial statements.
F-5
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TRANSCOM GEAR & COOK
USA CARTER TCC WHEEL AMPARTS BROTHERS PLAZA
-------- ------- --------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ -- $ 9,372 $ 9,758 $ 6,113 $6,489 $ 6,702 $ 5,829
COST OF SALES........................ -- 6,326 6,971 3,917 4,768 4,451 3,887
-------- ------- --------- -------- ------- -------- --------
Gross profit........................ -- 3,046 2,787 2,196 1,721 2,251 1,942
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 6,671 2,832 2,110 1,881 889 1,547 1,521
-------- ------- --------- -------- ------- -------- --------
Income from operations.............. (6,671) 214 677 315 832 704 421
OTHER INCOME (EXPENSE):
Interest expense.................... -- (120) (43) (104) (40) (421) (34)
Other income (expense), net......... -- 20 13 (22) (136) (35) 6
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY............. -- -- -- -- -- -- --
-------- ------- --------- -------- ------- -------- --------
INCOME BEFORE INCOME TAXES........... (6,671) 114 647 189 656 248 393
PROVISION FOR INCOME TAXES........... -- 3 266 16 93 101 154
-------- ------- --------- -------- ------- -------- --------
NET INCOME........................... $(6,671) $ 111 $ 381 $ 173 $ 563 $ 147 $ 239
======== ======= ========= ======== ======= ======== ========
DRIVE PRO FORMA
UNIVERSAL PERFECTION LINE TOTAL ADJUSTMENTS PRO FORMA
---------- ---------- --------- --------- ------------ ----------
REVENUES............................. $ 4,384 $ 5,527 $ 1,719 $ 55,893 $ 204 $ 56,097
COST OF SALES........................ 2,900 4,309 1,205 38,734 (35) 38,699
---------- ---------- --------- --------- ------------ ----------
Gross profit........................ 1,484 1,218 514 17,159 239 17,398
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 1,078 685 486 19,700 (6,742) 12,958
---------- ---------- --------- --------- ------------ ----------
Income from operations.............. 406 533 28 (2,541) 6,981 4,440
OTHER INCOME (EXPENSE):
Interest expense.................... (26) (81) (110) (979) 763 (216)
Other income (expense), net......... -- (63) 29 (188) -- (188)
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY............. -- (22) -- (22) 22 --
---------- ---------- --------- --------- ------------ -----------
INCOME BEFORE INCOME TAXES........... 380 367 (53) (3,730) 7,766 4,036
PROVISION FOR INCOME TAXES........... 116 143 -- 892 900 1,792
---------- ---------- --------- --------- ------------ -----------
NET INCOME........................... $ 264 $ 224 $ (53) $ (4,622) $ 6,866 $ 2,244
========== ========== ========= ========= ============ ===========
NET INCOME PER SHARE...................................................................................... $ 0.14
===========
SHARES USED IN COMPUTING PRO FORMA NET INCOME PER SHARE(1)................................................ 16,262,611
</TABLE>
(1) Includes (i) 2,162,388 shares issued to Notre Capital Ventures II, L.L.C.
(ii) 1,106,829 shares issued to management, directors and consultants of
TransCom USA, (iii) 7,493,394 shares issued to owners of the Founding
Companies and (iv) 5,500,000 shares sold in the Offering. Basic and diluted
income per share are the same for three months ended March 31, 1998.
See accompanying notes to unaudited pro forma combined financial statements.
F-6
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL:
TransCom USA was formed to become a leading national, value-added
independent distributor of replacement parts and supplies for commerical trucks
and trailers and other types of specialized heavy duty vehicles and equipment.
TransCom USA conducted no operations prior to the Offering and will acquire the
Founding Companies simultaneously with the consummation of the Offering.
The historical financial statements represent the financial position and
results of operations of the Founding Companies and were derived from the
respective Founding Companies' financial statements . The periods included in
these financial statements for the individual Founding Companies are as of and
for the three months ended March 31, 1998 and for the year ended December 31,
1997. The historical financial statements included elsewhere herein have been
included in accordance with Securities and Exchange Commmission Staff Accounting
Bulletin No. 80.
2. ACQUISITION OF FOUNDING COMPANIES:
Concurrently with and as a condition to the closing of the Offering,
TransCom USA will acquire all of the outstanding capital stock of the Founding
Companies. The Mergers were accounted for using the purchase method of
accounting with TransCom USA being treated as the accounting acquiror. The
following table sets forth the consideration to be paid (a) in cash and (b) in
shares of the Company's Common Stock to the stockholders of each of the Founding
Companies. For purposes of computing the estimated purchase price for accounting
purposes, the value of the shares has been determined using an estimated fair
value of $9.90 per share, which represents a discount of ten percent from the
assumed initial public offering price 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. In the opinion of
management, the final allocation of the purchase price will not materially
differ from these preliminary estimates. Adjustments to the purchase price will
be based upon the actual Offering Price.
COMMON STOCK
----------------------
VALUE OF
CASH SHARES SHARES
--------- --------- ---------
(DOLLARS IN THOUSANDS)
Carter............................... $ -- 871,006 $ 8,623
TCC.................................. -- 1,042,909 10,325
Gear & Wheel......................... 4,475 793,163 7,852
Amparts.............................. 6,465 881,574 8,728
Cook Brothers........................ -- 933,207 9,239
Plaza................................ 4,269 864,411 8,558
Universal............................ 1,650 476,364 4,716
Perfection........................... 4,189 380,760 3,769
Drive Line........................... -- 1,250,000 12,375
--------- --------- ---------
Total........................... $ 21,048 7,493,394 $ 74,185
========= ========= =========
3. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(a) Records the S Corporation Distributions of $5.4 million.
(b) Records the distribution of certain real estate and nonoperating
assets and liabilities in connection with the Mergers. In addition, reflects the
reduction for certain operating assets and liabilities which were not acquired
in the Mergers.
F-7
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Records the purchase of the Founding Companies for a total purchase
price of $95.2 million. The entry includes the liability of $21.0 million for
the cash portion of the consideration paid to the stockholders of the Founding
Companies in connection with the Mergers and the issuance of 7.5 million shares
of Common Stock to the Founding Companies resulting in the creation of $72.8
million of goodwill after allocating the purchase price to the aggregate assets
acquired and liabilities assumed as shown below. Based on its initial
assessment, management believes that the historical carrying value of the
Founding Companies' assets and liabilities will approximate fair value and that
there are no other identifiable intangible assets to which any material purchase
price can be allocated.
ASSETS
Cash and cash equivalents............... $ 1,774
Accounts receivable, net................ 26,174
Receivables from related parties........ 1,444
Notes receivable, current............... 764
Inventories............................. 54,363
Prepaid expenses and other.............. 1,541
Deferred tax asset...................... 859
----------
Total current assets............... 86,919
Property and equipment, net............. 10,475
Notes receivable, net................... 2,207
Deferred tax assets..................... 705
Other assets............................ 970
----------
Total assets....................... $ 101,276
==========
LIABILITIES
Accounts payable and accrued expenses... $ 27,454
Payables to related parties............. 2,096
Lines of credit......................... 21,276
Current maturities of long-term debt.... 4,925
Deferred income taxes................... 3,996
Other current liabilities............... 119
----------
Total current liabilities.......... 59,866
Long-term debt, net..................... 16,497
Payable to related party................ 1,417
Deferred tax liabilities................ 1,013
----------
Total liabilities.................. $ 78,793
==========
(d) Records the net deferred income tax liability attributable to the
balance sheet adjustments and temporary differences between the financial
reporting and tax bases of assets and liabilities held in the S Corporations.
(e) Records the cash proceeds from the issuance of 5,500,000 shares of
Common Stock, net of estimated offering costs (based on an assumed initial
public offering price of $11.00 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 Mergers and the
repayment of a considerable portion of the Founding Companies existing debt.
(g) Records the cash proceeds from the sale of four facilities to a
stockholder of Plaza.
F-8
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables summarize the unaudited pro forma combined balance
sheet adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS
--------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ (684) $ -- $ -- $ -- $ (684)
Accounts receivable, net............. -- -- (100) -- (100)
Receivables from related parties..... -- -- (599) -- (599)
Inventories.......................... -- -- 4,042 -- 4,042
--------- --------- --------- --------- ------------
Total current assets........ (684) -- 3,343 -- 2,659
Property and equipment, net.......... -- (1,625) 778 -- (847)
Deferred tax asset................... -- -- -- 18 18
Other assets......................... -- (540) -- -- (540)
Goodwill............................. -- -- 72,750 -- 72,750
--------- --------- --------- --------- ------------
Total assets................ $ (684) $ (2,165) $ 76,871 $ 18 $ 74,040
========= ========= ========= ========= ============
Accounts payable and accrued
expenses........................... $ -- $ -- $ (99) $ -- $ (99)
Payables to related parties.......... -- -- (599) -- (599)
Current maturities of long-term
debt............................... -- (113) -- (113)
Deferred tax liability............... -- -- 1,071 1,355 2,426
Payable to Founding Companies
stockholders....................... -- -- 21,048 -- 21,048
--------- --------- --------- --------- ------------
Total current liabilities... -- (113) 21,421 1,355 22,663
Long-term debt, net.................. 4,753 (1,171) 717 -- 4,299
--------- --------- --------- --------- ------------
Total liabilities........... 4,753 (1,284) 22,138 1,355 26,962
Minority interest in consolidated
subsidiary......................... -- -- (178) -- (178)
Stockholders' equity:
Preferred stock.................. -- -- (717) -- (717)
Common stock..................... -- -- (1,406) -- (1,406)
Additional paid-in capital....... -- -- 73,247 -- 73,247
Retained earnings................ (5,437) (881) (18,372) (1,337) (26,027)
Deferred compensation............ -- -- 1,091 -- 1,091
Treasury stock, at cost.......... -- -- 1,068 -- 1,068
--------- --------- --------- --------- ------------
Total stockholders'
equity.................... (5,437) (881) 54,911 (1,337) 47,256
--------- --------- --------- --------- ------------
Total liabilities and
stockholders' equity...... $ (684) $ (2,165) $ 76,871 $ 18 $ 74,040
========= ========= ========= ========= ============
<CAPTION>
POST MERGER
(E) (F) (G) ADJUSTMENTS
--------- --------- --------- -------------
Cash and cash equivalents............ $ 51,286 $ (52,805) 1,519 $ --
Property and equipment, net.......... -- -- (1,519) (1,519)
Other assets......................... (2,968) -- -- (2,968)
--------- --------- --------- -------------
Total assets................ 48,318 (52,805) -- (4,487)
========= ========= ========= =============
Accounts payable and accrued
expenses............................. (2,947) -- -- (2,947)
Payable(s) to related parties........ -- (1,983) -- (1,983)
Lines of credit...................... -- (21,276) -- (21,276)
Current maturities of long-term
debt............................... -- (4,925) -- (4,925)
Payable to Founding Companies'
stockholders......................... -- (21,048) -- (21,048)
--------- --------- --------- -------------
Total current liabilities... (2,947) (49,232) -- (52,179)
Long-term debt, net.................. -- (3,191) -- (3,191)
Payable to related party............. -- (382) -- (382)
--------- --------- --------- -------------
Total liabilities........... (2,947) (52,805) -- (55,752)
Stockholders' equity:
Common stock..................... 55 -- -- 55
Additional paid-in capital....... 51,210 -- -- 51,210
--------- --------- --------- -------------
Total stockholders'
equity...................... 51,265 -- -- 51,265
--------- --------- --------- -------------
Total liabilities and
stockholders' equity........ $ 48,318 $ (52,805) $ -- $ (4,487)
========= ========= ========= =============
</TABLE>
F-9
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
YEAR ENDED DECEMBER 31, 1997
(a) Reflects the pre-acquisition results of operations for two parts
distribution businesses and one truck dealership acquired by certain Founding
Companies. The assets of Wilkes Barre Mack Sales and Service were purchased by
Cook Brothers for approximately $1.2 million in December 1997. Certain assets of
Heartland Truck and Trailer Center and Muncie Power Products, Inc. were
purchased by TCC for $431,000 in January 1998 and by Plaza for $360,000 in
February 1998, respectively.
(b) Reflects the reduction in operations for the distribution of certain
assets and liabilities which will not be acquired in the Mergers, the reduction
in cost of sales on a FIFO basis for certain Founding Companies which have
historically accounted for inventory on a LIFO basis and the elimination of
minority interests.
(c) Reflects the reversal of the $4.3 million non-cash compensation
charge related to the issuance of 432,329 shares of Common Stock to management
and directors of and consultants to the Company offset by a charge for the
recurring portion of salary expenses of management. Also reflects the $3.5
million reduction in salaries, bonuses and benefits to the owners of the
Founding Companies to which they agreed in connection with the mergers, as
detailed in the following table (in thousands):
Historical 1997 Salaries, Bonuses and
Benefits............................. $ 5,336
Prospective 1998 Salaries, Bonuses
and Benefits......................... 1,802
---------
Compensation Differential............ $ 3,534
=========
Each of the owners of the Founding Companies will enter into an employment
agreement, for a term of five years, upon consummation of the Offering providing
for an annual base salary of $150,000 or less. Bonuses have not been considered
in the 1998 prospective amounts as management does not intend to pay any bonuses
in 1998.
(d) Reflects the amortization of goodwill to be recorded as a result of
the Mergers over a 40-year estimated life.
(e) Reflects the reduction in interest expense of $2.5 million due to the
planned repayment of existing debt in connection with the Mergers.
(f) Reflects the incremental provision for federal and state income taxes
relating to the statement of operations adjustments and to reflect income taxes
on S corporation income as if these entities had been taxable as C corporations
during the periods presented.
The following table summarizes the unaudited pro forma combined statements
of operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 13,112 $ -- $ -- $ -- $ -- $ -- $13,112
Cost of sales........................ 10,950 (51) -- -- -- -- 10,899
--------- --------- --------- --------- --------- --------- -----------
Gross profit......................... 2,162 51 -- -- -- -- 2,213
Selling, general and
administrative..................... 1,657 (36) (7,734) 1,819 -- -- (4,294)
--------- --------- --------- --------- --------- --------- -----------
Income from operations............... 505 87 7,734 (1,819) -- -- 6,507
Other income (expense)
Interest expense................. (186) 85 -- -- 2,514 -- 2,413
Other income (expense), net...... 25 -- -- -- -- -- 25
Minority interest in income of
consolidated subsidiary............ -- 33 -- -- -- -- 33
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... 344 205 7,734 (1,819) 2,514 -- 8,978
Provision for income taxes........... -- -- -- -- -- 3,657 3,657
--------- --------- --------- --------- --------- --------- -----------
Net income........................... $ 344 $ 205 $ 7,734 $ (1,819) $ 2,514 $ (3,657) $ 5,321
========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-10
<PAGE>
TRANSPORTATION COMPONENTS, INC. AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5._ UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS:
THREE MONTHS ENDED MARCH 31, 1998
(a) Reflects the pre-acquisition results of operations for a parts
distribution business acquired by Plaza in February 1998.
(b) Reflects the reduction in operations for the distribution of certain
assets and liabilities which will not be acquired in the Mergers, the reduction
in cost of sales on a FIFO basis for certain Founding Companies which have
historically accounted for inventory on a LIFO basis and the elimination of
minority interests.
(c) Reflects the reversal of the $6.7 million non-cash compensation
charge related to the issuance of 674,500 shares of Common Stock to management
and directors of and consultants to the Company offset by a charge for the
recurring portion of salary expenses of management. Also reflects the $0.7
million reduction in salaries, bonuses and benefits to the owners of the
Founding Companies to which they agreed in connection with the mergers, as
detailed in the following table (in thousands):
Historical First Quarter 1998 Salaries,
Bonuses and Benefits.................. $ 1,128
Pro-rata Portion of Prospective 1998
Salaries, Bonuses and Benefits........ 451
---------
Compensation Differential............... $ 677
=========
(d) Reflects the amortization of goodwill to be recorded as a result of the
Mergers over a 40-year estimated life.
(e) Reflects the reduction in interest expense of $0.7 million due to the
planned repayment of existing debt in connection with the Mergers.
(f) Reflects the incremental provision for federal and state income taxes
relating to the statement of operations adjustments and to reflect income taxes
on S corporation income as if these entities had been taxable as C corporations
during the periods presented.
The following table summarizes the unaudited pro forma combined statement of
operations adjustments:
<TABLE>
<CAPTION>
PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS
--------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................. $ 204 $ -- $ -- $ -- $ -- $ -- $ 204
Cost of sales........................ 162 (197) -- -- -- -- (35)
--------- --------- --------- --------- --------- --------- -----------
Gross profit......................... 42 197 -- -- -- -- 239
Selling, general and
administrative..................... 22 (9) (7,210) 455 -- -- (6,742)
--------- --------- --------- --------- --------- --------- -----------
Income from operations............... 20 206 7,210 (455) -- -- 6,981
Other income (expense)
Interest expense................. -- 21 -- -- 742 -- 763
Other income (expense), net...... -- -- -- -- -- -- --
Minority interest in income of
consolidated subsidiary............ -- 22 -- -- -- -- 22
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes........... 20 249 7,210 (455) 742 -- 7,766
Provision for income taxes........... -- -- -- -- -- 900 900
--------- --------- --------- --------- --------- --------- -----------
Net income........................... $ 20 $ 249 $ 7,210 $ (455) $ 742 $ (900) $ 6,866
========= ========= ========= ========= ========= ========= ===========
</TABLE>
F-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Transportation Components Inc.:
We have audited the accompanying balance sheet of Transportation
Components, Inc., as of December 31, 1997, and the related statements of
operations, stockholders' equity and cash flows for the period from inception
(October 9, 1997) to December 31, 1997. 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 Transportation Components,
Inc., as of December 31, 1997, and for the period from inception (October 9,
1997) to December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 15, 1998
F-12
<PAGE>
TRANSPORTATION COMPONENTS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
ASSETS
CASH................................. $ 5 $ 12
DEFERRED OFFERING COSTS.............. 337 2,968
------------ -----------
Total assets............... $ 342 $ 2,980
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCRUED LIABILITIES.................. $ 316 $ 2,947
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued.................... -- --
Common Stock, $.01 par value,
102,000,000 shares authorized,
2,594,717 and 3,269,217 shares
issued and outstanding as of
December 31, 1997 and March
31, 1998 (unaudited),
respectively................... 26 33
Additional paid-in capital...... 4,276 10,947
Retained deficit................ (4,276) (10,947)
------------ -----------
Total stockholders'
equity....................... 26 33
------------ -----------
Total liabilities and
stockholders' equity......... $ 342 $ 2,980
============ ===========
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
TRANSPORTATION COMPONENTS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
PERIOD
FROM INCEPTION THREE MONTHS
(OCTOBER 9, 1997) ENDED
TO MARCH 31,
DECEMBER 31, 1997 1998
------------------- -------------
(UNAUDITED)
REVENUES................................ -$- $--
COMPENSATION EXPENSE RELATING TO
ISSUANCE OF COMMON STOCK TO MANAGEMENT
AND CONSULTANTS....................... 4,276 6,671
------------------- -------------
LOSS BEFORE INCOME TAXES................ (4,276) (6,671)
INCOME TAX BENEFIT...................... -- --
------------------- -------------
NET LOSS................................ $(4,276) $(6,671)
=================== =============
The accompanying notes are an integral part of these financial statements.
F-14
<PAGE>
TRANSPORTATION COMPONENTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- -------- -------------
<S> <C> <C> <C>
INITIAL CAPITALIZATION BY NOTRE
(October 9, 1997).................. 108,119 $ 1 $ -- $ -- $ 1
Issuance of shares to Notre..... 2,054,269 21 -- -- 21
Issuance of management,
consultant and director
shares........................ 432,329 4 4,276 -- 4,280
Net loss........................ -- -- -- (4,276) (4,276)
--------- ------ ---------- -------- -------------
BALANCE, December 31, 1997........... 2,594,717 26 4,276 (4,276) 26
Issuance of management,
consultant and director shares
(unaudited)................... 674,500 7 6,671 -- 6,678
Net loss (unaudited)............ -- -- -- (6,671) (6,671)
--------- ------ ---------- -------- -------------
BALANCE, March 31, 1998
(unaudited)........................ 3,269,217 $ 33 $ 10,947 $(10,947) $ 33
========= ====== ========== ======== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
TRANSPORTATION COMPONENTS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD
FROM INCEPTION
(OCTOBER 9, THREE MONTHS
1997) ENDED
TO DECEMBER 31, MARCH 31,
1997 1998
---------------- ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................ $ (4,276) $ (6,671)
Adjustments to reconcile net
loss to net cash provided by
operating activities --
Compensation expense related
to issuance of common stock
to management and
consultants................ 4,276 6,671
Changes in assets and
liabilities --
Increase in deferred
offering costs.......... (337) (2,631)
Increase in accrued
liabilities............. 337 2,631
---------------- ------------
Net cash provided by
operating
activities......... -- --
---------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock............... 5 7
---------------- ------------
Net cash provided by
financing
activities......... 5 7
---------------- ------------
NET INCREASE......................... 5 7
CASH, beginning of period............ -- 5
---------------- ------------
CASH, end of period.................. $ 5 $ 12
================ ============
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Transportation Components, Inc. (TransCom USA or the Company), a Delaware
corporation, was founded in October 1997 to become a leading national provider
of truck parts and service to the transportation industry. TransCom USA intends
to acquire nine businesses (the Mergers), complete an initial public offering of
its common stock (the Offering) and, subsequent to the Offering, continue to
acquire, through merger or purchase, similar companies to expand its national
operations.
TransCom USA has not conducted any operations, and all activities to date
have related to the Offering and the Mergers. All expenditures to date have been
funded by the majority stockholder, Notre Capital Ventures II, L.L.C. (Notre),
on behalf of the Company. Notre has committed to fund the organization expenses
and Offering costs. Costs of approximately $0.3 million and $3.0 million have
been incurred by Notre in connection with the Offering as of December 31, 1997
and March 31, 1998, respectively. TransCom USA has treated these costs as
deferred offering costs. TransCom USA is dependent upon the Offering to execute
the pending Mergers. There is no assurance that the pending Mergers discussed
below will be completed or that TransCom USA will be able to generate future
operating revenues.
The Company has an absence of a combined operating history, and TransCom
USA's future success is dependent upon a number of factors which include, among
others, the ability to integrate operations and computer systems, reliance on
the identification and integration of satisfactory acquisition candidates,
reliance on acquisition financing, the ability to manage growth and attract and
retain qualified management and personnel, reliance of continued demand for
replacement parts and of product availability, the ability to mitigate
international business risk and economic and seasonal business fluctuations, as
well as the need for additional capital.
2. STOCKHOLDERS' EQUITY:
COMMON STOCK AND PREFERRED STOCK
TransCom USA effected a 108.1194-for-one stock dividend in April 1998, for
each share of common stock of the Company (Common Stock) then outstanding. In
addition, the Company increased the number of authorized shares of Common Stock
to 100,000,000 and authorized 5,000,000 shares of $.01 par value preferred
stock. The effects of the Common Stock dividend have been retroactively
reflected on the balance sheet and in the accompanying notes.
In connection with the organization and initial capitalization of TransCom
USA, the Company issued 108,119 shares of common stock at $.01 per share (Common
Stock) to Notre. Notre incurred $20,535 of expenses on behalf of the Company for
which the Company issued 2,054,269 shares to Notre in November 1997.
In November 1997, the Company issued a total of 432,329 shares of Common
Stock to management and directors of and consultants to the Company at a price
of $.01 per share. As a result, the Company recorded a nonrecurring, noncash
compensation charge of $4.3 million, representing the difference between the
amount paid for the shares and an estimated fair value of the shares on the date
of sale as if the Founding Companies were combined. During the first quarter of
1998, the Company issued an additional 674,500 shares to management of the
Company at a price of $.01 per share. As a result, the Company recorded a
nonrecurring, noncash compensation charge of $6.7 million, representing the
difference between the amount paid for the shares and an estimated fair value of
the shares on the date of sale as if the Founding Companies were combined.
RESTRICTED VOTING COMMON STOCK
In April 1998, the Company authorized 2,000,000 shares of $.01 par value
restricted voting common stock (Restricted Common Stock) and the primary
stockholder exchanged 1,912,388 shares of Common Stock for an equal number of
shares of Restricted Common Stock. The holders of Restricted Common
F-17
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Stock are entitled to elect one member of the Company's board of directors and
to 0.75 of one vote for each share on all other matters on which they are
entitled to vote. Holders of Restricted Common Stock are not entitled to vote on
the election of any other directors.
Each share of Restricted Common Stock will automatically convert to Common
Stock on a share-for-share basis (a) in the event of a disposition of such share
of Restricted Common Stock by the holder thereof (other than a distribution
which is a distribution by a holder to its partners or beneficial owners or a
transfer to a related party of such holder (as defined in Sections 267, 707, 318
and/or 4946 of the Internal Revenue Code of 1986, as amended)), (b) in the event
any person acquires beneficial ownership of 15 percent or more of the total
number of outstanding shares of Common Stock of the Company, (c) in the event
any person offers to acquire 15 percent or more of the total number of
outstanding shares of Common Stock of the Company, (d) in the event the holder
of Restricted Common Stock elects to convert it into Common Stock at any time
after the second anniversary of the consummation of the Company's Offering, (e)
on the third anniversary of the date of the consummation of the Company's
Offering or (f) in the event a majority of the aggregate number of votes which
may be cast by the holders of outstanding shares of Common Stock and Restricted
Common Stock entitled to vote approve such conversion. After June 30, 2000, the
board of directors may elect to convert any remaining shares of Restricted
Common Stock into shares of Common Stock in the event 80 percent or more of the
originally outstanding shares of Restricted Common Stock have been previously
converted into shares of Common Stock.
LONG-TERM INCENTIVE PLAN
In March 1998, the Company's stockholders approved the Company's 1998
Long-Term Incentive Plan (the Plan), which provides for the granting or awarding
of incentive or nonqualified stock options, stock appreciation rights,
restricted or deferred stock, dividend equivalents and other incentive awards to
directors, officers and key employees of and consultants to the Company. The
number of shares authorized and reserved for issuance under the Plan is the
greater of 2,500,000 shares or 15 percent of the aggregate number of shares of
Common Stock outstanding at the date of grant. The terms of the option awards
will be established by the compensation committee of the Company's board of
directors. The Company intends to file a registration statement registering the
issuance of shares upon exercise of options granted under this Plan. The Company
expects to grant nonqualified stock options to purchase a total of 800,000
shares of Common Stock to employees of the Company at the initial public
offering price upon consummation of the Offering. In addition, the Company
expects to grant options to purchase a total of 970,465 shares of Common Stock
to certain employees of the Founding Companies at the initial public offering
price per share. These options will vest at the rate of 20 percent per year,
commencing on the first anniversary of the Offering, and will expire at the
earlier of ten years from the date of grant or three months following
termination of employment.
NONEMPLOYEE DIRECTORS' STOCK PLAN
In March 1998, the Company's stockholders approved the 1998 Non-employee
Directors' Stock Plan (the "Directors' Plan"), which provides for the granting
of stock options to nonemployee directors of the Company. The number of shares
authorized and reserved for issuance under the Directors' Plan is 250,000
shares. The Directors' Plan provides for the automatic grant of options to
purchase 10,000 shares to each nonemployee director serving at the commencement
of the Offering.
Each nonemployee director will be granted options to purchase an additional
10,000 shares at the time of the initial election. In addition, each director
will be automatically granted options to purchase 5,000 shares at each annual
meeting of the stockholders thereafter at which such director is re-elected or
remains a director, unless such annual meeting is held within three months of
such person's initial election as a director. All options will be exercised at
the fair market value at the date of grant and are immediately vested upon
grant.
F-18
<PAGE>
TRANSPORTATION COMPONENTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Options will be granted to each of two future and one current member of the
board of directors to purchase 10,000 shares of Common Stock at the initial
public offering price per share effective upon the consummation of the Offering.
These options will expire the earlier of ten years from the date of grant or one
year after termination of service as a director.
The Directors' Plan allows nonemployee directors to elect to receive shares
(deferred shares) at future settlement dates in lieu of cash. The number of
deferred shares will have an aggregate fair market value equal to the fees
payable to the directors.
Statement of Financial Accounting Standards (SFAS) 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 (APB) Opinion No. 25. The Company will
provide pro forma disclosure of net income and earnings per share, as
applicable, in the notes to future consolidated financial statements.
3. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. The
Company will adopt SFAS No. 131 in the year ended December 31, 1998.
4. EVENTS SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS:
Wholly owned subsidiaries of TransCom USA have signed definitive agreements
to acquire by merger or share exchange nine companies (the Founding Companies)
to be effective contemporaneously with the Offering. The companies to be
acquired are Charles W. Carter Co. -- Los Angeles; Transportation Components Co.
and its affiliates L.L.L., Inc. and MSL, Inc.; Gear & Wheel, Inc. and its
affiliates Try One, Inc. and Ocala Truck Parts, Inc.; Amparts International,
Inc., and its affiliates Amparts, Inc. and Proveedor Mayorista al Refaccionario
S.A. de C.V.; The Cook Brothers Companies, Inc. and Subsidiary, Plaza
Automotive, Inc. and Subsidiary, TPE, Inc. and Subsidiary, Universal Fleet
Supply, Inc., and Drive Line, Inc. TransCom USA will acquire the Founding
Companies for cash and 7.5 million shares of Common Stock.
In April 1998, TransCom USA filed a registration statement on Form S-1 for
the sale of 5,500,000 shares of its Common Stock. An investment in shares of
Common Stock offered by this Prospectus involves a high degree of risk as
discussed in Note 1. For a more thorough discussion of risk factors, see "Risk
Factors" included elsewhere in this Prospectus.
TransCom USA has received a commitment for a credit facility of at least
$75.0 million, which would be available upon consummation of the Offering. The
credit facility will be used to fund acquisitions and working capital
requirements. It is anticipated that the credit facility will be subject to
various loan convenants including: (i) maintenance of certain financial ratios,
(ii) restrictions on additional indebtedness and (iii) restrictions on liens,
guarantees, advances and dividends. The credit facility is expected to be
subject to customary drawing conditions and will be available only upon
consummation of this Offering.
F-19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Charles W. Carter Co. -- Los Angeles
We have audited the accompanying consolidated balance sheets of Charles W.
Carter Co. -- Los Angeles as of March 31, 1998 and March 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended March 31, 1998, March 31, 1997 and March 29, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Charles W.
Carter Co. -- Los Angeles at March 31, 1998 and March 31, 1997, and the
consolidated results of their operations and their cash flows for the years
ended March 31, 1998, March 31, 1997 and March 29, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
May 15, 1998
F-20
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, MARCH 31,
1997 1998
--------- ---------
ASSETS
CURRENT ASSETS:
Cash............................ $ 215 $ 14
Accounts receivable, net........ 3,836 4,085
Receivables from related
parties........................ 18 99
Inventories..................... 9,005 9,935
Prepaid expenses and other...... 93 90
Deferred tax assets............. 172 423
--------- ---------
Total current
assets.............. 13,339 14,646
PROPERTY AND EQUIPMENT, net.......... 807 772
OTHER ASSETS......................... 637 662
--------- ---------
Total assets.......... $14,783 $16,080
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 4,767 $ 5,135
Payable to related parties...... 85 107
Line of credit.................. 3,332 4,313
Other current liabilities....... 211 89
Current maturities of long-term
debt........................... 246 145
--------- ---------
Total current
liabilities......... 8,641 9,789
LONG-TERM DEBT, net.................. 1,983 1,523
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $10 par value,
100,000 shares authorized,
26,450 shares issued and
outstanding.................... 265 265
Deferred Compensation........... (1,211) (1,091)
Additional paid-in capital...... 187 207
Retained earnings............... 4,918 5,387
--------- ---------
Total stockholders'
equity.............. 4,159 4,768
--------- ---------
Total liabilities and
stockholders'
equity.............. $14,783 $16,080
========= =========
See notes to consolidated financial statements.
F-21
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED
----------------------------------------
MARCH 29, MARCH 31, MARCH 31,
1996 1997 1998
----------- ----------- ----------
REVENUES............................. $35,824 $35,437 $37,982
COST OF SALES........................ 24,463 24,049 25,633
----------- ----------- ----------
Gross profit.................... 11,361 11,388 12,349
SELLING AND ADMINISTRATIVE
EXPENSES........................... 10,710 10,378 11,261
----------- ----------- ----------
Income from operations.......... 651 1,010 1,088
OTHER INCOME (EXPENSE):
Interest expense................ (706) (487) (529)
Other income, net............... 199 122 67
----------- ----------- ----------
INCOME BEFORE INCOME TAXES........... 144 645 626
PROVISION FOR INCOME TAXES........... 75 258 157
----------- ----------- ----------
NET INCOME........................... $ 69 $ 387 $ 469
=========== =========== ==========
See notes to consolidated financial statements.
F-22
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL UNEARNED ESOP PAID-IN RETAINED
STOCK SHARES CAPITAL EARNINGS TOTAL
------- ------------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995................. $ 265 $(1,400) $ 169 $ 4,462 $3,496
Deferred compensation............... -- 80 7 -- 87
Net income.......................... -- -- -- 69 69
------- ------------- ---------- --------- ------
Balance, March 29, 1996................. 265 (1,320) 176 4,531 3,652
Deferred compensation............... -- 109 11 -- 120
Net income.......................... -- -- -- 387 387
------- ------------- ---------- --------- ------
Balance, March 31, 1997................. 265 (1,211) 187 4,918 4,159
Deferred compensation............... -- 120 20 -- 140
Net income.......................... -- -- -- 469 469
------- ------------- ---------- --------- ------
Balance, March 31, 1998................. $ 265 $(1,091) $ 207 $ 5,387 $4,768
======= ============= ========== ========= ======
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED
-----------------------------------
MARCH 29, MARCH 31, MARCH 31,
1996 1997 1998
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 69 $ 387 $ 469
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 281 268 256
(Gain) Loss on sale of assets... (8) 7 (1)
Deferred compensation........... 87 120 140
Undistributed (income) loss of
joint venture................. (62) 48 (100)
Changes in assets and
liabilities --
Accounts receivable, net...... 905 5 (249)
Other Current Liabilities..... 49 206 (122)
Inventories................... 375 (872) (930)
Prepaid expenses and other.... 115 4 3
Other assets.................. (22) 23 (4)
Deferred income taxes......... 26 (98) (251)
Accounts payable and accrued
expenses................... (187) 956 368
--------- --------- ---------
Net cash provided by (used in)
operating activities.......... 1,628 1,054 (421)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and
equipment............................ (378) (164) (228)
Proceeds from sale of property and
equipment............................ 26 1 8
Notes receivable from related
parties.............................. -- -- (2)
--------- --------- ---------
Net cash used in investing
activities.................... (352) (163) (222)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) on line of
credit............................. (673) (406) 981
Net payments on long-term debt....... (626) (306) (561)
Net borrowings from related
parties............................ 31 -- 22
--------- --------- ---------
Net cash provided by (used in)
financing activities.......... (1,268) (712) 442
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... 8 179 (201)
CASH, BEGINNING OF PERIOD............ 28 36 215
--------- --------- ---------
CASH, END OF PERIOD.................. $ 36 $ 215 $ 14
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................ $ 593 $ 420 $ 516
Income taxes.................... $ -- $ 150 $ 529
See notes to consolidated financial statements.
F-24
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS AND ORGANIZATION
Charles W. Carter Co. -- Los Angeles (the Company) and its wholly owned
subsidiaries Charles W. Carter Co. -- Hawaii, Inc. and Charles W. Carter
Co. -- Arizona, Inc. (a California corporation) headquartered in Placentia,
California, was founded in 1929 and serves customers principally in California,
Hawaii, Nevada and Arizona. The Company primarily distributes commercial vehicle
and auto parts.
The Company and its stockholders intend to enter into a definitive
agreement with Transportation Components, Inc., dba TransCom USA, pursuant to
which all outstanding shares of the Company's common stock will be exchanged for
shares of TransCom USA's common stock concurrently with the consummation of an
initial public offering of the common stock by TransCom USA.
2. DESCRIPTION OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and the results
of operations of the Company. All significant intercompany balances and
transactions have been eliminated in consolidation.
During the fiscal year ended March 31, 1997, the Company changed the fiscal
year end from the Friday nearest the end of March to March 31. In the
accompanying consolidated financial statements, the fiscal years ended 1997 and
1996 are 52 weeks.
INVENTORIES
Inventories consist primarily of purchased parts stated at the lower of
cost or market, utilizing the last-in, first-out (LIFO) method.
If the first-in, first-out (FIFO) method of inventory accounting had been
used by the Company, the effect would have been to decrease net income by
approximately $11,000 for the year ended March 31, 1998, increase net income by
approximately $12,000 for the year ended March 31, 1997 and decrease net income
by approximately $27,000 for the year ended March 29, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on the
double-declining balance method, except for automobiles and trucks which are
computed on the straight-line method over the estimated useful lives of the
assets. Leasehold improvements are capitalized and amortized over the lesser of
the life of the lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company recognizes revenue from part sales when products are shipped.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Account Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS 109, deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts to be realized. The
F-25
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provision for income taxes is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
INVESTMENT
During fiscal year 1988, the Company entered into a joint venture to own
and operate several automotive parts retail outlets. The investment in joint
venture is accounted for under the equity method. Sales to the joint venture
were approximately $1,513,000, $1,481,000 and $1,424,000 for the year ended
March 31, 1998 and the years ended March 31, 1997 and March 29, 1996,
respectively. As of March 31, 1998, March 31, 1997 and March 29, 1996, the
Company had a receivable of approximately $353,000, $240,000 and $274,000,
respectively, related to such sales.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.
CONCENTRATION OF CREDIT RISK
The Company sells automotive and heavy duty truck parts to jobber retail
stores, auto and truck repair shops, trucking companies and other customers with
large internal trucking fleets. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions in determining the reported amounts in the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in fiscal 1996 and 1997 have been reclassified to conform
with the March 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Company will adopt SFAS
No. 131 in 1999.
F-26
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL LIVES MARCH 31, MARCH 31,
IN YEARS 1997 1998
------------- --------- ---------
Automobiles and vehicles............. 5 $ 583 $ 622
Machinery and equipment.............. 7-10 493 521
Office furniture and equipment....... 7-10 684 711
Shelving, bins and racks............. 7-10 652 664
Leasehold improvements............... 3-10 1,125 1,161
--------- ---------
Total...................... 3,537 3,679
Less -- Accumulated depreciation and
amortization....................... (2,730) (2,907)
--------- ---------
Property and equipment, net.......... $ 807 $ 772
========= =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
MARCH 31, MARCH 31,
1997 1998
--------- ---------
Accounts receivable, trade........... $ 3,955 $ 4,176
Less -- Allowance for doubtful
accounts............................. (119) (91)
--------- ---------
$ 3,836 $ 4,085
========= =========
Activity in the Company's allowance for doubtful accounts consist of the
following (in thousands):
MARCH 31, MARCH 31,
1997 1998
--------- ---------
Balance at beginning of period....... $ 121 $ 119
Additions charged to costs and
expenses........................... 61 54
Less: Deductions for uncollectible
receivables written off............ (63) (95)
Bad debt recoveries.................. -- 13
--------- ---------
$ 119 $ 91
========= =========
Inventories consist of the following
(in thousands):
MARCH 31, MARCH 31,
1997 1998
--------- ---------
Inventory under the first-in,
first-out (FIFO) method.............. $11,712 $12,618
Less -- LIFO reserve................. (2,707) (2,683)
--------- ---------
$ 9,005 $ 9,935
========= =========
Other assets consist of the following (in thousands):
MARCH 31, MARCH 31,
1997 1998
--------- ---------
Notes receivable due on demand from
officers and stockholders.......... $ 79 $--
Investment in joint venture.......... 494 594
Other................................ 64 68
--------- ---------
$ 637 $ 662
========= =========
F-27
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
MARCH 31, MARCH 31,
1997 1998
--------- ---------
Accounts payable, trade.............. $ 3,861 $ 3,831
Accrued compensation and benefits.... 688 1,054
Other accrued expenses............... 218 250
--------- ---------
$ 4,767 $ 5,135
========= =========
5. LINE OF CREDIT AND LONG-TERM DEBT
LINE OF CREDIT
Prior to November 3, 1997, the Company had a total secured credit facility
(Bank Credit Facility) with a maximum borrowing capacity of $6,550,000
consisting of a $6,000,000 revolving bank line of credit and a $550,000 term
loan (Term Loan), payable in 60 monthly principal installments commencing
February 1996. Aggregate advances on this line of credit was limited to a
percentage of eligible receivables and inventories. Interest was charged at the
bank's prime lending rate plus 1%. This line of credit was due to expire January
15, 1998.
On November 3, 1997, the Company replaced the Bank Credit Facility with one
$6,000,000 revolving bank loan (Line of Credit) with the previous lender.
Advances are not limited under this new Line of Credit. Interest is charged at
either the bank's prime lending rate (8.50% at March 31, 1998) or LIBOR plus
2.25% (8.25% at March 31, 1998). As of March 31, 1998, the Company had unused
borrowings of $1,686,882.
The borrowings under the Line of Credit are collateralized under a Security
Agreement, with all accounts receivable and inventories and certain other
assets. The Line of Credit requires the Company to maintain certain financial
ratios and earnings levels and also contains restrictive covenants including
limitations on payments of cash dividends, reacquisition of shares, additional
indebtedness and investments. At March 31, 1998, the Company was in compliance
with the covenants. The Line of Credit expires October 1, 1999. Carrying value
of long-term debt approximates fair value.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
MARCH 31, MARCH 31,
1997 1998
---------- ----------
Secured notes payable to former
stockholders....................... $1,294 $1,226
Secured note payable to bank (Term
Loan), due in monthly principal
installments through 2001, with
interest payable at the bank's
prime lending rate plus 1%......... 421 --
Unsecured note payable, due in
monthly installments through 2005
at 8.00% interest.................. 386 350
Unsecured notes payable, due in
monthly installments through 2000
at 7.75% interest.................. 128 92
Unsecured notes payable to former
stockholders, due in annual
principal installments through July
1996, with interest payable at the
bank's prime lending rate plus
1/4%............................... -- --
---------- ----------
2,229 1,668
Less -- Current maturities........... (246) (145)
---------- ----------
$1,983 $1,523
========== ==========
F-28
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt as of March 31, 1998, are as
follows (in thousands):
1999................................. $ 145
2000................................. 152
2001................................. 122
2002................................. 150
2003................................. 154
Thereafter........................... 945
---------
$ 1,668
=========
The notes to the secured noteholders consist of two notes: one with five
equal annual principal installments commencing in 1997 with interest payable at
80% of the prime rate (the interest rate charged will never exceed 14% or be
less than 8%); the second with 10 equal annual principal installments commencing
in 2002 with interest payable at 8%. These notes are subordinated to the Line of
Credit and are considered effective tangible net worth for purposes of the Line
of Credit covenant calculations.
6. INCOME TAXES:
The components of the Company's provision for income taxes are as follows
(in thousands):
YEAR ENDED
---------------------------------------
MARCH 29, MARCH 31, MARCH 31,
1996 1997 1998
----------- ---------- ----------
Current:
Federal......................... $ 50 $ 201 $ 88
State........................... 25 57 69
----------- ---------- ----------
$ 75 $ 258 $ 157
=========== ========== ==========
The Company recorded deferred tax assets of $125,000 at April 1, 1994,
representing the tax benefit of future federal and state tax deductions, net of
a valuation allowance of $304,000. At March 31, 1998, March 31, 1997 and March
29, 1996, the Company decreased the valuation allowance to $133,000, $283,000
and $216,000, respectively, based on a reasonably certain assessment that there
will be sufficient taxable income as may be required to utilize the tax benefit
related to the balance of the asset.
F-29
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
MARCH 31, MARCH 31,
1997 1998
--------- ---------
(IN THOUSANDS)
Deferred tax liabilities --
ESOP compensation.................. $ -- $ --
Prepaid insurance premium and
fees............................. 28 26
Tax over book depreciation......... 8 1
Equity in net income of joint
venture.......................... -- --
--------- ---------
Total deferred tax liabilities.......... 36 27
--------- ---------
Deferred tax assets --
Excess of tax basis over financial
statement basis of inventory..... 228 261
Reserve for obsolete inventory..... 79 134
Vacation accrual................... 59 66
Bad debts, not yet deductible for
tax purposes..................... 49 37
ESOP compensation.................. 47 59
Equity in net income of joint
venture.......................... 14 6
Deferred income on sales to joint
venture.......................... 12 12
Other.............................. 3 8
--------- ---------
Gross total deferred tax assets......... 491 583
Valuation allowance for deferred tax
assets................................ (283) (133)
--------- ---------
Total net deferred tax assets........... 208 450
--------- ---------
Net deferred tax assets................. $ 172 $ 423
========= =========
The principal differences between the federal statutory rate of 34% and the
Company's effective tax rate are due to changes in valuation reserve,
utilization of tax credits and state taxes.
The Company has different legal entities operating in various states. In
certain cases, for purposes of computing state income tax liabilities, operating
income is not allowed to be offset with operating losses of other legal entities
within the consolidated group.
7. COMMITMENTS AND CONTINGENCIES:
The Company conducts its operations from leased facilities which include
warehouses and office space. The Company also leases certain office equipment.
All leases are classified as operating leases.
Several of the leases contain contingent rental clauses that require
periodic adjustments to the minimum rentals based on changes in the Consumer
Price Index, property taxes, master lease rentals, fair market value or
combinations thereof. The Company is responsible for maintaining insurance
coverage and the related expense for all leased property.
F-30
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum rental payments required under operating leases that have
remaining noncancelable lease terms in excess of one year at March 31, 1998, are
as follows (in thousands):
1999................................. $ 862
2000................................. 765
2001................................. 535
2002................................. 464
2003................................. 377
Thereafter........................... 1,191
---------
$ 4,194
=========
Total gross rent expense for the years ended March 31, 1998, 1997 and March
29, 1996 was $982,000, $1,079,000 and $934,000, respectively, with sub-lease
income on certain items amounting to $146,000, $158,000 and $114,000,
respectively.
LITIGATION
At certain times, the Company is involved in legal actions arising in the
oridinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation, excess liability,
commercial property and an umbrella policy. The Company has not incurred
significant claims or losses on any of these insurance policies.
8. EMPLOYEE STOCK OWNERSHIP PLAN:
Effective April 2, 1994, the Company established an Employee Stock
Ownership Plan. In May 1994, the ESOP purchased 20,130 shares of Company stock
for approximately $1,500,000. The ESOP borrowed the funds for the purchase from
the Company, which obtained additional borrowings from its existing lender. The
ESOP will repay the amount borrowed with accrued interest over 15 years.
The ESOP is a qualified retirement plan with contributions invested
primarily or exclusively in the stock of the Company. In general, employees of
the Company whose employment is not governed by a collective bargaining
agreement, who have been employed at least one year on the effective date, are
eligible to participate, provided they have worked the required minimum hours.
Shares of the Company's stock will be released to the participants annually
on a pro rata basis as the loan between the Company and the ESOP is paid. In
general, the number of shares allocated to each participant's account is equal
to the ratio of his compensation to the compensation of all participants in the
plan. Until allocated to participants' accounts, the shares will be maintained
in the ESOP as unallocated shares. At March 31, 1998, there were 14,762
unallocated shares of Company's common stock in the ESOP. An independent stock
valuation to determine fair value of such shares is pending.
The Company recognized ESOP compensation expense of $140,000, $120,000 and
$87,000 during the years ended March 31, 1998 and March 31, 1997 and March 29,
1996, respectively. The amounts were based on the number of shares released to
participants' accounts multiplied by the estimated fair market value of the
shares.
9. STOCK OPTION PLAN:
During fiscal year 1996, the Company established a Stock Option Plan (Plan)
designed to attract, retain and reward persons providing services to the Company
and motivate such persons to contribute to the
F-31
<PAGE>
CHARLES W. CARTER CO. -- LOS ANGELES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
growth and profits of the Company. The Plan provides for the granting of options
for the purchase of up to 100,000 shares of the Company's stock. Under the terms
of the Plan, options may be granted at the market value of common stock on the
date of the grant and may be exercised within ten years after the date of grant.
Options vest over periods of up to five years.
The shares outstanding at March 31, 1998 and March 31,1997 and March 29,
1996 were 10,000, 10,000 and 8,778, respectively, with a weighted average
exercise price of $60.58, $60.58 and $57.99, respectively. A total of 1,222 and
8,778 shares were granted in the years ended March 31, 1997 and March 29, 1996,
respectively, at a weighted average exercise price of $79.17 and $57.99,
respectively. No options were granted in the year ended March 31, 1998. No
options were exercised, forfeited or expired during periods.
As of March 31, 1998, 9,266 shares were exercisable with a weighted average
exercise price of $58.56 and 63,550 were available for future grant. Exercise
prices on the options range from $79.17 to $57.99. The weighted average
remaining contractual life of the outstanding stock options was 7.2 years at
March 31, 1998.
If the Company recognized employee stock option-related compensation
expense in accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123) and used the Minimum
Value option valuation model for determining the weighted average fair value of
options granted after December 31, 1994, its net income would have been as
follows:
YEAR ENDED
-------------------------------------
MARCH 29 MARCH 31 MARCH 31,
1996 1997 1998
--------- --------- ---------
Net income........................... $ 69 $ 387 $ 469
Pro forma stock compensation
expense.............................. (95) (4) (4)
--------- --------- ---------
Pro forma net income (loss).......... $ (26) $ 383 $ 465
========= ========= =========
In computing the impact of SFAS 123, a weighted average fair value of
$24.76 for the year ended March 31, 1997 grants and $18.13 for the year ended
March 29, 1996 grants was estimated at the date of the grant using the Minimum
Value option pricing model with the following assumptions for both the years
ended March 31, 1997 and March 29, 1996; risk-free interest rate of
approximately 6.25%, a weighted-average expected life of options of 6 years and
no assumed dividend yield.
For the purposes of determining SFAS 123 pro forma compensation expense,
the weighted average fair value of the options is amortized over the vesting
period. The pro forma effect on net income will not be representative of future
years' impact on net income because future years' expense will grow due to the
added layers of amortization for succeeding grants.
10. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Company and its stockholders entered into a definitive
agreement with a wholly owned subsidiary of TransCom USA, providing for the
merger of the Company with the subsidiary of TransCom USA (the Merger).
F-32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Transportation Components Group:
We have audited the accompanying combined balance sheets of Transportation
Components Group (the Group) (all Minnesota Corporations), as defined in Note 1
to the combined financial statements, as of September 30, 1996 and 1997, and the
related combined statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1997. These
combined financial statements are the responsibility of the Group's management.
Our responsibility is to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of September 30, 1996 and 1997, and the results of their combined operations
and their combined cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 15, 1998
F-33
<PAGE>
TRANSPORTATION COMPONENTS GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 399 $ 624 $ 153
Accounts receivable, net........ 2,998 3,526 3,647
Receivables from related
parties....................... 40 49 34
Inventories..................... 3,629 3,961 4,785
Prepaid expenses and other...... 498 432 865
Deferred tax asset.............. 219 191 189
--------- --------- ---------
Total current assets....... 7,783 8,783 9,673
PROPERTY AND EQUIPMENT, net.......... 952 1,012 1,146
OTHER ASSETS......................... 190 154 155
--------- --------- ---------
Total assets............... $ 8,925 $ 9,949 $10,974
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 4,126 $ 4,717 $ 4,989
Payable to related party........ 119 5 5
Lines of credit................. 1,870 1,782 1,981
Current maturities of long-term
debt.......................... 87 109 87
--------- --------- ---------
Total current
liabilities............. 6,202 6,613 7,062
LONG-TERM DEBT, net.................. 454 445 558
PAYABLE TO RELATED PARTY............. 10 5 --
DEFERRED TAX LIABILITY............... 332 356 354
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock................. 717 717 717
Common stock.................... 40 40 40
Retained earnings............... 1,170 1,773 2,243
--------- --------- ---------
Total shareholders'
equity.................. 1,927 2,530 3,000
--------- --------- ---------
Total liabilities and
shareholders' equity.... $ 8,925 $ 9,949 $10,974
========= ========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-34
<PAGE>
TRANSPORTATION COMPONENTS GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 28,147 $ 29,876 $ 32,274 $ 15,871 $ 17,645
COST OF SALES........................ 20,460 21,677 23,331 11,577 12,552
--------- --------- --------- --------- ---------
Gross profit.................... 7,687 8,199 8,943 4,294 5,093
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 6,994 7,560 7,746 3,565 4,108
--------- --------- --------- --------- ---------
Income from operations.......... 693 639 1,197 729 985
OTHER INCOME (EXPENSE):
Interest expense................ (235) (232) (225) (124) (110)
Other income (expense), net..... (6) 59 101 129 45
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES........... 452 466 1,073 734 920
PROVISION FOR INCOME TAXES........... 243 315 405 292 382
--------- --------- --------- --------- ---------
NET INCOME........................... $ 209 $ 151 $ 668 $ 442 $ 538
========= ========= ========= ========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-35
<PAGE>
TRANSPORTATION COMPONENTS GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
TOTAL
PREFERRED COMMON RETAINED SHAREHOLDERS'
STOCK STOCK EARNINGS EQUITY
---------- ------- --------- --------------
BALANCE, September 30, 1994.......... $ 717 $ 40 $ 1,244 $2,001
Net income...................... -- -- 209 209
Preferred stock dividends....... -- -- (65) (65)
Distributions (L.L.L., Inc.).... -- -- (166) (166)
---------- ------- --------- --------------
BALANCE, September 30, 1995.......... 717 40 1,222 1,979
Net income...................... -- -- 151 151
Acquisition of minority
interest...................... -- -- (138) (138)
Preferred stock dividends....... -- -- (65) (65)
---------- ------- --------- --------------
BALANCE, September 30, 1996.......... 717 40 1,170 1,927
Net income...................... -- -- 668 668
Preferred stock dividends....... -- -- (65) (65)
---------- ------- --------- --------------
BALANCE, September 30, 1997.......... 717 40 1,773 2,530
Net income (unaudited).......... -- -- 538 538
Preferred stock dividends
(unaudited)................... -- -- (32) (32)
Distributions (L.L.L., Inc.)
(unaudited)................... -- -- (36) (36)
---------- ------- --------- --------------
BALANCE, March 31, 1998
(unaudited)........................ $ 717 $ 40 $ 2,243 $3,000
========== ======= ========= ==============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-36
<PAGE>
TRANSPORTATION COMPONENTS GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 209 $ 151 $ 668 $ 442 $ 538
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities --
Depreciation and
amortization............ 299 280 227 127 101
(Gain) loss on sale of
assets.................. 4 (6) (36) (2) (1)
Deferred income tax
provision (benefit)..... 182 64 52 (441) --
Changes in assets and
liabilities net of
effect of assets
acquired --
Accounts receivable,
net................... (133) (473) (528) (178) (121)
Receivables from related
parties............... 33 26 (9) 40 15
Inventories............. 139 515 (332) (231) (624)
Prepaid expenses and
other................. 82 (203) 66 (197) (383)
Other assets............ 183 (1) 36 (45) --
Accounts payable and
accrued expenses...... (108) (450) 591 393 272
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating
activities.............. 890 (97) 735 (92) (203)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of minority
interest, net of cash paid.... -- (126) -- -- --
Acquisition of assets........... -- -- -- -- (431)
Proceeds from sale of property
and equipment................. 4 7 60 4 1
Purchases of property and
equipment..................... (156) (73) (311) (111) (55)
--------- --------- --------- --------- ---------
Net cash used in investing
activities.............. (152) (192) (251) (107) (485)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.... 208 457 333 198 312
Payments on long-term debt...... (346) (141) (527) (172) (27)
Preferred stock dividends and
distributions (L.L.L.,
Inc.)......................... (231) (65) (65) (32) (68)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities.............. (369) 251 (259) (6) 217
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... 369 (38) 225 (205) (471)
CASH, beginning of period............ 68 437 399 399 624
--------- --------- --------- --------- ---------
CASH, end of period.................. $ 437 $ 399 $ 624 $ 194 $ 153
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for --
Interest................... $ 232 $ 230 $ 221 $ 109 $ 112
Income taxes............... 281 320 333 164 114
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-37
<PAGE>
TRANSPORTATION COMPONENTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Transportation Components Group includes the financial statements of the
following group of companies under common control and ownership (collectively,
TCC or the Group): Transportation Components Co. and its wholly and partially
owned subsidiaries; L.L.L., Inc.; and MSL, Inc. (all Minnesota Corporations).
The Group, headquartered in St. Paul, Minnesota, was founded in 1946 and serves
customers principally in Wisconsin, Minnesota, North Dakota, South Dakota and
Iowa. TCC primarily distributes commercial vehicle parts, performs installation
and maintenance services and relines brake shoes.
The Group's owners intend to enter into a definitive agreement with
Transportation Components, Inc., dba TransCom USA, pursuant to which all
outstanding shares of the Group's common stock will be exchanged for cash and
shares of TransCom USA's common stock concurrently with the consummation of an
initial public offering of the common stock by TransCom USA.
ACQUISITION
Effective January 2, 1998, the Group acquired certain inventory, equipment
and other rights of Heartland Truck and Trailer Center, Inc. (HTTC), for
$431,000, which included $50,000 for consulting services to be provided for a
term of 18 months after the acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group for all periods during which the companies were under
common control. All significant intercompany balances and transactions have been
eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim combined financial statements as of March 31, 1998, and for the
six months ended March 31, 1997 and 1998, are unaudited, and certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the combined interim financial
statements have been included.
INVENTORIES
Inventories consist primarily of purchased parts stated at the lower of
cost or market, utilizing the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
F-38
<PAGE>
TRANSPORTATION COMPONENTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SHAREHOLDERS' EQUITY
The equity structure of the Group was as follows at September 30, 1996 and
1997, and March 31, 1998 (unaudited):
AUTHORIZED SHARES ISSUED
SHARES AND OUTSTANDING PAR VALUE
---------- ---------------- ---------
Preferred stock, nonvoting, 9%
cumulative dividends --
Transportation Components Co.... 12,500 7,171 $ 100
Common stock --
Transportation Components Co.... 12,500 3,768 $ 10
L.L.L., Inc..................... 2,500 120 $ 10
MSL, Inc........................ 2,500 200 No par
REVENUE RECOGNITION
The Group recognizes revenue from part sales when products are shipped.
Service revenues are recognized when repairs are completed.
INCOME TAXES
Transportation Components Co. accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
L.L.L., Inc., and MSL, Inc., have elected S Corporation status as defined
by the Internal Revenue Code, whereby L.L.L., Inc., and MSL, Inc., are not
subject to federal taxation. Under S Corporation status, the shareholders report
their shares of the companies' taxable earnings or losses in their personal tax
returns. Accordingly, no provision was made for income taxes related to L.L.L.,
Inc., and MSL, Inc., in the accompanying financial statements. L.L.L., Inc., and
MSL, Inc., will terminate their S Corporation status concurrently with the
effective date of this offering.
FINANCIAL INSTRUMENTS
The Group's financial instruments consist of cash, accounts receivable,
accounts payable and debt. The Group believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist primarily of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-39
<PAGE>
TRANSPORTATION COMPONENTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Group will adopt SFAS
No. 131 in 1998.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED SEPTEMBER 30,
USEFUL LIVES --------------------
IN YEARS 1996 1997
------------ --------- ---------
Land................................. -- $ 137 $ 137
Buildings............................ 40 1,062 1,062
Vehicles............................. 5 496 550
Machinery and equipment.............. 3-5 529 620
Office furniture and equipment....... 3-5 609 540
Leasehold improvements............... 10 296 306
--------- ---------
Total........................... 3,129 3,215
Less -- Accumulated depreciation and
amortization....................... (2,177) (2,203)
--------- ---------
Property and equipment, net..... $ 952 $ 1,012
========= =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Accounts receivable, trade........... $ 3,041 $ 3,546
Purchase Rebates..................... 115 153
Less -- Allowance for doubtful
accounts........................... (158) (173)
--------- ---------
$ 2,998 $ 3,526
========= =========
Activity in the Group's allowance for doubtful accounts consists of the
following (in thousands):
SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
Balance at beginning of year............ $ 133 $ 139 $ 158
Additions charged to costs and
expenses.............................. 6 33 43
Less -- Deductions for uncollectible
receivables........................... -- (14) (28)
--------- --------- ---------
$ 139 $ 158 $ 173
========= ========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Accounts payable, trade.............. $ 3,340 $ 4,071
Accrued compensation and benefits.... 346 348
Other accrued expenses............... 440 298
--------- ---------
$ 4,126 $ 4,717
========= =========
F-40
<PAGE>
TRANSPORTATION COMPONENTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. LINES OF CREDIT AND LONG-TERM DEBT:
LINES OF CREDIT
The Group has three lines of credit which provide for borrowings up to $2.4
million or the borrowing base, as defined, whichever is less, with a financial
institution that are secured by accounts receivable, inventory, equipment and
general intangibles. These agreements are guaranteed jointly and severally by
the shareholders of the Group. Interest on two of the lines of credit accrues at
the financial institution's prime rate, which was 8.5 percent at September 30,
1997. Interest on the other line of credit accrues at the financial
institution's prime rate plus .75 percent, which was 9.25 percent at September
30, 1997. Two of the lines of credit are due on demand, while one line of credit
expires on June 1, 1998. As of September 30, 1997, outstanding balances totaled
$1.8 million for the three lines of credit.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Notes payable to financial
institutions in total monthly
installments of $2,275 including
interest ranging from 8.5% to 10%,
secured by accounts receivable,
inventory, equipment, general
intangibles and personal property
of a shareholder of the Group,
guaranteed by shareholders of the
Group with final payments due
between June 1998, and May 1999.... $ 58 $ 36
Note payables to financial
institutions in total monthly
installments of $7,187 including
interest ranging from 8.5% to
9.97%, secured by a mortgage on
real estate of the Group,
guaranteed by a shareholder of the
Group with final payment due in
August 2002........................ 223 220
Notes payable to a financial
institution in total monthly
installments of $1,682 including
interest ranging from 2.0% to
10.0%, secured by a mortgage on
real estate of the Group,
subordinated to long-term debt held
by another financial institution
with final payment due in February
2011............................... 165 159
Notes payable to an automobile
financing institution in total
monthly installments of $7,650
including interest ranging from
7.0% to 10.5%, secured by vehicles
with final payments due between
November 1997 and June 2002........ 95 139
--------- ---------
Total................. 541 554
Less -- Current maturities........... (87) (109)
--------- ---------
$ 454 $ 445
========= =========
One of the Company's line of credit agreements contains requirements
regarding certain financial covenants and restrictions. According to the note
agreements, if a shareholder of the Group defaults on personal loan agreements
with the same financial institution, the Group's loan agreements would also be
in default. The Group was in compliance with all provisions of its loan
agreements at September 30, 1997.
F-41
<PAGE>
TRANSPORTATION COMPONENTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt as of September 30, 1997, are as
follows (in thousands):
1998................................. $ 109
1999................................. 88
2000................................. 82
2001................................. 83
2002................................. 73
Thereafter........................... 119
---------
$ 554
=========
6. INCOME TAXES:
The components of the Group's provision for income taxes are as follows (in
thousands):
SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
Federal --
Current......................... $ -- $ 192 $ 271
Deferred........................ 186 49 40
--------- --------- ---------
186 241 311
--------- --------- ---------
State --
Current......................... 61 59 82
Deferred........................ (4) 15 12
--------- --------- ---------
57 74 94
--------- --------- ---------
Total provision....... $ 243 $ 315 $ 405
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rate as follows (in thousands):
SEPTEMBER 30,
-------------------------------
1995 1996 1997
--------- --------- ---------
Federal income tax at statutory
rates.............................. $ 117 $ 120 $ 324
State income taxes................... 37 48 61
Effect of S Corporation losses....... 88 147 32
Other................................ 1 -- (12)
--------- --------- ---------
$ 243 $ 315 $ 405
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Deferred tax assets --
Accrued expenses................ $ 54 $ 59
Allowance for doubtful
accounts........................ 67 73
Inventory....................... 370 400
Other........................... 67 73
--------- ---------
Total deferred tax
assets............. 558 605
--------- ---------
Deferred tax liabilities --
Bases differences in property
and equipment.................. 143 168
State taxes..................... 7 3
Other........................... 521 599
--------- ---------
Total deferred tax
liabilities........ 671 770
--------- ---------
Net deferred tax
liability.......... $ 113 $ 165
========= =========
F-42
<PAGE>
TRANSPORTATION COMPONENTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS:
The Group leases facilities under operating leases from certain entities
owned by shareholders of the Group. Rent expense on the leases totaled
approximately $513,000, $515,000 and $515,000 for the years ended September 30,
1995, 1996 and 1997, respectively.
The Group is a party to a buying Group through which the Group made
approximately $1.2 million of inventory purchases. A shareholder is currently
serving a three year term that expires April 1998 on the board of directors of
the buying group.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities, equipment and vehicles under
noncancelable operating lease agreements, including leases with related parties.
These leases expire on various dates through 2007. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for noncancelable operating leases including
leases with related parties are as follows (in thousands):
Year ending September 30 --
1998................................. $ 598
1999................................. 641
2000................................. 641
2001................................. 655
2002................................. 660
Thereafter........................... 3,565
---------
$ 6,760
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $633,000, $679,000 and $598,000 for the
years ended September 30, 1995, 1996 and 1997, respectively.
STOCK TRANSFER AND REDEMPTION AGREEMENT
Under the terms of a stock transfer and redemption agreement executed in
December 1994, if a shareholder desires to dispose of his shares of common stock
(Offered Shares), the Group has the exclusive right to purchase the Offered
Shares within 30 days from the shareholder. If the Group does not elect to
purchase the Offered Shares, the remaining shareholders have ten days to
purchase the portion of the Offered Shares not purchased by the Group.
GUARANTY
The group is contingently liable as guarantor of certain indebtedness of
its principal shareholder.
LITIGATION
At certain times, the Group is involved in legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Group's financial
position or results of operations.
F-43
<PAGE>
TRANSPORTATION COMPONENTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
The Group carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation, excess liability,
commercial property and an umbrella policy. The Group has not incurred
significant claims or losses on any of these insurance policies.
SELF-INSURANCE
The Group self-insures for actual losses below deductible amounts resulting
from medical claims. The Group has purchased employer's excess indemnification
and employee stop-loss insurance to mitigate potential losses to the Group.
Historically, the Group has not incurred any significant losses on employee
medical insurance claims and management believes the Group's reserves are
sufficient to cover the Group's liabilities for claims incurred.
EMPLOYEE 401(K) RETIREMENT PLAN
The Group participates in a 401(k) profit-sharing plan (the Plan) with
related companies which covers eligible employees at least 21 years of age who
have completed at least one year of service. The Plan allows for employee
contributions through salary deductions of up to 15 percent of total
compensation, subject to the statutory limits. Employer matching contributions
totaled approximately $14,000, $22,000 and $25,000 for the years ended September
30, 1995, 1996 and 1997, respectively.
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, TCC issued a subordinated promissory note in the amount of
$717,000 in redemption of all of its outstanding preferred stock. The note bears
interest at the annual rate of 9 percent and is payable in quarterly
installments through April 1, 2013. The note is subordinated to all other
indebtedness of TCC existing at April 1, 1998.
In April 1998, the Group and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of TransCom USA, providing for the
merger of the Group with the subsidiary of TransCom USA (the Merger).
Approximately $28,000 of property and equipment and $135,000 of other assets,
which are included in the balance sheet at March 31, 1998, will be distributed
to the shareholders. Had these distributions been made at March 31, 1998 the
effect on the Group's balance sheet would have been to decrease shareholder's
equity by approximately $163,000. Prior to the Merger, Transportation Components
will make a cash distribution of approximately $150,000 which represents the
estimated S Corporation accumulated adjustment account. Transportation
Components anticipates funding this distribution through cash on hand and
borrowings from existing sources. Had these distributions been made at March 31,
1998 the effect on Transportation Component's balance sheet would have been to
increase liabilities by approximately $90,000 and decrease stockholder's equity
by appproximately $150,000.
Concurrently with the Merger, the Group will enter into an agreement with
the shareholders to lease certain facilities used in the Group's operations for
negotiated amounts and terms.
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Gear & Wheel Group:
We have audited the accompanying combined balance sheets of Gear & Wheel
Group (the Group) (all Florida Corporations), as defined in Note 1 to the
combined financial statements, as of June 30, 1997 and March 31, 1998, and the
related combined statements of operations, shareholders' equity and cash flows
for the years ended June 30, 1996 and 1997 and the nine months ended March 31,
1998. These financial statements are the responsibility of the Group's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Group
as of June 30, 1997 and March 31, 1998, and the results of their combined
operations and their combined cash flows for the years ended June 30, 1996 and
1997 and the nine months ended March 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 15, 1998
F-45
<PAGE>
GEAR & WHEEL GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, MARCH 31,
1997 1998
-------- ---------
ASSETS
CURRENT ASSETS:
Cash............................ $ 503 $ 212
Accounts receivable, net........ 2,758 2,710
Receivables from related
parties......................... 416 423
Inventories..................... 7,361 7,688
Prepaid expenses and other...... 15 14
-------- ---------
Total current
assets.............. 11,053 11,047
PROPERTY AND EQUIPMENT, net.......... 472 842
OTHER ASSETS......................... 63 67
-------- ---------
Total assets.......... $ 11,588 $11,956
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 2,362 $ 1,987
Payables to related party....... 381 606
Lines of credit................. 1,868 1,940
Current maturities of long-term
debt........................... 161 239
Deferred tax liability.......... 748 636
Other current liabilities....... 47 30
-------- ---------
Total current
liabilities......... 5,567 5,438
LONG-TERM DEBT, net.................. 425 572
PAYABLE TO RELATED PARTY............. 320 381
DEFERRED TAX LIABILITY............... 332 332
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock.................... 8 8
Additional paid-in capital...... 13 13
Retained earnings............... 4,998 5,287
Treasury stock.................. (75) (75)
-------- ---------
Total shareholders'
equity.............. 4,944 5,233
-------- ---------
Total liabilities and
shareholders'
equity.............. $ 11,588 $11,956
======== =========
The accompanying notes are an integral part of these combined financial
statements.
F-46
<PAGE>
GEAR & WHEEL GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
NINE
YEAR ENDED MONTHS
JUNE 30, ENDED
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ----------
REVENUES............................. $ 20,710 $ 21,475 $ 17,924
COST OF SALES........................ 14,299 14,644 12,388
--------- --------- ----------
Gross profit.......... 6,411 6,831 5,536
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,201 5,471 4,752
--------- --------- ----------
Income from
operations......... 1,210 1,360 784
OTHER INCOME (EXPENSE):
Interest expense................ (195) (177) (221)
Other income, net............... 20 28 32
--------- --------- ----------
INCOME BEFORE INCOME TAXES........... 1,035 1,211 595
PROVISION FOR INCOME TAXES........... 346 407 248
--------- --------- ----------
NET INCOME........................... $ 689 $ 804 $ 347
========= ========= ==========
The accompanying notes are an integral part of these combined financial
statements.
F-47
<PAGE>
GEAR & WHEEL GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK AND
ADDITIONAL TOTAL
PAID-IN RETAINED TREASURY SHAREHOLDERS'
CAPITAL EARNINGS STOCK EQUITY
----------- -------- -------- --------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1995............... $ 21 $3,648 $ (75) $3,594
Net income...................... -- 689 -- 689
----------- -------- -------- --------------
BALANCE, June 30, 1996............... 21 4,337 (75) 4,283
Net income...................... -- 804 -- 804
Distributions................... -- (143) -- (143)
----------- -------- -------- --------------
BALANCE, June 30, 1997............... 21 4,998 (75) 4,944
Net income...................... -- 347 -- 347
Distributions................... (58) -- (58)
----------- -------- -------- --------------
BALANCE, March 31, 1998.............. $ 21 $5,287 $ (75) $5,233
=========== ======== ======== ==============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-48
<PAGE>
GEAR & WHEEL GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED NINE MONTHS
JUNE 30, ENDED
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 689 $ 804 $ 347
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 197 172 156
Deferred income tax provision
(benefit)..................... 13 58 (112)
Changes in assets and
liabilities --
Accounts receivable and
related party receivables,
net........................ 229 (279) 41
Inventories................... (921) (722) (327)
Prepaid expenses and other.... 44 (15) 1
Other assets.................. -- (32) (4)
Accounts payable and accrued
expenses................... (190) 322 (375)
Other current liabilities..... 78 (31) (17)
--------- --------- ------------
Net cash provided by (used
in) operating
activities.............. 139 277 (290)
--------- --------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment....................... (156) (243) (526)
--------- --------- ------------
Net cash used in investing
activities.............. (156) (243) (526)
--------- --------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line
of credit....................... 163 (85) 72
Net proceeds (repayments) from
long-term debt.................. (3) 2 225
Net proceeds from related party
borrowings...................... 53 379 286
Distributions to shareholder....... -- (143) (58)
--------- --------- ------------
Net cash provided by
financing activities.... 213 153 525
--------- --------- ------------
NET INCREASE (DECREASE) IN CASH...... 196 187 (291)
CASH, beginning of period............ 120 316 503
--------- --------- ------------
CASH, end of period.................. $ 316 $ 503 $ 212
========= ========= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................ $ 227 $ 196 $ 221
Income taxes.................... 268 380 265
Assets acquired by incurring notes
payable......................... -- 430 --
The accompanying notes are an integral part of these combined financial
statements.
F-49
<PAGE>
GEAR & WHEEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Gear & Wheel Group includes the financial statements of the following group
of companies under common control and ownership (collectively, the Group): Gear
& Wheel, Inc.; Try One, Inc.; and Ocala Truck Parts, Inc. (all Florida
Corporations). The Group, headquartered in Orlando, Florida, was founded in 1981
and serves customers principally in Florida. The Group primarily distributes
commercial vehicle parts and remanufactures brakes, clutches, drive-train
components and turbochargers.
The Group and its shareholders intend to enter into a definitive agreement
with Transportation Components, Inc., dba TransCom USA, pursuant to which all
outstanding shares of the Group's common stock will be exchanged for cash and
shares of TransCom USA's common stock concurrently with the consummation of an
initial public offering of the common stock by TransCom USA.
In May 1997, the Group purchased certain accounts receivable, inventory and
equipment of Ocala Truck Parts, Inc. for approximately $430,000. The assets and
results of operations since the purchase are included in the accompanying
combined balance sheet as of March 31, 1998, and the related combined statement
of operations for the period then ended. The purchase was financed through
incurring a note payable equal in amount to the estimated fair value of the
acquired assets at the date of purchase.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group for all periods during which the companies were under
common control. All significant intercompany balances and transactions have been
eliminated in combination.
Certain accounts have been reclassified in prior years to conform to
current period presentation.
INVENTORIES
Inventories consist primarily of purchased parts stated at the lower of
cost or market, utilizing the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
SHAREHOLDERS' EQUITY
The equity structure of the Group is as follows at June 30, 1996 and 1997
and March 31, 1998:
SHARES
AUTHORIZED ISSUED AND PAR
SHARES OUTSTANDING VALUE
----------- ------------ ------
Common stock --
Gear & Wheel, Inc............... 20,000 18,125 $ .375
Try One, Inc.................... 1,000 1,000 $ .375
In addition, Gear & Wheel, Inc. held 1,875 shares of treasury stock at a
cost of $75,000 at June 30, 1996 and 1997 and March 31, 1998.
F-50
<PAGE>
GEAR & WHEEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Group recognizes revenue from part sales when products are shipped.
Service revenues are recognized when repairs are completed.
INCOME TAXES
Gear & Wheel, Inc. accounts for income taxes in accordance with Statement
of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income
Taxes." Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
Try One, Inc. and Ocala Truck Parts, Inc. have elected S Corporation status
as defined by the Internal Revenue Code, whereby Try One, Inc. and Ocala Truck
Parts, Inc. are not subject to federal taxation. Under S Corporation status, the
shareholders report their shares of the companies' taxable earnings or losses in
their personal tax returns. Accordingly, no provision was made for income taxes
related to Try One, Inc. and Ocala Truck Parts, Inc. in the accompanying
financial statements. Try One, Inc. and Ocala Truck Parts, Inc. will terminate
their S Corporation status concurrently with the effective date of this
offering.
FINANCIAL INSTRUMENTS
The Group's financial instruments consist of cash, accounts receivable,
accounts payable and debt. The Group believes that the carrying value of these
instruments on the accompanying balance sheets approximates their fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist primarily of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Group will adopt SFAS
No. 131 in 1998.
F-51
<PAGE>
GEAR & WHEEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL LIVES JUNE 30, MARCH 31,
IN YEARS 1997 1998
------------ -------- ---------
Vehicles............................. 5 $ 510 $ 549
Machinery and equipment.............. 7 838 985
Office furniture and equipment....... 7 585 656
Leasehold improvements............... 7 209 475
-------- ---------
Total........................... 2,142 2,665
Less -- Accumulated depreciation and
amortization....................... (1,670) (1,823)
-------- ---------
Property and equipment, net..... $ 472 $ 842
======== =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ---------
Accounts receivable, trade........... $2,226 $ 2,203
Purchase rebates..................... 663 589
Due from employees................... 11 8
Less -- Allowance for doubtful
accounts........................... (142) (90)
-------- ---------
$2,758 $ 2,710
======== =========
Activity in the Group's allowance for doubtful accounts consists of the
following (in thousands):
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
Balance at beginning of year......... $ 123 $ 137 $ 142
Additions charged to costs and
expenses........................... 73 27 18
Less -- Deductions for uncollectible
receivables written off............ (59) (22) (70)
--------- --------- ---------
$ 137 $ 142 $ 90
========= ========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ---------
Accounts payable, trade.............. $1,962 $ 1,773
Accrued compensation and benefits.... 249 140
Other accrued expenses............... 151 74
-------- ---------
$2,362 $ 1,987
======== =========
5. LINES OF CREDIT AND LONG-TERM DEBT:
LINES OF CREDIT
The Group has three lines of credit which provide for borrowings up to $2.3
million with financial institutions that are secured by accounts receivable,
inventory, equipment and general intangibles. These agreements are guaranteed
jointly and severally by the shareholders of the Group. Interest on the lines of
credit accrues at the financial institutions prime rates, which were 8.25
percent at March 31, 1998. The lines
F-52
<PAGE>
GEAR & WHEEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of credit expire on December 31, 1998. There was approximately $1.9 million
outstanding under the agreements at March 31, 1998.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ---------
Note payable to the former owner of
Ocala Truck Parts, Inc., in total
monthly installments of $7,170,
including interest of 8.5%, secured
by accounts receivable, inventory
and equipment, guaranteed by
shareholders of the Group with
final payment due in June 2002..... $ 430 $ 359
Various notes payable to financial
institutions, in total monthly
installments of $16,638 including
interest ranging from 8.25% to
9.0%, secured by accounts
receivable and certain property and
equipment, guaranteed by the
shareholders of the Group with
final payments due between December
1996 and August 2001............... 156 452
-------- ---------
Total........................... 586 811
Less -- Current maturities........... (161) (239)
-------- ---------
$ 425 $ 572
======== =========
Certain of the Group's loan agreements contain requirements regarding
working capital and financial ratios. The Group was in compliance with all
provisions of its loan agreements at March 31, 1998.
The aggregate maturities of long-term debt as of March 31, 1998, are as
follows (in thousands):
1999................................. 239
2000................................. 247
2001................................. 191
2002................................. 112
2003................................. 22
---------
$ 811
=========
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
Federal --
Current......................... $ 286 $ 299 $ 312
Deferred........................ 11 50 (100)
-------- -------- ---------
297 349 212
-------- -------- ---------
State --
Current......................... 47 50 48
Deferred........................ 2 8 (12)
-------- -------- ---------
49 58 36
-------- -------- ---------
Total provision............ $ 346 $ 407 $ 248
======== ======== =========
F-53
<PAGE>
GEAR & WHEEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from an amount computed at the
statutory rate as follows (in thousands):
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
Federal income tax at statutory
rates.............................. $ 298 $ 347 $ 208
State income taxes................... 32 38 24
Nondeductible expenses............... 16 22 16
-------- -------- ---------
$ 346 $ 407 $ 248
======== ======== =========
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ---------
Deferred tax assets --
Accrued expenses $ 42 $ 70
-------- ---------
Total deferred tax
assets.................. 42 70
-------- ---------
Deferred tax liabilities --
Bases differences in property
and equipment................. 18 (1)
Inventory....................... 1,104 1,039
-------- ---------
Total deferred tax
liabilities............. 1,122 1,038
-------- ---------
Net deferred tax
liability............... $1,080 $ 968
======== =========
7. RELATED-PARTY TRANSACTIONS:
The Group leases a facility under an operating lease from an entity owned
by shareholders of the Group. Rent expense on the lease totaled approximately
$67,000, $143,000 and $222,000 for the years ended June 30, 1996 and 1997 and
the nine months ended March 31, 1998, respectively.
The Group has a note payable to a related-party with interest of 10
percent, of approximately $381,000 and $531,000 at June 30, 1997 and March 31,
1998, respectively.
The Group also has a note payable to a shareholder of the Group with
interest of 12%, of approximately $320,000 and $381,000 at June 30, 1996 and
1997 and March 31, 1998, respectively.
The Group also has payables to various related parties of approximately
$75,000 at March 31, 1998.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities, equipment and vehicles under
noncancelable operating lease agreements, including leases with related parties.
These leases expire on various dates through 2007. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
F-54
<PAGE>
GEAR & WHEEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for noncancelable operating leases including
leases with related parties are as follows (in thousands):
Year ending March 31--
1999............................ $ 474
2000............................ 441
2001............................ 370
2002............................ 296
2003............................ 296
Thereafter...................... 1,010
---------
$ 2,887
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $336,000 and $382,000 for the years
ended June 30, 1996 and 1997 and $420,000 for the nine months ended March 31,
1998, respectively.
LITIGATION
At certain times, the Group is involved in legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Group's financial
position or results of operations.
INSURANCE
The Group carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation, excess liability,
commercial property and an umbrella policy. The Group has not incurred
significant claims or losses on any of these insurance policies.
EMPLOYEE 401(K) RETIREMENT PLAN
The Group participates in a 401(k) profit-sharing plan (the Plan) with
related companies which covers eligible employees at least 21 years of age who
have completed at least one year of service. The Plan allows for employee
contributions through salary deductions of up to 15 percent of total
compensation, subject to the statutory limits. Employer matching contributions
totaled approximately $49,000, $48,000 and $36,000 for the years ended June 30,
1996 and 1997 and the nine months ended March 31, 1998, respectively.
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Group and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of TransCom USA, providing for the
merger of the Group with the subsidiary of TransCom USA (the Merger). Property
and equipment of approximately $4,000, which is included in the balance sheet at
March 31, 1998, will be distributed to the shareholders. Had these distributions
been made at March 31, 1998, the effect on the Company's balance sheet would
have been to decrease Shareholders' equity by approximately $4,000. Prior to the
Merger, Gear & Wheel Group will make a cash distribution of approximately
$895,000 which represents the estimated S Corporation accumulated adjustment
account. Gear & Wheel Group anticipates funding this distribution through cash
on hand and borrowings from existing sources. Had these distributions been made
at March 31, 1998 the effect on Gear & Wheel Group's balance sheet would have
been to increase liabilities by $785,000 and decrease stockholder's equity by
approximately $895,000.
Concurrently with the Merger, the Group will enter into an agreement with
the shareholders to lease certain facilities used in the Group's operations for
negotiated amounts and terms.
F-55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Amparts Group:
We have audited the accompanying combined balance sheets of Amparts Group,
as defined in Note 1 to the combined financial statements, as of December 31,
1996 and 1997, and the related combined statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These combined financial statements are the responsibility of Amparts
Group's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Amparts
Group as of December 31, 1996 and 1997, and the results of their combined
operations and their combined cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 15, 1998
F-56
<PAGE>
AMPARTS GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 1,105 $ 165 $ 320
Accounts receivable, net........ 1,425 2,576 2,920
Receivables from related
parties....................... 44 328 418
Inventories..................... 3,369 5,575 5,836
Prepaid expenses and other...... 41 93 90
--------- --------- ------------
Total current assets....... 5,984 8,737 9,584
PROPERTY AND EQUIPMENT, net.......... 184 375 384
DEFERRED TAX ASSET................... 309 293 277
OTHER ASSETS......................... 38 38 33
--------- --------- ------------
Total assets............... $ 6,515 $ 9,443 $ 10,278
========= ========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 2,563 $ 3,316 $ 3,708
Payables to related parties..... 28 49 58
Line of credit.................. 1,640 1,576 1,736
Deferred tax liability.......... 302 792 857
--------- --------- ------------
Total current
liabilities............. 4,533 5,733 6,359
SHAREHOLDERS' EQUITY:
Common stock.................... 713 713 713
Retained earnings............... 1,269 2,997 3,206
--------- --------- ------------
Total shareholders' equity 1,982 3,710 3,919
--------- --------- ------------
Total liabilities and
shareholders' equity.... $ 6,515 $ 9,443 $ 10,278
========= ========= ============
The accompanying notes are an integral part of these combined financial
statements.
F-57
<PAGE>
AMPARTS GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 10,528 $ 14,806 $ 22,687 $ 4,707 $ 6,489
COST OF SALES........................ 7,709 11,278 17,240 3,545 4,768
--------- --------- --------- --------- ---------
Gross profit............... 2,819 3,528 5,447 1,162 1,721
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,779 2,326 2,857 675 889
--------- --------- --------- --------- ---------
Income from operations..... 1,040 1,202 2,590 487 832
OTHER EXPENSE:
Interest expense................ 99 97 115 34 40
Other expense, net.............. 298 51 126 26 136
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES........... 643 1,054 2,349 427 656
PROVISION FOR INCOME TAXES........... 132 247 292 39 93
--------- --------- --------- --------- ---------
NET INCOME........................... $ 511 $ 807 $ 2,057 $ 388 $ 563
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-58
<PAGE>
AMPARTS GROUP
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------- --------- -------------
BALANCE, December 31, 1994........... $ 713 $ 741 $ 1,454
Net income...................... -- 511 511
Dividends....................... -- (147) (147)
------- --------- -------------
BALANCE, December 31, 1995........... 713 1,105 1,818
Net income...................... -- 807 807
Dividends....................... -- (643) (643)
------- --------- -------------
BALANCE, December 31, 1996........... 713 1,269 1,982
Net income...................... -- 2,057 2,057
Dividends....................... -- (329) (329)
------- --------- -------------
BALANCE, December 31, 1997........... 713 2,997 3,710
Net income (unaudited).......... -- 563 563
Dividends (unaudited)........... -- (354) (354)
------- --------- -------------
BALANCE, March 31, 1998
(unaudited)........................ $ 713 $ 3,206 $ 3,919
======= ========= =============
The accompanying notes are an integral part of these combined financial
statements.
F-59
<PAGE>
AMPARTS GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 511 $ 807 $ 2,057 $ 388 $ 563
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Deferred income tax provision
(benefit)..................... (234) 82 506 127 81
Depreciation and amortization... 51 61 83 14 2
Changes in assets and
liabilities --
Accounts receivable, net...... 617 (230) (1,151) (830) (344)
Receivables from related
parties.................... (42) (2) (284) (51) (90)
Inventories................... 368 (1,753) (2,206) (554) (261)
Prepaid expenses and other.... (147) 92 (52) 2 8
Accounts payable and accrued
expenses................... (830) 1,726 753 887 392
Payables to related parties... 38 (10) 21 (28) 9
--------- --------- --------- --------- ---------
Net cash provided by (used
in) operating
activities.............. 332 773 (273) (45) 360
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment....................... (35) (98) (274) (71) (11)
--------- --------- --------- --------- ---------
Net cash used in investing
activities.............. (35) (98) (274) (71) (11)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line
of credit....................... 7 730 (64) (702) 160
Payment of dividends............... (147) (643) (329) (82) (354)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) financing
activities.............. (140) 87 (393) (784) (194)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... 157 762 (940) (900) 155
CASH, beginning of period............ 186 343 1,105 1,105 165
--------- --------- --------- --------- ---------
CASH, end of period.................. $ 343 $ 1,105 $ 165 $ 205 $ 320
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................ $ 90 $ 82 $ 98 $ 29 $ 37
Income taxes.................... 1 3 5 3 1
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-60
<PAGE>
AMPARTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Amparts Group (the Group) consists of Amparts International, Inc., a Texas
corporation, headquartered in Laredo, Texas, was founded in 1990 and, together
with its affiliates Amparts, Inc., and Proveedor Mayorista al Refaccionario S.A.
de C.V. (Promare) (collectively, Amparts), serves customers principally in
Mexico and countries in South and Central America, Southeast Asia and the
Pacific Rim from its locations in Washington, Texas and Florida. Amparts
primarily exports commercial vehicle parts.
The Group and its shareholders intend to enter into a definitive agreement
with Transportation Components, Inc., dba TransCom USA, pursuant to which all
outstanding shares of the Group's common stock will be exchanged for cash and
shares of TransCom USA's common stock concurrently with the consummation of an
initial public offering of common stock by TransCom USA (the Offering).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The combined financial statements include the accounts and the results of
operations of the Group for all periods during which the companies were under
common control. All significant intercompany balances and transactions have been
eliminated in combination.
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1998, and for the three
months ended March 31, 1997 and 1998, are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included.
INVENTORIES
Inventories consist primarily of purchased parts stated at the lower of
cost or market, utilizing the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
F-61
<PAGE>
AMPARTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
SHAREHOLDERS' EQUITY
The equity structure of the Group was as follows at each December 31, 1996
and 1997:
SHARES
AUTHORIZED ISSUED AND
SHARES OUTSTANDING PAR VALUE
---------- ----------- ---------
Common Stock --
Amparts International, Inc. .... 420 420 $ 1,000
Amparts, Inc. .................. 3,000 3,000 $ 1
Promare
Series A................... 750,000 750,000 $ .32
Series B................... 150,000 150,000 $ .32
REVENUE RECOGNITION
The Group recognizes revenue when products are shipped.
INCOME TAXES
Amparts International, Inc. has elected S Corporation status as defined by
the Internal Revenue Code, whereby Amparts International, Inc. is not subject to
federal taxation. Under S Corporation status, the shareholders report their
shares of taxable earnings or losses in their personal tax returns. Accordingly,
no provision was made for income taxes related to Amparts International, Inc. in
the accompanying historical financial statements. Amparts International, Inc.
will terminate its S Corporation status concurrently with the effective date of
this Offering.
Amparts, Inc., is qualified as an interest-charge Domestic International
Sales Corporation (DISC) under Internal Revenue Code provisions. Under these
provisions, taxable income distributed to the shareholders is subject to tax in
their respective individual income tax returns. The shareholders may defer
paying taxes on undistributed taxable income attributable to a maximum of $10
million of qualified export gross receipts per year for each year Amparts Inc.,
is a qualified interest-charge DISC. Such deferral requires the shareholders to
pay an interest charge computed on the deferred tax liability on the accumulated
and undistributed DISC income. Taxable income attributable to sales greater than
$10 million is reportable on the federal income tax returns of Amparts, Inc.'s
shareholders.
Promare accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts to be realized. The
provision for income taxes is the tax payable for the year and the change during
the year in deferred tax assets and liabilities.
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, "Foreign Currency Translation," the U.S.
dollar has been determined to be the functional currency for Promare. Therefore,
assets and liabilities of Promare's operations are translated into U.S. dollars
at the current exchange rate in effect at the balance sheet date, and revenues
and expenses are translated at the average exchange rate for the period. Gains
and losses from transactions in foreign currencies are reported in other
expense, net. These gains (losses) were approximately $178,000, $(35,000) and
$(162,000) for the years ended December 31, 1995, 1996 and 1997, respectively.
F-62
<PAGE>
AMPARTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN EXCHANGE CONTRACTS
The Group occasionally enters into foreign exchange contracts only as a
hedge against certain existing economic exposures and not for speculative or
trading purposes. These contracts reduce exposure to currency movements
affecting existing assets and liabilities denominated in foreign currencies,
such exposure resulting primarily from trade receivables and payables and
intercompany transactions. Gains (losses) from these transactions were
approximately $41,000, $(7,000) and $(50,000) for the years ended December 31,
1995, 1996 and 1997, respectively, and are included in other expense, net.
FINANCIAL INSTRUMENTS
The Group's financial instruments consist of cash, accounts receivable,
accounts payable and a line of credit. The Group believes that the carrying
value of these instruments on the accompanying balance sheets approximates their
fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Group to a
concentration of credit risk consist primarily of cash deposits and accounts
receivable. The Group maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Group has not
incurred losses related to these balances to date. Concentrations of credit risk
with respect to trade accounts receivable are limited due to the large number of
customers and their dispersion across many geographic areas. However, a
significant amount of trade receivables are with transportation companies in
several countries. Although the Group does not currently foresee a credit risk
associated with these receivables, repayment is dependent upon the financial
stability of those countries' national economies. The Group performs periodic
credit evaluations of its customers and generally does not require collateral.
The Group monitors its exposure for credit losses and maintains an allowance for
anticipated losses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Group will adopt SFAS
No. 131 in 1998.
F-63
<PAGE>
AMPARTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1996 1997
------------ --------- ---------
Vehicles............................. 5 $ 121 $ 155
Machinery and equipment.............. 5 9 76
Office furniture and equipment....... 5 264 273
Leasehold improvements............... 10 51 139
--------- ---------
Total........................... 445 643
Less -- Accumulated depreciation and
amortization....................... (261) (268)
--------- ---------
Property and equipment, net..... $ 184 $ 375
========= =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31,
--------------------
1996 1997
--------- ---------
Accounts receivable, trade........... $ 1,716 $ 2,815
Less -- Allowance for doubtful
accounts........................... (291) (239)
--------- ---------
$ 1,425 $ 2,576
========= =========
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Balance at beginning of year......... $ 319 $ 236 $ 291
Additions charged to costs and
expenses........................... 33 23 --
Less: Deductions for uncollectible
receivables written off............ (116) (18) (52)
Bad debt recoveries.................. -- 50 --
--------- --------- ---------
$ 236 $ 291 $ 239
========= ========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31,
--------------------
1996 1997
--------- ---------
Accounts payable, trade.............. $ 1,469 $ 2,442
Accrued compensation and benefits.... 252 357
Other accrued expenses............... 842 517
--------- ---------
$ 2,563 $ 3,316
========= =========
5. LINE OF CREDIT:
The Group has $5 million available under a line of credit agreement with a
financial institution, subject to certain maximum borrowing restrictions based
on outstanding accounts receivable and inventory balances. This line of credit
is secured by accounts receivable, inventory, equipment and intangibles. The
agreement is guaranteed jointly and severally by the shareholders of the Group
and affiliates. In 1997, a LIBOR-based borrowing component was added to the line
of credit, allowing the Group to borrow at LIBOR plus 2.25 percent, conditional
upon $1 million in minimum borrowings and $500,000 borrowing increments. The
LIBOR-based rate at December 31, 1997, upon which the Group was charged
interest, was 8.16 percent. The line of credit expires on June 30, 1998. There
was approximately $1.6 million outstanding under the agreement at December 31,
1997.
F-64
<PAGE>
AMPARTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Group's line of credit agreement contains requirements regarding
working capital and certain financial ratios. The Group was in compliance with
the provisions of its loan agreements at December 31, 1997.
6. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Federal --
Current......................... $ 365 $ 163 $ (219)
Deferred........................ (234) 82 506
--------- --------- ---------
131 245 287
--------- --------- ---------
State --
Current......................... 1 2 5
Deferred........................ -- -- --
--------- --------- ---------
1 2 5
--------- --------- ---------
Total provision....... $ 132 $ 247 $ 292
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rate as follows (in thousands):
DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
Federal income tax at statutory
rates.............................. $ 225 $ 369 $ 822
State income taxes................... 1 2 5
Nondeductible expenses............... 119 43 (6)
S Corporation and DISC income........ (213) (167) (529)
--------- --------- ---------
$ 132 $ 247 $ 292
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
DECEMBER 31,
--------------------
1996 1997
--------- ---------
Deferred tax assets --
Allowance for doubtful
accounts....................... $ 10 $ 12
Other revenues and deductions... 129 181
Inflationary revaluation........ 185 130
Net operating losses............ 317 301
--------- ---------
Total deferred tax
assets............ 641 624
--------- ---------
Deferred tax liabilities --
Inventory....................... (626) (1,127)
Bases differences in property
and equipment.................. (8) (8)
Intangibles and leases.......... -- 12
--------- ---------
Total deferred tax
liabilities....... (634) (1,123)
--------- ---------
Net deferred tax asset
(liability)....... $ 7 $ (499)
========= =========
F-65
<PAGE>
AMPARTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS:
The Group had the following transactions with KIC International, Inc.
(KICI), KIC Worldwide, Inc. and KIC Holdings, Inc., affiliates of the Group
through common shareholders (in thousands):
1995 1996 1997
--------- --------- ---------
Sales................................ $ 83 $ 126 $ 85
Purchases............................ 410 646 430
Year-end accounts receivable......... 42 44 328
Year-end accounts payable............ 38 28 49
The Group has an agreement with KICI whereby KICI is permitted to allocate
to and charge the Group for certain administrative expenses incurred by KICI on
the Group's behalf. These administrative expenses include office rent paid by
KICI on the Group's behalf, warehouse charges related to the Group's products
shipped through KICI's facilities and direct personnel costs incurred by KICI on
the Group's behalf. Total amounts charged to the Group by KICI for these
administrative expenses were approximately $293,000, $343,000 and $299,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Group leases various facilities, equipment and vehicles under
noncancelable operating lease agreements, including leases with related parties.
These leases expire on various dates through 2000. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for noncancelable operating leases are as
follows (in thousands):
Year ending December 31 --
1998............................ $ 70
1999............................ 66
2000 and thereafter............. 40
---------
$ 176
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $108,000, $112,000 and $143,000 for the
years ended December 31, 1995, 1996 and 1997, respectively.
RESTRICTED STOCK AGREEMENT
The Group and its shareholders entered into a restricted stock agreement
whereby the shareholders agreed not to sell, assign, transfer, encumber, pledge
or in any other way dispose of their shares of stock without allowing the
shareholders the right of first refusal to purchase stock at the time of an
offer to sell by another shareholder.
LITIGATION
At certain times, the Group is involved in legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Group's financial
position or results of operations.
F-66
<PAGE>
AMPARTS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
The Group carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation, excess liability,
commercial property and an umbrella policy. The Group has not incurred
significant claims or losses on any of these insurance policies.
EMPLOYEE PROFIT-SHARING PLAN
Amparts participates in KICI's 401(k) profit-sharing plan (the Plan) which
covers eligible employees at least 21 years of age who have completed at least
one year of service. The Plan includes a salary reduction arrangement and a cash
or deferred arrangement. Each Plan year, the employer can make discretionary
contributions to the Plan. The Plan allows for employee contributions through
salary deductions of up to 15 percent of total compensation, subject to the
statutory limits. There were no employer matching contributions for the years
ended December 31, 1995 or 1996. Employer matching contributions were
approximately $20,000 in 1997.
In 1997, Promare began offering its employees a profit-sharing plan whereby
the employees may contribute a portion of their salaries. In accordance with
Mexican law, Promare is required to match the employees' contribution up to 13
percent of their salaries. Employer contributions under this plan were
approximately $6,000 during 1997.
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Group and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of TransCom USA, providing for the
merger of the Group with the subsidiary of TransCom USA (the Merger).
Approximately $33,000 of other assets, which are included in the balance sheet
at March 31, 1998, will be distributed to the shareholders. Had these
distributions been made at March 31, 1998 the effect on the Group's balance
sheet would have been to decrease shareholder's equity by approximately $33,000.
Prior to the merger, Amparts International, Inc. and Amparts, Inc. will make a
series of cash distributions of approximately $4.0 million which represents
Amparts International, Inc. and Amparts, Inc.'s estimated S Corporation
accumulated adjustment account and accumulated income of the interest -- charge
Domestic International Sales Corporation. Amparts International, Inc. and
Amparts, Inc. anticipates funding this distribution through cash on hand and
borrowings from existing sources. Had these distributions been made at March 31,
1998 the effect on Amparts' balance sheet would have been to increase
liabilities by approximately $3.6 million and decrease stockholders' equity by
approximately $4.0 million.
Concurrently with the Merger, the Group will enter into an agreement with
KICI to lease land, equipment and buildings used in the Group's operations for
negotiated amounts and terms.
F-67
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Cook Brothers Companies, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of The Cook
Brothers Companies, Inc. and Subsidiary (the Company) (New York Corporations),
as of June 30, 1997 and March 31, 1998, and the related consolidated statements
of operations, stockholders' equity and cash flows for the years ended June 30,
1996 and 1997 and the nine months ended March 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Cook Brothers Companies, Inc. and Subsidiary, as of June 30, 1997 and March
31, 1998, and the results of their consolidated operations and their
consolidated cash flows for the years ended June 30, 1996 and 1997 and the nine
months ended March 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 18, 1998
F-68
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, MARCH 31,
1997 1998
-------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 572 $ 1,225
Accounts receivable, net........ 2,599 4,256
Receivables from related
parties, current............... 25 439
Notes receivable, current....... 1,043 764
Inventories..................... 8,405 10,313
Prepaid expenses and other...... 431 379
Deferred tax asset.............. 51 146
-------- -----------
Total current assets....... 13,126 17,522
PROPERTY AND EQUIPMENT, net.......... 2,602 3,065
NOTES RECEIVABLE, net................ 2,004 2,207
RECEIVABLES FROM RELATED PARTIES,
net................................ 21 27
-------- -----------
Total assets............... $ 17,753 $22,821
======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 2,154 $ 3,122
Payables to related parties..... 41 31
Line of credit.................. -- 7,922
Current maturities of long-term
debt and floor plan payable.... 2,247 4,152
-------- -----------
Total current
liabilities............. 4,442 15,227
LONG-TERM DEBT, net.................. 4,112 4,436
LINE OF CREDIT....................... 6,349 --
PAYABLE TO RELATED PARTY............. 281 249
DEFERRED TAX LIABILITY............... 327 327
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no stated par
value, 5,000 shares authorized,
2,351 shares issued and 1,000
outstanding.................... 424 424
Retained earnings............... 2,670 3,010
Treasury stock, 1,351 shares, at
cost........................... (852) (852)
-------- -----------
Total stockholders'
equity.................. 2,242 2,582
-------- -----------
Total liabilities and
stockholders' equity.... $ 17,753 $22,821
======== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED NINE MONTHS
JUNE 30, ENDED
-------------------- MARCH 31,
1996 1997 1998
--------- --------- --------------
REVENUES............................. $ 22,327 $ 21,204 $ 18,391
COST OF SALES........................ 15,885 14,473 12,517
--------- --------- --------------
Gross profit............... 6,442 6,731 5,874
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,454 5,449 4,294
--------- --------- --------------
Income from operations..... 988 1,282 1,580
OTHER INCOME (EXPENSE):
Interest expense................ (1,117) (1,143) (1,020)
Other income, net............... 276 99 21
--------- --------- --------------
INCOME BEFORE INCOME TAXES........... 147 238 581
PROVISION FOR INCOME TAXES........... 84 102 241
--------- --------- --------------
NET INCOME........................... $ 63 $ 136 $ 340
========= ========= ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED TREASURY STOCKHOLDERS'
STOCK EARNINGS STOCK EQUITY
------ --------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1995............... $ 424 $ 2,471 $ (852) $ 2,043
Net income...................... -- 63 -- 63
------ --------- -------- -------------
BALANCE, June 30, 1996............... 424 2,534 (852) 2,106
Net income...................... -- 136 -- 136
------ --------- -------- -------------
BALANCE, June 30, 1997............... 424 2,670 (852) 2,242
Net income...................... -- 340 -- 340
------ --------- -------- -------------
BALANCE, March 31, 1998.............. $ 424 $ 3,010 $ (852) $ 2,582
====== ========= ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-71
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED NINE MONTHS
JUNE 30, ENDED
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 63 $ 136 $ 340
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............ 515 504 395
Loss (gain) on sale of
assets.................. (77) 47 24
Deferred income tax
benefit................. (80) (73) (95)
Changes in assets and
liabilities net of
effect of assets
acquired --
Accounts receivable,
net................... (322) (39) (1,367)
Receivables from related
parties............... 363 336 (420)
Notes receivable........ (29) 719 76
Inventories............. (570) (308) (1,179)
Prepaid expenses and
other................. 159 (17) 52
Accounts payable and
accrued expenses...... 416 (604) 968
--------- --------- -----------
Net cash provided by
(used in) operating
activities............ 438 701 (1,206)
--------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets........... -- -- (1,247)
Purchases of property and
equipment..................... (542) (798) (975)
Proceeds from the sale of
property and equipment........ 98 55 321
--------- --------- -----------
Net cash used in
investing
activities............ (444) (743) (1,901)
--------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term
debt.......................... 56 108 3,760
--------- --------- -----------
Net cash provided by
financing activities 56 108 3,760
--------- --------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 50 66 653
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 456 506 572
--------- --------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 506 $ 572 $ 1,225
========= ========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period
for --
Interest................... $ 1,029 $ 1,079 $ 964
Income taxes............... 182 55 244
The accompanying notes are an integral part of these consolidated financial
statements.
F-72
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The Cook Brothers Companies, Inc. (the Company), and its wholly owned
subsidiary NEC Leasing, Inc. (both New York corporations) are headquartered in
Binghamton, New York. The Company was founded in 1918 and serves customers
principally in New York and Pennsylvania. The Company primarily distributes
commercial vehicle parts and sells Mack trucks.
The Company and its stockholders intend to enter into a definitive
agreement with Transportation Components, Inc., dba TransCom USA, pursuant to
which all outstanding shares of the Company's common stock will be exchanged for
shares of TransCom USA's common stock concurrently with the consummation of an
initial public offering of the common stock by TransCom USA.
In December 1997, the Company purchased the assets of Wilkes Barre Mack
Sales and Service for approximately $1.2 million, subject to subsequent purchase
price adjustments. The assets and results of operations for the period from
December 31, 1997 to March 31, 1998 are included in the accompanying financial
statements. The purchase was financed by utilizing existing unused credit
facilities.
The following unaudited pro forma summary presents information as if the
purchase had occurred at July 1, 1997. The pro forma information is provided for
information purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the consolidated
enterprise (in thousands).
NINE MONTHS
ENDED
MARCH 31,
1998
------------
(UNAUDITED)
Pro forma revenue....................... $24,763
Pro forma net income.................... 487
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and the results
of operations of the Company and its subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
NOTES RECEIVABLE
The Company finances the purchase of trucks for customers who meet certain
financial qualifications. Notes receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or payoff are
reported at their outstanding unpaid principal balances reduced by any
charge-off or specific valuation.
Allowance for loan losses is increased by charges to income and decreased
by charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based upon the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral and current economic conditions.
F-73
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company regularly reviews note receivable balances for delinquency. If
foreclosure on a specific balance is probable, the Company will record the note
at the fair value of the collateral with the related write-off charged to
operations.
INVENTORIES
Inventories consist primarily of purchased parts stated at the lower of
cost or market, utilizing the last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company recognizes revenue from part sales when products are shipped.
Service revenues are recognized when repairs are completed. Truck sales are
recognized upon passage of title and, in the case of credit sales, upon
execution of the loan agreement and receipt of a designated minimum down
payment.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and debt. The Company believes that the
carrying value of these instruments on the accompanying balance sheets
approximates their fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist primarily of cash deposits and accounts and
installment notes receivable. The Company maintains cash balances at financial
institutions which may at times be in excess of federally insured levels. The
Company has not incurred losses related to these balances to date.
SIGNIFICANT SUPPLIERS
For the year ended June 30, 1996, one supplier accounted for 12 percent of
total inventory purchases, while for the year ended June 30, 1997 and the nine
months ended March 31, 1998, two suppliers accounted for approximately 23 and 28
percent of total inventory purchases, respectively.
F-74
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Company will adopt SFAS
No. 131 in 1998.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL LIVES JUNE 30, MARCH 31,
IN YEARS 1997 1998
------------- -------- ---------
Vehicles............................. 5-8 $ 2,792 $ 3,174
Machinery and equipment.............. 5-10 957 1,147
Office furniture and equipment....... 3-10 773 851
Leasehold improvements............... 10-40 438 466
-------- ---------
Total........................... 4,960 5,638
Less -- Accumulated depreciation and
amortization....................... (2,358) (2,573)
-------- ---------
Property and equipment, net..... $ 2,602 $ 3,065
======== =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ---------
Accounts receivable, trade........... $2,919 $ 4,557
Purchase rebates..................... 73 179
Less -- Allowance for doubtful
accounts........................... (393) (480)
-------- ---------
$2,599 $ 4,256
======== =========
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
Balance at beginning of year......... $ 373 $ 373 $ 393
Additions charged to costs and
expenses........................... 60 87 87
Less: Deductions for uncollectible
receivables written off............ (66) (77) --
Bad debt recoveries.................. 6 10 --
-------- -------- ---------
$ 373 $ 393 $ 480
======== ======== =========
F-75
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventory consists of the following (in thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ---------
Parts inventory under first-in
first-out (FIFO) method............ $8,573 $ 8,936
Trucks, new and used................. 457 1,966
Less: LIFO reserve................... (625) (589)
-------- ---------
$8,405 $ 10,313
======== =========
NOTES RECEIVABLE
Notes receivable consist of the following (in thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ---------
Installment notes receivable......... $3,169 $ 3,124
Due from employees................... 41 43
-------- ---------
3,210 3,167
Less -- Allowance for uncollectible
notes.............................. (163) (196)
-------- ---------
$3,047 $ 2,971
======== =========
Installment notes receivable represent amounts that are due beyond one year
from balance sheet dates bearing interest at varying amounts, from 9.75 percent
to 14.75 percent and are secured by new or used trucks.
Activity in the Company's allowance for uncollectible notes consists of the
following (in thousands):
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
Balance at beginning of year......... $ 151 $ 180 $ 163
Additions charged to expense......... 59 34 33
Less: Deduction for uncollectible
notes receivable written off....... (36) (57) (6)
Bad debt recoveries.................. 6 6 6
--------- --------- ---------
$ 180 $ 163 $ 196
========= ========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
JUNE 30, MARCH 31,
1997 1998
--------- ---------
Accounts payable, trade.............. $ 1,967 $ 2,569
Accrued compensation and benefits.... 162 170
Other accrued expenses............... 25 383
--------- ---------
$ 2,154 $ 3,122
========= =========
5. LINES OF CREDIT AND LONG-TERM DEBT:
LINES OF CREDIT
The Company has three lines of credit which provide for borrowings up to
$11.9 million with financial institutions that are secured by certain
receivables, inventory, equipment and general intangibles. Interest on the lines
of credit accrues at the financial institutions' prime rates plus one percent
(9.5 percent at March 31, 1998). The lines of credit are due in February, 1999.
There was approximately $6.3 million and $7.9 million
F-76
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding under the lines at June 30, 1997 and March 31, 1998, respectively.
At June 30, 1997 the outstanding balance was classified as long-term debt as
presented in the table below.
FLOOR PLAN PAYABLE
The Company has five floor plan credit facilities with two lending
institutions to finance its new and used trucks inventory. Interest on amounts
borrowed is paid monthly at rates ranging from .75 to one percent above the
lenders prime rate (9.25 percent to 9.5 percent at March 31, 1998). The floor
plan payable is secured by all of the Company's accounts, inventory, general
intangibles and equipment.
Principal plus accrued interest on floor plan payables are due in full on
February 1, 1999. In addition, the Company's floor plan agreements include
subjective acceleration clauses which could result in the lines of credit being
due on demand should the Company experience a material adverse change in its
financial position as determined by the lender. The maximum aggregate amount
that can be borrowed under the floor plan lines of credit is approximately $2.6
million. The average balance outstanding during the nine months ended March 31,
1998 was approximately $1.2 million with an interest rate of 9.4 percent.
LONG-TERM DEBT AND FLOOR PLAN PAYABLE
Long-term debt and floor plan payable consists of the following (in
thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ----------
Lines of credit...................... $ 6,349 $ --
Notes payable to various financial
institutions in total monthly
installments of approximately
$164,000, including interest
ranging from 4.9% to 11.5%, secured
by certain vehicles, machinery and
equipment with final payments due
between February 1998 and March
2003............................... 6,359 8,588
-------- ----------
Total........................... 12,708 8,588
Less -- Current maturities...... (2,247) (4,152)
-------- ----------
$ 10,461 $ 4,436
======== ==========
The aggregate maturities of long-term debt as of March 31, 1998, are as
follows (in thousands):
1999................................. $ 4,152
2000................................. 1,678
2001................................. 1,310
2002................................. 853
2003................................. 595
---------
$ 8,588
=========
F-77
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the Company's provision for income taxes are as follows
(in thousands):
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
Federal --
Current......................... $ 108 $ 136 $ 262
Deferred........................ (42) (57) (74)
--------- --------- ---------
66 79 188
--------- --------- ---------
State --
Current......................... 56 39 74
Deferred........................ (38) (16) (21)
--------- --------- ---------
18 23 53
--------- --------- ---------
Total provision............ $ 84 $ 102 $ 241
========= ========= =========
The provision for income taxes differs from an amount computed at the
statutory rate as follows (in thousands):
JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- ---------
Federal income tax at statutory
rates.............................. $ 51 $ 83 $ 204
State income taxes................... 12 15 34
Nondeductible expenses............... 21 4 3
--------- --------- ---------
$ 84 $ 102 $ 241
========= ========= =========
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
JUNE 30, MARCH 31,
1997 1998
-------- ---------
Deferred tax assets --
Allowance for doubtful
accounts...................... $ 177 $ 198
Other........................... 13 23
-------- ---------
Total deferred tax
assets.................. 190 221
-------- ---------
Deferred tax liabilities --
Bases differences in property
and equipment................. (377) (376)
Inventory....................... (38) 24
Accrued expenses................ (51) (50)
-------- ---------
Total deferred tax
liabilities............. (466) (402)
-------- ---------
Net deferred tax
liability............... $ (276) $ (181)
======== =========
7. RELATED-PARTY TRANSACTIONS:
The Company leases a facility under an operating lease from an entity owned
by stockholders of the Company. Rent expense on the lease totaled approximately
$305,000, $352,000 and $244,000 for the years ended June 30, 1996 and 1997, and
the nine month period ended March 31, 1998, respectively.
The Company has various receivables from certain stockholders and other
related parties, a portion of which is due on demand and a portion of which is
due in monthly installments of approximately $3,000,
F-78
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bearing interest at 7.52%. There was approximately $46,000 and $466,000 due from
stockholders and other related parties as of June 30, 1997 and March 31, 1998,
respectively.
The Company has notes payable to certain shareholders in total monthly
installments of $4,000, including interest ranging from 8 percent to 10 percent,
secured by certain vehicles and machinery and equipment with final payments due
between September 1998 and February 2009. There was approximately $322,000 and
$280,000 due under this note at June 30, 1997 and March 31, 1998, respectively.
The Company is a party to a buying group through which the Company made
$3.5 million of inventory purchases during the nine month period from June 30,
1997 to March 31, 1998. A stockholder is currently serving a three year term
that expires in April 1999 on the board of directors of the buying group.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various facilities, equipment and vehicles under
noncancelable operating lease agreements, including leases with related parties.
These leases expire on various dates through November 30, 2007. The lease
agreements are subject to renewal under essentially the same terms and
conditions as the original leases.
Future minimum lease payments for noncancelable operating leases, including
leases with related parties, are as follows (in thousands):
Year ending March 31 --
1999............................ $ 515
2000............................ 444
2001............................ 393
2002............................ 350
Thereafter...................... 1,739
---------
$ 3,441
=========
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $335,000, $379,000 and $246,000 for the
years ended June 30, 1996, and 1997 and the nine month period ended March 31,
1998, respectively.
RESTRICTED STOCK AGREEMENT
The Company and its stockholders entered into a restricted stock agreement
whereby the stockholders agreed not to sell, assign, transfer, encumber, pledge
or in any other way dispose of their shares of stock without allowing the
stockholders the right of first refusal to purchase stock at the time of an
offer to sell by another stockholder.
LITIGATION
At certain times, the Company is involved in legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation, excess liability,
commercial property and an umbrella policy. The Company has not incurred
significant claims or losses on any of these insurance policies.
EMPLOYEE 401(K) RETIREMENT PLAN
The Company participates in a 401(k) profit-sharing plan (the Plan) with
related companies which covers eligible employees at least 21 years of age who
have completed at least one year of service. The Plan
F-79
<PAGE>
THE COOK BROTHERS COMPANIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allows for employee contributions through salary deductions of up to 15 percent
of total compensation, subject to the statutory limits. Employer matching
contributions totaled approximately $37,000, $43,000 and $35,000 for the years
ended June 30, 1996, and 1997 and the nine month period ended March 31, 1998,
respectively. Two Company stockholders are the trustees of the Plan.
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Company and its stockholders entered into a definitive
agreement with a wholly owned subsidiary of TransCom USA, providing for the
merger of the Company with the subsidiary of TransCom USA (the Merger). Property
and equipment of approximately $58,000, which is included in the balance sheet
at March 31, 1998, will be distributed to the stockholders. Had these
distributions been made at March 31, 1998, the effect on the Company's balance
sheet would have been to decrease shareholders' equity by approximately $58,000.
Concurrently with the Merger, the Company will enter into an agreement with
the shareholders to lease certain facilities used in the Company's operations
for negotiated amounts and terms.
F-80
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Plaza Automotive, Inc.:
We have audited the accompanying consolidated balance sheet of Plaza
Automotive, Inc., and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Plaza Automotive, Inc., and subsidiaries as of December 31, 1997, and the
results of their consolidated operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 15, 1998
F-81
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 238 $ 267
Accounts receivable, net........ 2,491 3,171
Inventories..................... 3,584 3,986
Prepaid expenses and other...... 72 12
------------ -----------
Total current
assets............. 6,385 7,436
PROPERTY AND EQUIPMENT, net.......... 1,433 1,431
DEFERRED TAX ASSET................... 202 243
OTHER ASSETS......................... 432 535
------------ -----------
Total assets.......... $8,452 $ 9,645
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $2,172 $ 2,966
Payables to related party....... 183 183
Line of credit.................. 1,200 1,400
Current maturities of long-term
debt........................... 67 67
Deferred tax liability.......... 99 77
------------ -----------
Total current
liabilities........ 3,721 4,693
LONG-TERM DEBT, net.................. 223 211
PAYABLE TO RELATED PARTY............. 793 787
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $2.50 par value,
14,000 shares authorized, 4,540
shares issued and
outstanding.................... 11 11
Retained earnings............... 3,704 3,943
------------ -----------
Total shareholders'
equity............. 3,715 3,954
------------ -----------
Total liabilities and
shareholders'
equity............. $8,452 $ 9,645
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-82
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
REVENUES............................. $ 20,721 $ 5,163 $ 5,829
COST OF SALES........................ 14,125 3,413 3,887
------------ --------- ---------
Gross profit.......... 6,596 1,750 1,942
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,575 1,405 1,521
------------ --------- ---------
Income from
operations......... 1,021 345 421
OTHER INCOME (EXPENSE):
Interest expense................ (119) (30) (34)
Other income, net............... 88 28 6
------------ --------- ---------
INCOME BEFORE INCOME TAXES........... 990 343 393
PROVISION FOR INCOME TAXES........... 396 137 154
------------ --------- ---------
NET INCOME........................... $ 594 $ 206 $ 239
============ ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-83
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
TOTAL
COMMON RETAINED SHAREHOLDERS'
STOCK EARNINGS EQUITY
------ --------- --------------
BALANCE, December 31, 1996........... $ 11 $ 3,110 $3,121
Net income...................... -- 594 594
------ --------- --------------
BALANCE, December 31, 1997........... 11 3,704 3,715
Net income (unaudited).......... -- 239 239
------ --------- --------------
BALANCE, March 31, 1998
(unaudited)........................ $ 11 $ 3,943 $3,954
====== ========= ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-84
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 594 $ 206 $ 239
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............ 193 26 37
Deferred income tax
provision (benefit)..... 145 36 (63)
Changes in assets and
liabilities net of
effect of assets
acquired --
Accounts receivable,
net................ (616) (519) (680)
Inventories........... (214) 13 (72)
Prepaid expenses and
other.............. 14 38 60
Other assets.......... (110) (21) (1)
Accounts payable and
accrued expenses... 331 421 794
------------ --------- ---------
Net cash
provided by
operating
activities.... 337 200 314
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets........... -- -- (360)
Proceeds from sale of property
and equipment................. 3 -- --
Purchases of property and
equipment..................... (248) (46) (3)
Deposits toward purchase of
equipment..................... (75) -- (104)
------------ --------- ---------
Net cash used in
investing
activities.... (320) (46) (467)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of
credit........................ 300 90 200
Payments on long-term debt...... (110) (42) (18)
------------ --------- ---------
Net cash
provided by
financing
activities.... 190 48 182
------------ --------- ---------
NET INCREASE IN CASH................. 207 202 29
CASH, beginning of period............ 31 33 238
------------ --------- ---------
CASH, end of period.................. $ 238 $ 235 $ 267
============ ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period
for --
Interest................... $ 117 $ 29 $ 32
Income taxes............... 251 128 106
Capital lease obligations
incurred...................... 52 52 --
The accompanying notes are an integral part of these consolidated financial
statements.
F-85
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Plaza Automotive, Inc. (the Company), a Missouri corporation, headquartered
in St. Louis, Missouri, was founded in 1946 and serves customers principally in
Missouri, Illinois, Colorado and Tennessee. The Company primarily distributes
commercial vehicle parts, performs installation and maintenance services and
relines brake shoes.
The Company and its shareholders intend to enter into a definitive
agreement with Transportation Components, Inc., dba TransCom USA, pursuant to
which all outstanding shares of the Company's common stock will be exchanged for
cash and shares of TransCom USA's common stock concurrently with the
consummation of an initial public offering of the common stock by TransCom USA.
In February, 1998, the Company purchased the inventory and equipment of
Muncie Power Products, Inc., for approximately $360,000. The purchase was
financed with excess cash of the Company.
The following unaudited pro forma summary presents information as if the
purchase had occurred at January 1, 1997. The pro forma information is provided
for information purposes only. It is based on historical information and does
not necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the consolidated
enterprise (in thousands):
YEAR ENDED
DECEMBER 31,
1997
--------------
(UNAUDITED)
Pro forma revenue....................... $22,356
Pro forma net income.................... 759
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and results of
operations of the Company and all of its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain accounts have been reclassified in prior years to conform to the
current period presentation.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of March 31, 1998, and for
the three months ended March 31, 1997 and 1998, are unaudited, and certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the consolidated
interim statements have been included.
INVENTORIES
Inventories consist primarily of purchased parts stated at the lower of
cost or market, utilizing the last-in, first-out (LIFO) method.
If the first-in, first-out (FIFO) method of inventory accounting had been
utilized by the Company, the effect would have been to increase net income by
approximately $35,400 for the year ended December 31, 1997.
F-86
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company recognizes revenue from parts sales when products are shipped.
Service revenues are recognized when repairs are completed.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and debt. The Company believes that the carrying value of these
instruments on the accompanying balance sheet approximates their fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist primarily of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
SIGNIFICANT SUPPLIERS
For the year ended December 31, 1997, two suppliers accounted for 23
percent of total inventory purchases.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report
F-87
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial and descriptive information about its reportable operating segments.
The Company will adopt SFAS No. 131 in 1998.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1997
------------- -------------
Land................................. -- $ 193
Buildings............................ 20-40 1,252
Vehicles............................. 3 319
Machinery and equipment.............. 7 973
Office furniture and equipment....... 5 432
Leasehold improvements............... 3 127
-------------
Total...................... 3,296
Less -- Accumulated depreciation and
amortization....................... (1,863)
-------------
Property and equipment, net..... $ 1,433
=============
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31,
1997
-------------
Accounts receivable, trade........... $ 2,183
Purchase rebates..................... 368
Less -- Allowance for doubtful
accounts........................... (60)
-------------
$ 2,491
=============
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
DECEMBER 31,
1997
-------------
Balance at beginning of year......... $ 31
Additions charged to costs and
expenses........................... 26
Less -- Deductions for uncollectible
receivables........................ (6)
Bad debt recoveries.................. 9
-------------
$ 60
=============
Inventory consists of the following (in thousands):
DECEMBER 31,
1997
-------------
Inventory under the first-in,
first-out (FIFO) method............ $ 4,344
Less -- LIFO reserve................. (760)
-------------
$ 3,584
=============
F-88
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31,
1997
-------------
Accounts payable, trade.............. $ 1,790
Accrued compensation and benefits.... 302
Other accrued expenses............... 80
-------------
$ 2,172
=============
5. LINE OF CREDIT AND LONG-TERM DEBT:
LINE OF CREDIT
The Company has a line of credit agreement which provides for borrowings up
to $2 million with a financial institution that is secured by accounts
receivable, inventory and equipment. Interest accrues at the financial
institution's prime rate, which was 8.25 percent at December 31, 1997. There was
$1.2 million outstanding on the line at December 31, 1997.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
1997
------------
Note payable to a financial
institution in total monthly
principal installments of $3,889
plus variable interest equivalent
to the lender's prime rate plus
.5%, which was 8.75% at December
31, 1997, secured by certain
buildings with final payment due in
2000............................... $ 241
Lease payable to various leasing
companies in total monthly
installments of approximately
$2,200 including interest of 8.75%,
secured by vehicles with final
payments due between 1998 and
2001............................... 49
------------
290
Less -- Current maturities........... (67)
------------
$ 223
============
The aggregate maturities of long-term debt as of December 31, 1997, are as
follows (in thousands):
1998................................. $ 67
1999................................. 63
2000................................. 159
2001................................. 1
---------
$ 290
=========
F-89
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the Company's provision for income taxes are as follows
(in thousands):
DECEMBER 31,
1997
------------
Federal --
Current......................... $ 203
Deferred........................ 130
------------
333
------------
State --
Current......................... 48
Deferred........................ 15
------------
63
------------
Total provision............ $ 396
============
The provision for income taxes differs from an amount computed at the
statutory rate as follows (in thousands):
DECEMBER 31,
1997
------------
Federal income tax at statutory
rates.............................. $ 346
State income taxes................... 41
Nondeductible expenses............... 9
------------
$ 396
============
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
DECEMBER 31,
1997
------------
Deferred tax assets --
Accrued expenses................ $ 81
Allowance for doubtful
accounts....................... 25
Noncurrent liabilities.......... 361
------------
Total deferred tax
assets.................. 467
------------
Deferred tax liabilities --
Bases differences in property
and equipment.................. 61
Purchase rebates................ 150
Inventory....................... 95
Other........................... 58
------------
Total deferred tax
liabilities............. 364
------------
Net deferred tax asset..... $ 103
============
7. RELATED-PARTY TRANSACTIONS:
The Company has a consulting services agreement with a shareholder for
monthly payments of one-half of his monthly salary immediately prior to
retirement. An additional survivor annuity agreement provides for monthly
payments of $5,000 to the shareholder's spouse upon the shareholder's death. The
monthly payment is adjusted annually by the percentage increase in the consumer
price index over the base index of March 1990. At December 31, 1997, the
liability recorded related to these agreements (collectively, the Annuity
Agreements) was $876,000.
F-90
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a note payable to a shareholder with a fixed interest rate
of 7 percent, due on demand, with interest paid monthly. There was $100,000 due
under this note at December 31, 1997.
The Company is a party to a buying group through which the Company made $4
million of inventory purchases. A shareholder of the Company is currently
serving a three year term that expires in November 2000 on the board of
directors of the buying group.
RESTRICTED STOCK AGREEMENT
The Company and its shareholders entered into a restricted stock agreement
whereby the shareholders agreed not to sell, assign, transfer, encumber, pledge
or in any other way dispose of their shares of stock without allowing the
shareholders the right of first refusal to purchase stock at the time of an
offer to sell by another shareholder.
SHAREHOLDER GUARANTEE
Amounts payable for purchases from a certain supplier are guaranteed up to
$100,000 by a shareholder of the Company.
8. COMMITMENTS AND CONTINGENCIES:
CAPITAL COMMITMENTS
The Company has made a commitment toward the purchase of certain equipment
and estimates that expenditures aggregating approximately $202,000 will be
required in 1998, in connection with the commitment.
OPERATING LEASES
The Company leases various facilities, equipment and vehicles under
noncancelable operating lease agreements. These leases expire on various dates
through 2001. The lease agreements are subject to renewal under essentially the
same terms and conditions as the original leases.
Future minimum lease payments for noncancelable operating leases are as
follows (in thousands):
Year ending December 31 --
1998............................ $ 163
1999............................ 58
2000............................ 22
2001............................ 2
---------
$ 245
=========
Total rent expense under all operating leases was approximately $206,000
for the year ended December 31, 1997.
LITIGATION
At certain times, the Company is involved in legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation, excess liability,
commercial property and an umbrella policy. The Company has not incurred
significant claims or losses on any of these insurance policies.
F-91
<PAGE>
PLAZA AUTOMOTIVE, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE 401(K) RETIREMENT PLAN
The Company participates in a 401(k) profit-sharing plan (the Plan) which
covers eligible non-union employees at least 21 years of age who have completed
at least 1,000 hours of service in a one year period. The Plan allows for
employee contributions through salary deductions of up to 15 percent of total
compensation, subject to the statutory limits. Employer matching contributions
totaled approximately $108,000 for the year ended December 31, 1997.
DEFERRED COMPENSATION ARRANGEMENT
The Company has a deferred compensation agreement with two key personnel
based on corporate earnings and years of future service. The Company provides
for the expense as the benefits vest. Expense for the year ended December 31,
1997 under these agreements was approximately $24,000.
9. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Company and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of TransCom USA, providing for the
merger of the Company with the subsidiary of TransCom USA (the Merger).
Approximately $361,000 of other assets which is included in the balance sheet at
March 31, 1998, will be distributed to the shareholders. Had these distributions
been made at March 31, 1998, the effect on the Company's balance sheet would
have been to decrease shareholders' equity by approximately $361,000.
Personnel participating in the Company's deferred compensation arrangement
will become fully vested in benefits under the arrangement and will convert the
value of vested benefits into common shares of the Company and ultimately common
shares of TransCom USA.
Upon consummation of the Offering, the Company will enter into a contract
to sell four of its facilities to a shareholder for approximately $1,519,000,
the estimated fair market value of the property. Upon closing of such contract,
the shareholder will lease the facility back to the Company under certain
negotiated terms.
F-92
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Perfection Group:
We have audited the accompanying consolidated balance sheets of Perfection
Group, as defined in Note 1 to the consolidated financial statements, as of
September 30, 1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of Perfection Group's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Perfection Group as of September 30, 1996 and 1997, and the results of their
consolidated operations and their consolidated cash flows for the years then
ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
March 24, 1998
F-93
<PAGE>
PERFECTION GROUP
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 56 $ 61 $ 47
Accounts receivable, net........ 1,379 1,504 2,534
Receivable from related party... 42 196 26
Inventories..................... 1,607 2,085 3,414
Prepaid expenses and other...... 77 32 14
Deferred tax asset.............. 34 101 101
--------- --------- -----------
Total current assets....... 3,195 3,979 6,136
PROPERTY AND EQUIPMENT, net.......... 1,618 1,546 1,586
DEFERRED TAX ASSET................... 61 51 51
OTHER ASSETS......................... 11 8 1
--------- --------- -----------
Total assets............... $ 4,885 $ 5,584 $ 7,774
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 1,248 $ 2,005 $ 2,833
Note payable to related party... 451 -- --
Current maturities of long-term
debt.......................... 131 669 196
--------- --------- -----------
Total current
liabilities............. 1,830 2,674 3,029
--------- --------- -----------
LONG-TERM DEBT, net.................. 2,212 2,134 3,439
--------- --------- -----------
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARY......................... 116 120 178
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par, 200,000
shares authorized, 10,000
shares issued and
outstanding................... 10 10 10
Additional paid-in capital...... 606 606 606
Treasury stock.................. -- (172) (141)
Retained earnings............... 111 212 653
--------- --------- -----------
Total stockholders'
equity.................. 727 656 1,128
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 4,885 $ 5,584 $ 7,774
========= ========= ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-94
<PAGE>
PERFECTION GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 11,346 $ 11,925 $ 5,237 $ 10,627
COST OF SALES........................ 8,788 9,210 4,013 8,231
--------- --------- --------- ---------
Gross profit.................... 2,558 2,715 1,224 2,396
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES............ 1,992 2,276 980 1,381
--------- --------- --------- ---------
Income from operations.......... 566 439 244 1,015
OTHER INCOME (EXPENSE):
Interest expense................ (241) (260) (123) (154)
Other income (expense), net..... (123) 13 (3) (83)
--------- --------- --------- ---------
Income before income taxes and
minority interest in income of
consolidated subsidiary....... 202 192 118 778
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARY............ (13) (14) (7) (44)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES........... 189 178 111 734
PROVISION FOR INCOME TAXES........... 78 77 47 293
--------- --------- --------- ---------
NET INCOME........................... $ 111 $ 101 $ 64 $ 441
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-95
<PAGE>
PERFECTION GROUP
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN TREASURY RETAINED STOCKHOLDERS'
STOCK CAPITAL STOCK EARNINGS EQUITY
------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, September 30, 1995.......... $ 5 $ 55 $ -- $ -- $ 60
Net income...................... -- -- -- 111 111
Issuance of common stock........ 5 551 -- -- 556
------- ----------- --------- --------- -------------
BALANCE, September 30, 1996.......... 10 606 -- 111 727
Net income...................... -- -- -- 101 101
Purchase of treasury stock...... -- -- (172) -- (172)
------- ----------- --------- --------- -------------
BALANCE, September 30, 1997.......... 10 606 (172) 212 656
Net income (unaudited).......... -- -- -- 441 441
Sale of treasury stock
(unaudited)................... -- -- 31 -- 31
------- ----------- --------- --------- -------------
BALANCE, March 31, 1998
(unaudited).......................... $ 10 $ 606 $ (141) $ 653 $ 1,128
======= =========== ========= ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-96
<PAGE>
PERFECTION GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER SIX MONTHS
30, ENDED MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $ 111 $ 101 $ 64 $ 441
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities --
Depreciation and
amortization............ 73 126 66 70
Deferred income tax
benefit................. (19) (57) -- --
Minority interest.......... 13 14 7 44
Changes in assets and
liabilities --
Accounts receivable, net... (349) (279) 280 (860)
Inventories................ (58) (478) (176) (1,329)
Prepaid expenses and
other................... 53 45 (14) 18
Accounts payable and
accrued expenses........ 44 757 71 828
--------- --------- --------- ---------
Net cash provided by (used
in) operating
activities.............. (132) 229 298 (788)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment..................... (337) (43) (34) (96)
Receipt of cash surrender value
life insurance................ -- -- -- 7
Deferred compensation........... 109 -- -- --
Purchases of subsidiary's
stock......................... (58) -- -- --
Cash acquired in acquisition of
subsidiary.................... 68 -- -- --
--------- --------- --------- ---------
Net cash used in investing
activities.............. (218) (43) (34) (89)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on
line of credit................ 374 118 (90) 1,392
Payments on long-term debt...... (147) (81) (500) (529)
Proceeds from long-term debt.... -- -- 499 --
Proceeds from capital leases.... 195 -- -- --
Repayment of capital leases..... (18) (46) (23) (31)
(Purchase) sale of treasury
stock......................... -- (172) (172) 31
--------- --------- --------- ---------
Net cash provided by (used
in) financing
activities.............. 404 (181) (286) 863
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH...... 54 5 (22) (14)
CASH, beginning of period............ 2 56 56 61
--------- --------- --------- ---------
CASH, end of period.................. $ 56 $ 61 $ 34 $ 47
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for --
Interest...................... $ 238 $ 260 $ 116 $ 67
Income taxes.................. 44 109 67 179
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-97
<PAGE>
PERFECTION GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Perfection Group includes the financial statements of TPE, Inc.
("Perfection") and its wholly owned subsidiary, Perfection Equipment Company
("PECO") (both Oklahoma corporations). PECO, headquartered in Oklahoma City,
Oklahoma, was founded in 1946 and serves customers principally in Oklahoma. PECO
primarily distributes commercial vehicle parts, performs installation and
maintenance services and assembles specialty commercial vehicle equipment.
Perfection has no significant operations of its own.
Perfection was incorporated on August 25, 1995 by three members of PECO's
management for the purpose of acquiring ownership in PECO. On August 28, 1995,
Perfection issued 4,500 shares of common stock to the members of PECO management
in exchange for $60,000. On October 1, 1995, Perfection received 10,000 shares
of common stock, or 90.2%, of PECO's outstanding common stock in exchange for
4,950 shares of Perfection's common stock, $57,500 in cash and $517,500 in debt.
In addition, Perfection issued an additional 550 shares of common stock for
transaction costs incurred. The acquisition of PECO was accounted for using the
purchase method of accounting.
Perfection's owners intend to enter into a definitive agreement with
Transportation Components, Inc., dba TransCom USA, pursuant to which all
outstanding shares of Perfection's common stock will be exchanged for cash and
shares of TransCom USA's common stock concurrently with the consummation of an
initial public offering of the common stock by TransCom USA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts and the results
of operations of Perfection and PECO (collectively the "Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of March 31, 1998, and for
the six months ended March 31, 1997 and 1998, are unaudited, and certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principals have been
omitted. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary to fairly present the financial position,
results of operations and cash flows with respect to the consolidated interim
financial statements have been included.
INVENTORIES
Inventories consist primarily of purchased parts stated at the lower of
cost or market, utilizing the first-in, first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
STOCKHOLDERS EQUITY
During fiscal year 1997, the Company purchased 1,500 shares of treasury
stock at a cost of $171,960.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Effective May 1, 1986, PECO established an ESOP. The ESOP provides
retirement benefits to eligible employees, as defined by the ESOP agreement.
PECO contributions under the ESOP are discretionary,
F-98
<PAGE>
PERFECTION GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
except that they are limited to the maximum amount deductible for federal income
tax purposes. Benefits to participants are limited to the ESOP's assets. During
fiscal 1996 and 1997, contributions to the ESOP charged to the Company's
consolidated statements of operations totaled approximately $148,000 and
$37,000, respectively. At September 30, 1996 and 1997, the ESOP owns
approximately 8.9% and 8.8%, respectively, of PECO.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped. Service revenues
are recognized when installation or repairs are completed.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts to be
realized. The provision for income taxes is the tax payable for the year and the
change during the year in deferred tax assets and liabilities.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, and debt. The Company believes that the carrying value of
these instruments on the accompanying balance sheets approximates their fair
value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
SIGNIFICANT CUSTOMERS
For the years ended September 30, 1996 and 1997, one customer accounted for
approximately 33 percent and 23 percent of sales, respectively.
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 period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. The Company will adopt SFAS
No. 131 in 1998.
F-99
<PAGE>
PERFECTION GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED SEPTEMBER 30,
USEFUL LIVES --------------------
IN YEARS 1996 1997
------------- --------- ---------
Land................................. -- $ 367 $ 367
Buildings and improvements........... 5-40 941 944
Vehicles............................. 4-5 6 6
Machinery and equipment.............. 5-10 60 91
Office furniture and equipment....... 3-10 317 335
Leasehold improvements............... 5-10 -- 2
--------- ---------
Total...................... 1,691 1,745
Less -- Accumulated depreciation and
amortization......................... (73) (199)
--------- ---------
Property and equipment, net..... $ 1,618 $ 1,546
========= =========
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Accounts receivable, trade........... $ 1,402 $ 1,536
Less -- Allowance for doubtful
accounts........................... (23) (32)
--------- ---------
Accounts receivable, net........ $ 1,379 $ 1,504
========= =========
Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Balance at beginning of year......... $ 33 $ 23
Additions charged to costs and
expenses........................... 66 21
Less: Deductions for uncollectible
receivables written off............ (76) (12)
--------- ---------
$ 23 $ 32
========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Accounts payable, trade.............. $ 927 $ 1,562
Accrued compensation and benefits.... 147 258
Other accrued expenses............... 174 185
--------- ---------
Accounts payable and accrued
expenses....................... $ 1,248 $ 2,005
========= =========
F-100
<PAGE>
PERFECTION GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT:
Long-term debt consists of the following as of September 30, 1996 and 1997
(in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Note payable to a financial
institution in total monthly
installments of $8,270 including
interest at New York prime plus 1%
(9.5% at September 30, 1997),
personally guaranteed by officers
of the Company with final payment
due on September 1, 2004. In May,
1997 in conjunction with an
increase of PECO's revolving line
of credit the bank required
Perfection Group to make additional
monthly installments of $97,000
starting in October 1997 with final
payment due in February 1998....... $ -- $ 472
Notes payable to financial
institutions in monthly
installments ranging from $5,188 to
$11,923, including interest at New
York prime plus 1% (9.50% at
September 30, 1997), secured by
essentially all assets of the
Company and is personally
guaranteed by officers of the
Company with final payments due
between March 2002 and March
2005............................... 1,303 1,218
Revolving credit agreement payable to
a financial institution with
monthly interest payments at the
New York prime plus 1% (9.50% at
September 30, 1997), secured by
essentially all assets of the
Company and is personally
guaranteed by officers of the
Company with final payment due in
April 1998. Due to the subsequent
refinancing of this agreement (as
discussed below), the outstanding
balance at September 30, 1997, has
been included in long-term debt on
the accompanying balance sheet..... 863 982
Capital lease agreements payable to
financial institutions in monthly
installments ranging from $851 to
$4,341, including interest at
effective rates ranging from 9.85%
to 16.95%, with final payments due
between March 1999 and April
2000............................... 177 131
--------- ---------
2,343 2,803
Less -- Current maturities........... (131) (669)
--------- ---------
$ 2,212 $ 2,134
========= =========
On January 20, 1998, the Company refinanced the notes payable and revolving
credit agreement. The new notes have monthly principal and interest payments of
approximately $23,000 beginning February 1, 1998, with the outstanding principal
and all accrued and unpaid interest due on January 31, 1999. These notes are
secured by essentially all assets of the Company and are personally guaranteed
by the president and two vice-presidents of the Company.
In March 1998, the Company's line of credit was amended to allow borrowings
up to $3,000,000. In addition, the interest rates on the Company's line of
credit and promissory notes with a bank were adjusted to New York Prime.
The aggregate maturities of long-term debt as of September 30, 1997,
considering the refinancing discussed above, are as follows (in thousands):
1998................................. $ 669
1999................................. 2,105
2000................................. 29
---------
Total........................... $ 2,803
=========
F-101
<PAGE>
PERFECTION GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES:
The components of the Company's provision for income taxes are as follows
(in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--------- ---------
Federal --
Current......................... $ 82 $ 113
Deferred........................ (16) (48)
--------- ---------
66 65
--------- ---------
State --
Current......................... $ 15 $ 21
Deferred........................ (3) (9)
--------- ---------
12 12
--------- ---------
Total provision............ $ 78 $ 77
========= =========
The provision for income taxes differs from an amount computed at the
statutory rate as follows (in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--- ---
Federal income tax at statutory
rates.............................. $ 69 $ 65
State income taxes................... 12 12
Nondeductible expenses............... 2 5
Other................................ (5) (5)
--- ---
$ 78 $ 77
=== ===
The significant items giving rise to the deferred tax assets and
liabilities are as follows (in thousands):
SEPTEMBER 30,
--------------------
1996 1997
--- ---------
Deferred tax assets --
Allowance for doubtful
accounts....................... $ 14 $ 12
Inventories..................... 8 76
Bases differences in property
and equipment.................. 57 48
Accrued expenses................ 12 12
Other........................... 4 4
--- ---------
Total deferred tax assets....... 95 152
Deferred tax liabilities............. -- --
--- ---------
Net deferred tax asset..... $ 95 $ 152
=== =========
7. RELATED-PARTY TRANSACTIONS:
In April 1990, PECO loaned $397,800 to the ESOP for the purpose of
purchasing shares of PECO's stock and repurchasing shares held by participants.
Payments were due quarterly at varying amounts which included principal and
interest. The payments were to be funded through PECO's contributions to the
ESOP. During fiscal 1996, the entire remaining balance of $108,693 was paid off.
During fiscal years 1996 and 1997, approximately $176,000 and $750,000 or
approximately 1.6% and 6.3%, respectively, of the Company's sales were made to
an entity which is owned by several members of the Company's management. At
September 30, 1996 and 1997, approximately $42,000 and $196,000, respectively,
included in trade accounts receivable was due from this related entity.
Additionally, the Company had approximately $7,000 in marketing fees from the
related party during fiscal year 1997, no such fees were incurred during fiscal
year 1996.
F-102
<PAGE>
PERFECTION GROUP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal year 1996 the Company also had a note payable to a
stockholder of the Company due in monthly installments of $8,500 including
interest at the applicable mid-term federal rate, personally guaranteed by
officers of the Company. There was approximately $451,000 oustanding on the note
at September 30, 1996. The note was paid in full in March 1997.
8. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases various equipment and a facility under noncancelable
operating lease agreements. These leases expire on various dates through 1999.
The lease agreements are subject to renewal under essentially the same terms and
conditions as the original leases.
Future minimum lease payments for noncancelable operating leases are as
follows (in thousands):
Year ending September 30 --
1998............................ $ 154
1999............................ 12
---------
Total...................... $ 166
=========
Total rent expense under all operating leases was approximately $0 and
$9,625 for the years ended September 30, 1996 and 1997, respectively.
LITIGATION
At certain times, the Company is involved in legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation, excess liability,
commercial property and an umbrella policy. The Company has not incurred
significant claims or losses on any of these insurance policies.
ADVISORY SERVICES AGREEMENT
On February 6, 1998, the Company entered into an agreement with two former
stockholders of the Company (the "stockholders") to terminate the stockholders
Advisory Services Agreement. Under the agreement, the Company agreed to pay the
stockholders $170,000, payable in three monthly installments of approximately
$57,000 commencing on March 15, 1998. During fiscal years 1996 and 1997, the
Company expensed approximately $8,000 and $16,000, respectively, relating to the
Advisory Services Agreement.
9. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Company and its stockholders entered into a definitive
agreement with a wholly owned subsidiary of TransCom USA, providing for the
merger of the Company with the subsidiary of TransCom USA (the Merger).
F-103
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Drive Line, Inc.:
We have audited the accompanying balance sheets of Drive Line, Inc. (a
Florida corporation), as of December 31, 1996 and 1997, and the related
statements of operations, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of Drive Line, Inc.'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 financial position of Drive Line, Inc., as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 15, 1998
F-104
<PAGE>
DRIVE LINE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 111 $ 61 $ 28
Accounts receivable, net........ 452 586 1,011
Receivables from related
parties....................... 286 593 604
Inventories..................... 1,267 1,855 2,016
Prepaid expenses and other...... 62 -- 4
--------- --------- -----------
Total current assets....... 2,178 3,095 3,663
PROPERTY AND EQUIPMENT, net.......... 392 1,564 1,768
INVESTMENT IN REAL ESTATE............ 397 -- --
RECEIVABLES FROM RELATED PARTIES,
net................................ 214 -- --
--------- --------- -----------
Total assets............... $ 3,181 $ 4,659 $ 5,431
========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses...................... $ 378 $ 360 819
Payables to related parties..... 129 1,414 1,705
Line of credit.................. 1,000 1,000 984
Current maturities of long-term
debt.......................... 31 65 62
--------- --------- -----------
Total current
liabilities............. 1,538 2,839 3,570
LONG-TERM DEBT, net.................. 42 1,173 1,351
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 100
shares authorized, issued and
outstanding................... -- -- --
Additional paid-in capital...... 37 37 37
Retained earnings............... 1,564 610 473
--------- --------- -----------
Total shareholders'
equity.................. 1,601 647 510
--------- --------- -----------
Total liabilities and
shareholders' equity.... $ 3,181 $ 4,659 $ 5,431
========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
DRIVE LINE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- -------------------------
1996 1997 1997 1998
--------- --------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES............................. $ 4,227 $ 5,997 $ 1,745 $1,719
COST OF SALES........................ 2,290 3,385 958 1,205
--------- --------- --------- ------------
Gross profit............... 1,937 2,612 787 514
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,008 1,530 376 486
--------- --------- --------- ------------
Income from operations..... 929 1,082 411 28
OTHER INCOME (EXPENSE):
Interest expense................ (54) (191) (10) (110)
Other income, net............... 67 47 4 29
--------- --------- --------- ------------
NET INCOME (LOSS).................... $ 942 $ 938 $ 405 $ (53)
========= ========= ========= ============
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
DRIVE LINE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------- ----------- --------- -------------
BALANCE, December 31, 1995........... $ -- $ 37 $ 1,152 $ 1,189
Net income...................... -- -- 942 942
Distributions................... -- -- (530) (530)
------- ----- --------- -------------
BALANCE, December 31, 1996........... -- 37 1,564 1,601
Net income...................... -- -- 938 938
Distributions................... -- -- (1,892) (1,892)
------- ----- --------- -------------
BALANCE, December 31, 1997........... -- 37 610 647
Net loss (unaudited)............ -- -- (53) (53)
Distributions (unaudited)....... -- -- (84) (84)
------- ----- --------- -------------
BALANCE, March 31, 1998
(unaudited)........................ $ -- $ 37 $ 473 $ 510
======= ===== ========= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-107
<PAGE>
DRIVE LINE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................. $ 942 $ 938 $ 405 $ (53)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Depreciation and amortization... 14 31 7 8
Changes in assets and
liabilities --
Accounts receivable, net...... (64) (134) (355) (425)
Receivables from related
parties..................... 492 (561) (228) (11)
Inventories................... (464) (588) (140) (161)
Prepaid expenses and other.... (205) (7) -- (4)
Accounts payable and accrued
expenses.................... (55) (18) (237) 459
Payables to related parties... 101 1,285 -- --
--------- --------- --------- ---------
Net cash provided by
(used in) operating
activities......... 761 946 (548) (187)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate.......... (397) -- -- --
Purchases of property and
equipment......................... (148) (1,188) (61) (212)
--------- --------- --------- ---------
Net cash used in
investing
activities......... (545) (1,188) (61) (212)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on line
of credit......................... 405 -- -- (16)
Proceeds from long-term debt....... 30 1,667 999 485
Payments on long-term debt......... (23) (502) (345) (19)
Distributions to shareholders...... (530) (973) (43) (84)
--------- --------- --------- ---------
Net cash provided by
(used in) financing
activities......... (118) 192 611 366
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... 98 (50) 2 (33)
CASH AND CASH EQUIVALENTS, beginning
of period........................... 13 111 111 61
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of
period.............................. $ 111 $ 61 $ 113 $ 28
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for --
Interest........................ $ 54 $ 191 $ 4 $ 43
Non cash distribution to
shareholders...................... -- 919 -- --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-108
<PAGE>
DRIVE LINE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Drive Line, Inc. (the Company), a Florida corporation, headquartered in
Sunrise, Florida, was founded in 1988 and serves customers nationally from its
facility in Florida. The Company primarily distributes commercial vehicle parts
to Original Equipment Manufacturers (OEMs) and other end-users and military
vehicle parts to the United States military.
The Company and its shareholders intend to enter into a definitive
agreement with Transportation Components, Inc., dba TransCom USA, pursuant to
which all outstanding shares of the Company's common stock will be exchanged for
cash and shares of TransCom USA's common stock concurrently with the
consummation of an initial public offering of the common stock by TransCom USA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL INFORMATION
The interim financial statements as of March 31, 1998, and for the three
months ended March 31, 1997 and 1998, are unaudited, and certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements have
been included.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist primarily of purchased parts stated at the lower of
cost or market, utilizing the first-in, first-out method (FIFO).
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in other income.
REVENUE RECOGNITION
The Company recognizes revenue when products are shipped.
INCOME TAXES
The Company has elected S Corporation status as defined by the Internal
Revenue Code, whereby Drive Line, Inc., is not subject to federal taxation.
Under S Corporation status, the shareholders report their shares of the
Company's taxable earnings or losses in their personal tax returns. Accordingly,
no provision was made for income taxes in the accompanying historical financial
statements. Drive Line, Inc., will terminate its S Corporation status
concurrently with the effective date of this offering.
F-109
<PAGE>
DRIVE LINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable and debt. The Company believes that the
carrying value of these instruments on the accompanying balance sheets
approximates their fair value.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to a
concentration of credit risk consist primarily of cash deposits and accounts
receivable. The Company maintains cash balances at financial institutions which
may at times be in excess of federally insured levels. The Company has not
incurred losses related to these balances to date.
SIGNIFICANT SUPPLIERS
For the years ended December 31, 1996 and 1997, three suppliers accounted
for 37 percent and 48 percent of total inventory purchases, respectively.
SIGNIFICANT CUSTOMERS
For the years ended December 31, 1996 and 1997, two customers accounted for
22 percent and 16 percent of total revenues, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
requires that a public business enterprise report financial and descriptive
information about its reporting operating segments. The Company will adopt SFAS
No. 131 in 1998.
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following (in thousands):
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1996 1997
------------- --------- ---------
Land................................. -- $ 162 $ 162
Buildings............................ 30 169 1,313
Vehicles............................. 5 100 86
Machinery and equipment.............. 5-7 29 39
Office furniture and equipment....... 5 58 62
Leasehold improvements............... 7 8 8
--------- ---------
Total........................... 526 1,670
Less -- Accumulated depreciation and
amortization....................... (134) (106)
--------- ---------
Property and equipment, net..... $ 392 $ 1,564
========= =========
F-110
<PAGE>
DRIVE LINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following (in thousands):
DECEMBER 31,
--------------------
1996 1997
--------- ---------
Accounts receivable, trade........... $ 518 $ 652
Less -- Allowance for doubtful
accounts........................... (66) (66)
--------- ---------
$ 452 $ 586
========= =========
Accounts payable and accrued expenses consist of the following (in
thousands):
DECEMBER 31,
--------------------
1996 1997
--------- ---------
Accounts payable, trade.............. $ 299 $ 280
Accrued compensation and benefits.... 79 80
--------- ---------
$ 378 $ 360
========= =========
5. LINE OF CREDIT AND LONG-TERM DEBT:
LINE OF CREDIT
The Company has a line of credit agreement which provides for borrowings up
to $1 million with a financial institution that is secured by accounts
receivable and inventory. The agreement is guaranteed jointly and severally by
the shareholders of the Company. Interest accrues at the financial institution's
prime rate plus 0.5 percent, which was nine percent at December 31, 1997. The
line of credit expires on September 18, 1998. The total $1 million available
under the agreement was outstanding at December 31, 1996 and 1997, respectively.
LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
--------------------
1996 1997
--------- ---------
Notes payable to financial
institutions in total monthly
installments of $15,630, including
interest ranging from 8.25% to 9%,
partially secured by certain
vehicles and a building, guaranteed
jointly and severally by the
shareholders of the Company, with
final payments due between January
2002 to April 2006................. $ 73 $ 1,238
Less -- Current maturities........... (31) (65)
--------- ---------
$ 42 $ 1,173
========= =========
Certain of the Company's loan agreements contain requirements regarding
working capital and financial ratios. The Company was in compliance with all
provisions of its loan agreements at December 31, 1997.
F-111
<PAGE>
DRIVE LINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities of long-term debt as of December 31, 1997, are as
follows (in thousands):
1998................................. $ 65
1999................................. 61
2000................................. 37
2001................................. 28
2002................................. 23
Thereafter........................... 1,024
---------
$ 1,238
=========
6. RELATED-PARTY TRANSACTIONS:
The Company has entered into several transactions with related entities,
resulting in loans receivable, notes receivable and notes payable with related
parties.
The receivable bears interest of ten percent, with maturing in June 1998
and is partially secured by residential property. The receivable totaled
approximately $500,000 and $593,000, including accrued interest of approximately
$25,000 and $50,000, respectively, at December 31, 1996 and 1997, respectively.
In addition, the Company has notes payable to shareholders of approximately
$129,000 and $1,414,000 at December 31, 1996 and 1997, respectively. The notes
payable to shareholders bear interest of ten percent annually and are due in
June 1998.
7. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases its warehouse and office space under noncancelable lease
agreements, including leases with related parties. These leases expire on
various dates through February 1998. The lease agreements are subject to renewal
under essentially the same terms and conditions as the original leases. Minimum
operating lease payments for 1998 are $8,000.
Total rent expense under all operating leases, including leases with
related parties was approximately $46,000 and $48,000 for the years ended
December 31, 1996 and 1997, respectively.
LITIGATION
In March 1995, the Company and two of its officers and controlling persons,
pled guilty to one felony count of submission of a false document to the Defense
Logistics Agency of the United States government. The Company paid a fine of
$200,000 and the officers each paid a fine of $2,500 in satisfaction of the
judgments against them. The violation occurred during 1989 in the course of a
transaction between the Company and the Defense Logistics Agency involving heavy
duty parts valued at approximately $6,200. The Company remains a vendor for the
United States government and derives approximately 15 percent of its revenues
from parts sales to the United States government.
At certain times, the Company is involved in legal actions arising in the
ordinary course of business. Management does not believe the outcome of such
legal actions will have a material adverse effect on the Company's financial
position or results of operations.
INSURANCE
The Company carries a broad range of insurance coverage, including business
auto liability, general liability, workers' compensation, excess liability,
commercial property and an umbrella policy. The Company has not incurred
significant claims or losses on any of these insurance policies.
F-112
<PAGE>
DRIVE LINE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE RETIREMENT PLAN
The Company participates in a profit-sharing and a money purchase pension
plan (the Plans) which cover eligible employees at least 20 years of age who
have completed at least one year of service. The money purchase pension plan
requires an annual employer contribution on behalf of qualified employees in the
amount of five percent of total compensation. Employer contributions to the
profit-sharing plan are discretionary with no minimum contributions required.
Employer matching contributions for both plans totaled approximately $78,000 and
$79,000 for the years ended December 31, 1996 and 1997, respectively.
8. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
In April 1998, the Company and its shareholders entered into a definitive
agreement with a wholly owned subsidiary of TransCom USA, providing for the
merger of the Company with the subsidiary of TransCom USA (the Merger).
Approximately $1.5 million of property and equipment, which is included in the
balance sheet at March 31, 1998, will be distributed to the shareholders. In
addition, shareholders of the Company will assume liabilities of approximately
$1.2 million, which are included in the balance sheet at March 31, 1998. Had
these distributions been made at March 31, 1998, the effect on the Company's
balance sheet would have been to decrease shareholders' equity by approximately
$283,000. Prior to the Merger, Drive Line will make a cash distribution of
approximately $438,000 which represents Drive Line's estimated S Corporation
accumulated adjustment account. Drive Line anticipates funding this distribution
through cash on hand and borrowings from existing sources. Had these
distributions been made at March 31, 1998, the effect on Drive Line's balance
sheet would have been to increase liabilities by $278,000 and decrease
stockholders' equity by $438,000. Drive Line anticipates funding this
distribution by using its existing credit facilities.
Concurrently with the Merger, the Company will enter into an agreement with
the shareholders to lease certain facilities used in the Company's operations
for negotiated amounts and terms.
F-113
<PAGE>
[TransCom USA Logo]
The Company's comprehensive product line includes a broad selection of
parts for braking systems and suspension and steering systems, as well as axles,
wheels and rims, trailer parts, drive train components, hydraulic components and
engine parts.
To complement its parts distribution business, the Company also provides
customers with value-added services, such as parts installation and repair,
fleet maintenance management, training, machine shop services and
remanufacturing.
The Company believes that the combination of its comprehensive product
line, wide array of value-added services and national and international
distribution capabilities provide it with a competitive advantage over other
independent distributors and OEM-authorized dealerships.
[Photograph of heavy duty parts with caption "Various heavy duty parts
distributed by the Founding Companies."]
[Photograph of equipment with caption "A brake shoe machine operated by Plaza
Automotive, Inc. used to remanufacture brake shoes."]
[Photograph of technician working on part with caption "A technician employed
by Gear & Wheel, Inc. remanufactures a turbocharger."]
[Photograph of technician working on part with caption "A technician employed
by Gear & Wheel, Inc. remanufactures a transmission."]
[Photograph of sales counter with caption "Sales counter at Charles W. Carter
Co. - Los Angeles."]
[Photograph of warehouse with caption "The Gear & Wheel, Inc. distribution
center."]
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO
SELL, OR A SOLICITATION OF ANY OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR TO ANY PERSON WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary...................... 3
Risk Factors............................ 10
The Company............................. 17
Use of Proceeds......................... 19
Dividend Policy......................... 19
Capitalization.......................... 20
Dilution................................ 21
Selected Financial Data................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 24
Business................................ 38
Management.............................. 50
Certain Transactions.................... 56
Principal Stockholders.................. 61
Description of Capital Stock............ 62
Shares Eligible for Future Sale......... 65
Underwriting............................ 66
Legal Matters........................... 67
Experts................................. 67
Additional Information.................. 68
Index to Financial Statements........... F-1
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE HEREOF), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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.
5,500,000 SHARES
[LOGO]
TRANSCOM USA
COMMON STOCK
------------------------
PROSPECTUS
------------------------
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN
SANDERS MORRIS MUNDY
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC.
AMOUNT TO
BE PAID
------------
SEC registration fee................. $ 22,391
NYSE registration fee................ $ 88,100
NASD registration fee................ $ 8,090
Printing expenses.................... $ 500,000
Legal fees and expenses.............. $ 875,000
Accounting fees and expenses......... $ 3,000,000
Blue Sky fees and expenses........... $ 5,000
Transfer Agent's and Registrar's
fees............................... $ 15,000
Miscellaneous........................ $ 486,419
------------
TOTAL........................... $ 5,000,000
============
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation, as amended, and Bylaws
incorporate substantially the provisions of the Delaware General Corporation Law
("DGCL") providing for indemnification of directors and officers of the
Company against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that such person is or was an officer or director of the
Company or is or was serving at the request of the Company as a director,
officer or employee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
As permitted by Section 102 of the DGCL, the Company's Certificate of
Incorporation, as amended, contains provisions eliminating a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty except for liability (a) for any breach
of the director's duty of loyalty to the Company or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides generally that a person sued as a
director, officer, employee or agent of a corporation may be indemnified by the
corporation for reasonable expenses, including attorneys' fees, if in the case
of other than derivative suits such person has acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe that such person's conduct was unlawful). In the
case of a derivative suit, an officer, employee or agent of the corporation
which is not protected by the Certificate of Incorporation may be indemnified by
the corporation for reasonable expenses, including attorneys' fees, if such
person has acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation, except that no
indemnification shall be made in the case of a derivative suit in respect of any
claim as to which an officer, employee or agent has been adjudged to be liable
to the corporation unless that person is fairly and reasonably entitled to
indemnity for proper expenses. Indemnification is mandatory in the case of a
director or officer who is successful on the merits in defense of a suit against
such person.
II-1
<PAGE>
The Company intends to enter into Indemnity Agreements with its directors
and certain key officers pursuant to which the Company generally is obligated to
indemnify its directors and such officers to the full extent permitted by the
DGCL as described above.
The Company intends to purchase liability insurance policies covering
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On October 9, 1997, Transportation Components issued and sold 20,000 shares
of Common Stock to Notre for a consideration of $1,000. This sale was exempt
from registration under Section 4(2) of the Securities Act, no public offering
being involved.
On November 27, 1997, Transportation Components issued and sold shares of
Common Stock to the following parties in the amounts and for the consideration
indicated. These sales were exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved: J. David Gooch -- 2,546.5272
shares for a consideration of $2,753.29; Shellie LePori -- 184.9806 shares for a
consideration of $200; Steven J. Blum -- 369.9613 shares for a consideration of
$400; Richard T. Howell -- 92.4903 shares for a consideration of $100; Kenneth
V. Garcia -- 184.9806 shares for a consideration of $200; Jennifer
Jackson -- 92.4903 shares for a consideration of $100; Melinda Malek -- 9.2490
shares for a consideration of $10; Jerry Gonzales -- 110.9884 shares for a
consideration of $120; Mario Rodriguez -- 110.9884 shares for a consideration of
$120; Rodolfo A. Duemichen -- 249.7239 shares for a consideration of $270;
Infoscope Partners, Inc. -- 46.2451 shares for a consideration of $50; and Tina
Rose -- 18.4980 shares for a consideration of $20.
On February 15, 1998, Transportation Components issued and sold shares of
Common Stock to the following parties in the amounts and for the consideration
indicated. These sales were exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved: T. Michael
Young -- 2,312.2584 shares for a consideration of $2,500; Hugh H. N. "Mac"
McConnell, Jr. -- 924.9033 shares for a consideration of $1,000; Paul E.
Pryzant -- 693.6775 shares for a consideration of $750; Daniel T.
Bucaro -- 693.6775 shares for a consideration of $750; Louie A.
Hamilton -- 462.4516 shares for a consideration of $500; Marlise C.
Skinner -- 462.4516 shares for a consideration of $500; Wayne S.
Rachlen -- 462.4516 shares for a consideration of $500; and Valerie
Summers -- 23.1225 shares for a consideration of $25.
Effective March 31, 1998, Transportation Components effected a
108.1194-to-1 stock split on shares of Common Stock outstanding as of March 31,
1998.
Effective April 10, 1998, Transportation Components issued and sold
1,912,388 shares of Restricted Common Stock to Notre in exchange for 1,912,388
shares of Common Stock. This sale was exempt from registration under Section
4(2) of the Securities Act, no public offering being involved.
Simultaneously with the consummation of the Offering, the Company will
issue 7,493,394 shares of its Common Stock in connection with the Mergers of the
Founding Companies. Each of these transactions was completed without
registration under the Securities Act in reliance upon the exemption provided by
Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement
*3.1 -- Amended and Restated Certificate of Incorporation of Transportation Components, Inc., as
amended
+3.2 -- Bylaws of Transportation Components, Inc., as amended
4.1 -- Form of certificate evidencing ownership of Common Stock of Transportation Components,
Inc.
*5.1 -- Opinion of Bracewell & Patterson, L.L.P.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
+10.1 -- Transportation Components, Inc., 1998 Long-Term Incentive Plan
+10.2 -- Transportation Components, Inc., 1998 Non-Employee Directors' Stock Plan
*10.3 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., Charles W. Carter Co. -- Los Angeles and the Stockholders named herein.
*10.4 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., Proveedor Mayorista al Refaccionario, S.A. de C.V. (Promare) and the
Stockholders named herein.
*10.5 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., PIA Acquisition Corporation, Plaza Automotive, Inc. and the Stockholders
named herein
*10.6 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., CBC Acquisition Corporation, The Cook Brothers Companies, Inc. and the
Stockholders named herein
*10.7 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., TPE Acquisition Corporation, TPE, Inc. and the Stockholders named herein
*10.8 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., UFS Acquisition Corporation, Universal Fleet Supply and the Stockholders
named herein
*10.9 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., DLI Acquisition Corporation, Drive Line, Inc. and the Stockholders named
herein
*10.10 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., GWI Acquisition Corporation, TOI Acquisition Corporation, OTP
Acquisition Corporation, Gear and Wheel, Inc., Try One, Inc., Ocala Truck Parts, Inc. and
the Stockholders named herein
*10.11 -- Agreement and Plan of Organization dated as of April 14, 1998, by and among Transportation
Components, Inc., CTC Acquisition Corporation, LLL Acquisition Corporation, MLS
Acquisition Corporation, Transportation Components Company, L.L.L., Inc. and MSL, Inc.and
the Stockholders named herein
*10.12 -- Agreement and Plan of Organization dated as of April 14, 1998 by and among Transportation
Components, Inc., APM Acquisition Corporation, AIII Acquisition Corporation, Amparts,
Inc., Amparts International, Inc. and the Stockholders named herein
*10.13 -- Agreement and Plan of Organization dated as of April 14, 1998 by and among Transportation
Components, Inc., Perfection Equipment Company and the Stockholders named herein
*10.14 -- Form of Employment Agreement between Transportation Components, Inc. and each of Messrs.
Young, Gooch, McConnell, Pryzant and Bucaro
10.15 -- Reserved
10.16 -- Reserved
10.17 -- Reserved
10.18 -- Reserved
10.19 -- Reserved
+10.20 -- Form of Founders' Employment Agreement
+10.21 -- Form of Agreement Among Certain Stockholders
+10.22 -- Form of Indemnity Agreement with Notre Capital Ventures II, L.L.C.
+21.1 -- List of subsidiaries of Transportation Components, Inc.
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Arthur Andersen LLP
*23.3 -- Consent of Ernst & Young LLP, Independent Auditors
23.4 -- Consent of Bracewell & Patterson, L.L.P. (included in Exhibit 5.1)
*23.5 -- Consent of Maura L. Berney to be named as a director
II-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
*23.6 -- Consent of Louis J. Boggeman to be named as a director
*23.7 -- Consent of Henry B. Cook, Jr. to be named as a director
*23.8 -- Consent of Rodolfo A. Duemichen to be named as a director
*23.9 -- Consent of J. David Gooch to be named as a director
*23.10 -- Consent of Peter D. Lund to be named as a director
*23.11 -- Consent of John R. Oren to be named as a director
*23.12 -- Consent of Everett W. Petry to be named as a director
*23.13 -- Consent of Ronald G. Short to be named as a director
*23.14 -- Consent of Thomas A. Work to be named as a director
*23.15 -- Consent of T. Michael Young to be named as a director
*23.16 -- Consent of Lawrence K. King to be named as a director
*23.17 -- Consent of I. T. Corley to be named as a director
*23.18 -- Consent of Hugh H.N. McConnell, Jr. to be named as a director
+24.1 -- Power of Attorney
*27 -- Financial Data Schedule
- ------------
</TABLE>
* Filed herewith
+ Filed previously
(b) Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulation of the SEC are not required under the related instructions, are
inapplicable, or the information is included in the consolidated financial
statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14, or otherwise,
the Company has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(c) The undersigned registrant hereby undertakes that: (i) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; (ii) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, TRANSPORTATION
COMPONENTS, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT
THERETO TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, MAY 28, 1998.
TRANSPORTATION COMPONENTS, INC.
By: /s/ T. MICHAEL YOUNG
T. MICHAEL YOUNG
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON MAY 28, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- -------------------------------------- --------------
<S> <C>
/s/ T. MICHAEL YOUNG Chairman of the Board; Chief Executive May 28, 1998
T. MICHAEL YOUNG Officer and President
* Senior Vice President; Chief Financial
HUGH H. N. MCCONNELL, JR. Officer and Director May 28, 1998
(Chief Accounting Officer)
* Director May 28, 1998
JOHN R. OREN
* Executive Vice President, Chief May 28, 1998
J. DAVID GOOCH Development Officer and Director
*By: /s/ T. MICHAEL YOUNG
T. MICHAEL YOUNG
ATTORNEY-IN-FACT
</TABLE>
II-5
EXHIBIT 1.1
5,500,000 Shares of Common Stock
TRANSPORTATION COMPONENTS, INC.
UNDERWRITING AGREEMENT
______, 1998
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED
SANDERS MORRIS MUNDY
as Representatives of the
several Underwriters named in
Schedule I attached hereto
c/o Bear, Stearns & Co. Inc.
245 Park Avenue
New York, N.Y. 10167
Dear Sirs:
Transportation Components, Inc., a corporation organized and
existing under the laws of Delaware (the "Company"), proposes, subject to the
terms and conditions stated herein, to issue and sell to the several
underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
5,500,000 shares (the "Firm Shares") of its common stock, par value $.01 per
share (the "Common Stock") and, for the sole purpose of covering over-allotments
in connection with the sale of the Firm Shares, at the option of the
Underwriters, up to an additional 825,000 shares (the "Additional Shares") of
Common Stock. The Firm Shares and any Additional Shares purchased by the
Underwriters are referred to herein as the "Shares." The Shares are more fully
described in the Registration Statement referred to below.
- 1 -
<PAGE>
Simultaneously with closing on the Firm Shares by the Underwriters,
the Company will cause each of the Founding Companies (as hereinafter defined)
to be merged with a subsidiary of the Company (collectively, the "Founding
Company Mergers"), the consideration for which will be a combination of cash and
shares of the Company's Common Stock as described in the Registration Statement
(as hereinafter defined).
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriters that:
(a) A registration statement on Form S-1 (Reg. No.
333-______) with respect to the Shares has been carefully prepared by the
Company in conformity with the requirements of the Securities Act of 1933,
as amended (the "Act"), and the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder and has been filed with the Commission. Copies of such
registration statement, including any amendments thereto, the preliminary
prospectuses (meeting the requirements of the Rules and Regulations)
contained therein and the exhibits, financial statements and schedules, as
finally amended and revised, have heretofore been delivered by the Company
to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462(b) under the Act,
herein referred to as the "Registration Statement," which shall be deemed
to include all information omitted therefrom in reliance upon Rule 430A
and contained in the Prospectus referred to below, has become effective
under the Act and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement. "Prospectus"
means (a) the form of prospectus first filed with the Commission pursuant
to Rule 424(b), or (b) the last preliminary prospectus included in the
Registration Statement filed prior to the time it becomes effective or
filed pursuant to Rule 424(a) under the Act that is delivered by the
Company to the Underwriters for delivery to purchasers of the Shares,
together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary
prospectus included in the Registration Statement prior to the time it
becomes effective is herein referred to as a "Preliminary Prospectus."
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. Each of Charles W. Carter Co., Transportation Components Co.,
Gear & Wheel, Inc., Amparts International, Inc., The Cook Brothers
Companies, Inc., Plaza Automotive, Inc., Universal Fleet Supply, Inc.,
Perfection Equipment Company, Inc. and Drive Line, Inc. (collectively the
"Founding Companies") has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. As of the date hereof, the Company has no subsidiaries except
those listed in Item 16 to the Registration Statement. The Company and
each of the Founding Companies are duly
- 2 -
<PAGE>
qualified to transact business in all jurisdictions in which the conduct
of their respective businesses requires such qualification, except where
the failure to so qualify would not have a materially adverse effect on
the business and operations of the Company and the Founding Companies
taken as a whole. The outstanding shares of capital stock of each of the
Founding Companies have been duly authorized and validly issued, are fully
paid and non-assessable. As of the Closing Date (as hereinafter defined),
after giving effect to the Founding Company Mergers, all of the
outstanding shares of capital stock of each of the Founding Companies will
be owned by the Company free and clear of all liens, encumbrances and
equities and claims; and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in any of
the Founding Companies will be outstanding.
(c) The outstanding shares of Common Stock of the
Company have been duly authorized and validly issued and are fully paid
and non-assessable; the Shares to be issued and sold by the Company have
been duly authorized and when issued and paid for as contemplated herein
will be validly issued, fully paid and non-assessable; and no preemptive
rights of stockholders exist with respect to any of the Shares or the
issue and sale thereof. Neither the filing of the Registration Statement
nor the offering or sale of the Shares as contemplated by this Agreement
gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common
Stock. Upon completion of the Founding Company Mergers in the manner
described in the Registration Statement, the shares of Common Stock of the
Company to be issued in such mergers will be duly authorized, validly
issued and fully paid and non-assessable.
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration
Statement. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of
the Shares nor instituted proceedings for that purpose. The Registration
Statement contains, and the Prospectus and any amendments or supplements
thereto will contain, all statements which are required to be stated
therein by, and will conform to the requirements of the Act and the Rules
and Regulations. The Registration Statement and any amendment thereto do
not contain, and will not contain, any untrue statement of a material fact
and do not omit, and will not omit, to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading. The Prospectus and any supplements thereto do not contain, and
will not contain, any untrue statement of a material fact and do not omit,
and will not omit, to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
- 3 -
<PAGE>
provided, however, that the Company makes no representations or warranties
as to information contained in or omitted from the Registration Statement
or the Prospectus, or any such amendment or supplement, in reliance upon,
and in conformity with, written information furnished to the Company by or
on behalf of any Underwriter through the Representatives, specifically for
use in the preparation thereof.
(f) All of the financial statements of the Company and
the separate financial statements of the Founding Companies, in each case
together with related notes and schedules, as set forth in the
Registration Statement, present fairly in all material respects the
financial position and the results of operations and cash flows of the
Company and of each of the Founding Companies, respectively, at the
indicated dates and for the indicated periods. Such financial statements
and related schedules have been prepared in accordance with generally
accepted principles of accounting, consistently applied throughout the
periods involved, except as disclosed therein, and all adjustments
necessary for a fair presentation of results for such periods have been
made. The summary historical and pro forma financial and statistical data
included in the Registration Statement present fairly the information
shown therein and such data have been compiled on a basis consistent with
the financial statements presented therein and the books and records of
the Company and the Founding Companies, as applicable. The pro forma
combined financial statements of the Company and the Founding Companies
(including the supplemental pro forma information shown therein), together
with the related notes, as set forth in the Registration Statement,
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro
forma financial statements and have been properly compiled on the pro
forma bases described therein, and in the opinon of the Company, the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(g) Arthur Andersen LLP and Ernst & Young LLP, who have
each certified certain of the financial statements filed with the
Commission as part of the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding
pending or, to the knowledge of the Company, threatened against the
Company or any of the Founding Companies before any court or
administrative agency or otherwise, which if determined adversely to the
Company or such Founding Company is reasonably likely to result in any
material adverse change in the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and the Founding Companies, taken as a whole, or
to prevent the consummation of the transactions contemplated hereby except
as set forth in the Registration Statement.
- 4 -
<PAGE>
(i) Each of the Company and the Founding Companies has
good and marketable title to all of its properties and assets reflected in
its financial statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial
statements (or as described in the Registration Statement) or which are
not material in amount. Each of the Company and the Founding Companies
occupies its leased properties under valid and binding leases conforming
in all material respects to the description thereof set forth in the
Registration Statement.
(j) Each of the Company and the Founding Companies has
filed all Federal, state, local and foreign income tax returns which have
been required to be filed and have paid all taxes indicated by said
returns and all assessments received by it or any of them to the extent
that such taxes have become due and are not being contested in good faith.
All tax liabilities have been adequately provided for in the financial
statements of the Company and the Founding Companies, as applicable.
(k) Since the respective dates as of which information
is given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or
affecting the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise), or prospects of the
Company and the Founding Companies, taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been any
material transaction entered into or any material transaction that is
probable of being entered into by the Company or the Founding Companies,
other than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended
or supplemented. Neither the Company nor any of the Founding Companies has
any material contingent obligations which are not disclosed in the
Company's or such Founding Company's financial statements, as applicable,
included in the Registration Statement.
(l) Neither the Company nor any of the Founding
Companies is, or with the giving of notice or lapse of time or both, will
be, in violation of or in default under its Charter or By-Laws or under
any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its
properties, is bound and which default is of material significance in
respect of the condition (financial or otherwise) of the Company and the
Founding Companies, taken as a whole, or the business, management,
properties, assets, rights, operations, condition (financial or otherwise)
or prospects of the Company and the Founding Companies, taken as a whole.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof
will not conflict with or result in a material breach of any of the terms
or provisions of, or constitute a material default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which
- 5 -
<PAGE>
the Company or any of the Founding Companies is a party, or of the Charter
or By-Laws of the Company or any of the Founding Companies or any order,
rule or regulation applicable to the Company or any of the Founding
Companies of any court or, assuming compliance with all applicable state
securities or blue sky laws, of any regulatory body or administrative
agency or other governmental body having jurisdiction.
(m) Each material approval, consent, order,
authorization, designation, declaration or filing by or with any
regulatory, administrative or other governmental body necessary in
connection with the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein contemplated
(except such additional steps as may be required by the Commission, the
National Association of Securities Dealers, Inc. (the "NASD") or such
additional steps as may be necessary to qualify the Shares for public
offering by the Underwriters under state securities or Blue Sky laws) has
been obtained or made and is in full force and effect.
(n) The Company and each of the Founding Companies hold
all material licenses, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses; and
neither the Company nor any of the Founding Companies has infringed any
patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company or such Founding
Company. The Company knows of no material infringement by others of
patents, patent rights, trade names, trademarks or copyrights owned by or
licensed to the Company or any of the Founding Companies.
(o) Neither the Company, nor to the Company's best
knowledge, any of its affiliates or any of the Founding Companies or any
of their affiliates, has taken or may take, directly or indirectly, any
action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the
sale or resale of the Shares.
(p) Neither the Company nor any of the Founding
Companies is an "investment company" within the meaning of such term under
the Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
(q) The Company and each of the Founding Companies
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the recorded accountability for
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assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(r) The Company and each of the Founding Companies
carry, or are covered by, insurance in such amounts and covering such
risks as is adequate for the conduct of their respective businesses and
the value of their respective properties and as is customary for companies
engaged in similar industries.
(s) The Company and each of the Founding Companies are
in compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company or any of the Founding Companies would have any
liability; neither the Company nor any of the Founding Companies has
incurred nor expects to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan," or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company or any of the
Founding Companies would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriters and the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $_______, the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus any additional
number of Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 9 hereof.
(b) Payment of the purchase price for, and delivery of
certificates for, the Shares shall be made at the office of Bear, Stearns & Co.
Inc., 245 Park Avenue, New York, New York 101667, or at such other place as
shall be agreed upon by you and the Company, at 10:00 A.M. on the third or
fourth business day (as permitted under Rule 15c6- 1 under the Exchange Act)
(unless postponed in accordance with the provisions of Section 9 hereof)
following the date of the effectiveness of the Registration Statement (or, if
the Company has elected to rely upon Rule 430A of the Regulations, the third or
fourth business day (as permitted under Rule 15c6-1 under the Exchange Act)
after the determination of the initial public offering price of the Shares), or
such other time not later than ten business days after such date as shall be
agreed upon by you and the Company (such time and date of payment and delivery
being herein called the "Closing Date"). Payment shall be made to the
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Company by wire transfer in same day funds, against delivery to you for the
respective accounts of the Underwriters of certificates for the Shares to be
purchased by them. Certificates for the Shares shall be registered in such name
or names and in such authorized denominations as you may request in writing at
least two full business days prior to the Closing Date. The Company will permit
you to examine and package such certificates for delivery at least one full
business day prior to the Closing Date.
(c) In addition, the Company hereby grants to the Underwriters
the option to purchase up to 825,000 Additional Shares at the same purchase
price per share to be paid by the Underwriters to the Company for the Firm
Shares as set forth in this Section 2, for the sole purpose of covering
over-allotments in the sale of Firm Shares by the Underwriters. This option may
be exercised at any time, in whole or in part, on or before the thirtieth day
following the date of the Prospectus, by written notice by you to the Company.
Such notice shall set forth the aggregate number of Additional Shares as to
which the option is being exercised and the date and time, as reasonably
determined by you, when the Additional Shares are to be delivered (such date and
time being herein sometimes referred to as the "Additional Closing Date");
PROVIDED, HOWEVER, that the Additional Closing Date shall not be earlier than
the Closing Date or earlier than the second full business day after the date on
which the option shall have been exercised nor later than the eighth full
business day after the date on which the option shall have been exercised
(unless such time and date are postponed in accordance with the provisions of
Section 9 hereof). Certificates for the Additional Shares shall be registered in
such name or names and in such authorized denominations as you may request in
writing at least two full business days prior to the Additional Closing Date.
The Company will permit you to examine and package such certificates for
delivery at least one full business day prior to the Additional Closing Date.
The number of Additional Shares to be sold to each Underwriter shall
be the number which bears the same ratio to the aggregate number of Additional
Shares being purchased as the number of Firm Shares set forth opposite the name
of such Underwriter in Schedule I hereto (or such number increased as set forth
in Section 9 hereof) bears to 5,500,000, subject, however, to such adjustments
to eliminate any fractional shares as you in your sole discretion shall make.
Payment for the Additional Shares shall be made by wire transfer in
same day funds at the offices of Bear, Stearns & Co. Inc., 245 Park Avenue, New
York, New York 101667, or such other location as may be mutually acceptable,
upon delivery of the certificates for the Additional Shares to you for the
respective accounts of the Underwriters.
3. OFFERING. Upon your authorization of the release of the Firm
Shares, the Underwriters propose to offer the Shares for sale to the public upon
the terms set forth in the Prospectus.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Underwriters that:
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(a) The Company will (A) use its best efforts to cause
the Registration Statement to become effective or, if the procedure in
Rule 430A of the Rules and Regulations is followed, to prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations, and (B) not file any amendment to the Registration Statement
or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not
in compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly
(A) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (B) of receipt of any comments from
the Commission, (C) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, and (D) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
the use of the Prospectus or of the institution of any proceedings for
that purpose. The Company will use its best efforts to prevent the
issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if
issued.
(c) The Company will cooperate with the Representatives
in endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have designated
in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to
continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(d) The Company will deliver to, or upon the order of,
the Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period
when delivery of a Prospectus is required under the Act, as many copies of
the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to
the Representatives at or before the Closing Date, three signed, xeroxed
copies of the Registration Statement and all amendments thereto including
all exhibits filed therewith, and will deliver to the Representatives such
number of copies of the Registration
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Statement (including such number of copies of the exhibits filed therewith
that may reasonably be requested), including any documents incorporated by
reference therein, and of all amendments thereto, as the Representatives
may reasonably request.
(e) The Company will comply with the Act and the Rules
and Regulations and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission
thereunder, so as to permit the completion of the distribution of the
Shares as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters,
it becomes necessary to amend or supplement the Prospectus in order to
make the statements therein, in the light of the circumstances existing at
the time the Prospectus is delivered to a purchaser, not misleading, or,
if it is necessary at any time to amend or supplement the Prospectus to
comply with any law, the Company promptly will prepare and file with the
Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the
law.
(f) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in any event
not later than 15 months after the effective date of the Registration
Statement, an earnings statement (which need not be audited) in reasonable
detail, covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement, which earnings
statement shall satisfy the requirements of Section 11(a) of the Act and
Rule 158 of the Rules and Regulations and will advise you in writing when
such statement has been so made available.
(g) The Company will, for a period of five years from
the Closing Date, deliver to the Underwriters copies of annual reports and
copies of all other documents, reports and information furnished by the
Company to its stockholders or filed with any securities exchange pursuant
to the requirements of such exchange or with the Commission pursuant to
the Act or the Exchange Act. The Company will deliver to the
Representatives similar reports with respect to significant subsidiaries,
as that term is defined in the Rules and Regulations, which are not
consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition
of any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common Stock
or derivative of Common Stock (or agreement for such) will be made for a
period of 180 days after the date of the Prospectus, directly or
indirectly, by the Company otherwise than hereunder or with the prior
written consent of
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Bear, Stearns & Co. Inc., except that the Company may, without such
consent, issue shares (i) upon exercise of options granted under its stock
option plans, (ii) upon exercise of warrants outstanding on the date of
this Agreement, (iii) in connection with acquisitions of businesses, (iv)
in connection with conversion of shares of Restricted Common Stock to
Common Stock or (v) pursuant to employee benefit or compensation plans
existing on the date hereof.
(i) The Company will use its best efforts to list,
subject to notice of issuance, the Shares on the New York Stock Exchange.
(j) The Company has caused each executive officer and
director of the Company to furnish to you, on or prior to the date of this
Agreement, a letter or letters, in form and substance satisfactory to the
Underwriters, pursuant to which each such person has agreed not to offer,
sell, sell short or otherwise dispose of any shares of Common Stock of the
Company owned by such person (or as to which such person has the right to
direct the disposition of) or request the registration for the offer or
sale of any of the foregoing for a period of 180 days after the date of
the Prospectus, directly or indirectly, except with the prior written
consent of Bear, Stearns & Co. Inc. ("Lockup Agreements").
(k) The Company will: (i) use its best efforts to
satisfy all conditions to the consummation of the Founding Company Mergers
as set forth in the agreements with respect thereto, (ii) use its best
efforts to cause each other party to such agreements to satisfy all
conditions to the consummation of the Founding Company Mergers, and (iii)
promptly notify the Underwriters of the occurence of any event which may
result in the non-consummation of any of the Founding Company Mergers on
the Closing Date.
(l) The Company shall apply the net proceeds of its sale
of the Shares as set forth in the Prospectus and shall file such reports
with the Commission with respect to the sale of the Shares and the
application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
(m) The Company shall not invest, or otherwise use, the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Founding Companies to
register as an investment company under the Investment Company Act of
1940, as amended (the "1940 Act").
(n) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(o) The Company will not take, directly or indirectly,
any action designed to cause or result in, or that has constituted or
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
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5. PAYMENT OF EXPENSES. Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, the Company
hereby agrees to pay all costs and expenses incident to the performance of the
obligations of the Company hereunder, including those in connection with (i)
preparing, printing, duplicating, filing and distributing the Registration
Statement, as originally filed and all amendments thereof (including all
exhibits thereto), any preliminary prospectus, the Prospectus and any amendments
or supplements thereto (including, without limitation, fees and expenses of the
Company's accountants and counsel), the underwriting documents (including this
Agreement, the Agreement Among Underwriters and the Selling Agreement) and all
other documents related to the public offering of the Shares (including those
supplied to the Underwriters in quantities as hereinabove stated), (ii) the
issuance, transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) listing the Shares on the New
York Stock Exchange, (iv) filing fees of the Commission and the National
Association of Securities Dealers, Inc.; (v) the cost of printing certificates
representing the Shares and (vi) the cost and charges of any transfer agent or
registrar.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters to purchase and pay for the Firm Shares and the Additional Shares,
as provided herein, shall be subject to the accuracy of the representations and
warranties of the Company herein contained, as of the date hereof and as of the
Closing Date (for purposes of this Section 6 "Closing Date" shall refer to the
Closing Date for the Firm Shares and any Additional Closing Date, if different,
for the Additional Shares), to the absence from any certificates, opinions,
written statements or letters furnished to you or to Piper & Marbury L.L.P.
("Underwriters' Counsel") pursuant to this Section 6 of any misstatement or
omission, to the performance by the Company of its obligations hereunder, and to
the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be contemplated
by the Commission and no injunction, restraining order, or order of any nature
by a Federal or state court of competent jurisdiction shall have been issued as
of the Closing Date or the Additional Closing Date, as the case may be, which
would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Additional Closing Date, as the case may be, the opinion of Bracewell &
Patterson L.L.P., counsel for the Company, dated the Closing Date or the
Additional Closing Date, as the case
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may be, addressed to the Underwriters (and stating that it may be relied upon by
counsel to the Underwriters) to the effect that:
(i) The Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with corporate power and authority to
own or lease its properties and conduct its business as described in
the Registration Statement; each of the Founding Companies has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with
corporate power and authority to own or lease its properties and
conduct its business; the Company and each of the Founding Companies
are duly qualified to transact business in each of the jurisdictions
set forth on a schedule to such opinion; and, upon consummation of
the Founding Company Mergers, the outstanding shares of capital stock
of each of the Founding Companies will have been duly authorized and
validly issued and will be fully paid and non-assessable and will be
owned by the Company; and, to the best of such counsel's knowledge,
the outstanding shares of capital stock of each of the Founding
Companies will be owned by the Company, free and clear of all liens,
encumbrances and equities and claims, and no options, warrants or
other rights to purchase, agreements or other obligations to issue or
other rights to convert any obligations into any shares of capital
stock of or other ownership interests in any of the Founding
Companies will be outstanding.
(ii) The Company has authorized capital
stock as set forth under the caption "Capitalization" in the
Prospectus; the authorized shares of the Company's Preferred Stock
and Common Stock have been duly authorized; the outstanding shares of
the Company's Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable; all of the Shares
conform to the description thereof contained in the Prospectus; the
certificates for the Shares, assuming they are in the form filed with
the Commission, are in due and proper form; the Firm Shares and
Option Shares, if any, to be sold by the Company pursuant to this
Agreement and the shares of Common Stock of the Company to be issued
in connection with the Founding Company Mergers have been duly
authorized and will be validly issued, fully paid and non-assessable
when issued and paid for as contemplated by this Agreement; and no
preemptive rights of stockholders exist under statute or under
agreements known to such counsel with respect to any of the Shares or
the shares to be issued in the Founding Company Mergers or the issue
or sale thereof.
(iii) Except as described in or contemplated
by the Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares
of capital stock of the Company and there are no
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outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital
stock or any securities convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of such
stock; and except as described in the Prospectus, to the knowledge
of such counsel, no holder of any securities of the Company or any
other person has the right, contractual or otherwise, which has not
been satisfied or effectively waived, to cause the Company to sell
or otherwise issue to them, or to permit them to underwrite the sale
of, any of the Shares or the right to have any shares of Common
Stock or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of
the Registration Statement, to require registration under the Act of
any shares of Common Stock or other securities of the Company.
(iv) The Registration Statement has become
effective under the Act and, to the best of the knowledge of such
counsel, no stop
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order proceedings with respect thereto have been instituted or are
pending or threatened under the Act.
(v) The Registration Statement, the
Prospectus and each amendment or supplement thereto comply as to form
in all material respects with the requirements of the Act and the
applicable rules and regulations thereunder (except that such counsel
need express no opinion as to the financial statements, notes thereto
and related schedules and other financial and statistical information
included therein or any information furnished by the Underwriters for
use therein).
(vi) The statements under the captions
"Business Regulation," "Business Legal Proceedings," "Management
Executive Compensation; Employment Agreements;
Covenants-not-to-Compete," "Management Long-Term Incentive
Compensation Plan," "Certain Transactions," "Description of Capital
Stock" and "Shares Eligible for Future Sale" in the Prospectus,
insofar as such statements constitute a summary of documents referred
to therein or matters of law, are accurate summaries and fairly
present in all material respects the information called for with
respect to such documents and matters.
(vii) Each of the Agreements and Plan or
Reorganization with respect to the Founding Company Mergers (which
have been filed with the Commission as exhibits to the Registration
Statement) have been duly authorized, executed and delivered by the
Company and constitutes the valid binding obligation of the Company;
the Certificates or Articles of Merger referred to in such Agreements
and Plans of Reorganization, assuming the due filing thereof with the
appropriate regulatory authorities, will cause the statutory merger
of each of the Founding Companies with the respective subsidiaries of
the Company that are parties thereto.
(viii) Such counsel does not know of any
contracts or documents required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or
the Prospectus which are not so filed or described as required, and
the descriptions of such contracts and documents required to be
described in the Registration Statement or the Prospectus are correct
in all material respects.
(ix) Such counsel knows of no material
legal or governmental proceedings pending or threatened against the
Company or any of the Founding Companies except as set forth in the
Prospectus.
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<PAGE>
(x) The execution and delivery of this
Agreement and the consummation of the transactions herein
contemplated do not and will not conflict with or result in a breach
of any of the terms or provisions of, or constitute a default under,
the Charter or By-Laws of the Company, or, in any respect material to
the Company and the Founding Companies, taken as a whole, any
agreement or instrument known to such counsel to which the Company or
any of the Founding Companies is a party or by which the Company or
any of the Founding Companies may be bound.
(xi) This Agreement has been duly
authorized, executed and delivered by the Company.
(xii) No approval, consent, order,
authorization, designation, declaration or filing by or with any
regulatory, administrative or other governmental body is necessary in
connection with the execution and delivery of this Agreement and the
consummation of the transactions herein contemplated (other than as
may be required by the NASD or as required by State securities and
Blue Sky laws as to which such counsel need express no opinion),
except such as have been obtained or made, specifying the same.
(xiii) The Company is not, and will not
become, as a result of the consummation of the transactions
contemplated by this Agreement, and application of the net proceeds
therefrom as described in the Prospectus, required to register as an
investment company under the 1940 Act.
In rendering such opinion, Bracewell & Patterson L.L.P. may
provide that its opinion is limited to matters governed by the laws of
Texas and the General Corporation law of the State of Delaware, and the
Federal securities laws of the United States and may rely on counsel to
one or more of the Founding Companies with respect to matters related to
the Founding Companies, provided that, in lieu of such reliance, Bracewell
& Patterson L.L.P. may provide separate opinions of such counsel so long
as such opinions are addressed to the Underwriters, and further provided,
that, in each case, Bracewell & Patterson L.L.P. shall state that they
believe that they and the Underwriters are justified in relying on such
other counsel. In addition to the matters set forth above, the opinion of
Bracewell & Patterson L.L.P. shall also include a statement of belief to
the effect that nothing has come to the attention of such counsel which
leads them to believe that (i) the Registration Statement, at the time it
became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act)
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any
supplement thereto, on the date it was filed pursuant to the Rules and
Regulations and as of the Closing Date or the Additional Closing Date, as
the case may be, contained an untrue statement of a material fact or
omitted to state a material fact
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necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules or
other financial and statistical information therein). With respect to such
statement of belief, Bracewell & Patterson L.L.P. may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received from Piper &
Marbury L.L.P., counsel for the Underwriters, an opinion dated the Closing
Date or the Additional Closing Date, as the case may be, substantially to
the effect specified in subparagraphs (ii), (iii), (iv), and (xi) of
Paragraph (b) of this Section 6, and that the Company is a duly organized
and validly existing corporation under the laws of the State of Delaware.
In rendering such opinion, Piper & Marbury L.L.P. may rely as to the
matters relating to the laws of the States other than Maryland and
Delaware on the opinions of counsel referred to in Paragraph (b) of this
Section 6. In addition to the matters set forth above, such opinion shall
also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Additional Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
fact, necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Piper &
Marbury L.L.P. may state that their belief is based upon the procedures
set forth therein, but is without independent check and verification.
(d) The Representatives shall have received, on the date
hereof, the Closing Date and the Additional Closing Date, as the case may
be, letters dated the date hereof, the Closing Date or the Additional
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, of Arthur Andersen LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that, in
their opinion, the financial statements and schedules of the Company and
the Founding Companies examined by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to such financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
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(e) The Representatives shall have received, on the date
hereof, the Closing Date and the Additional Closing Date, as the case may
be, letters dated the date hereof, the Closing Date or the Additional
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, of Ernst & Young LLP confirming that they are
independent public accountants within the meaning of the Act and the
applicable published Rules and Regulations thereunder and stating that, in
their opinion, the financial statements and schedules of Charles W. Carter
Co. examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting requirements
of the Act and the related published Rules and Regulations; and containing
such other statements and information as is ordinarily included in
accountants' "comfort letters" to Underwriters with respect to such
financial statements and certain financial and statistical information
contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the
Closing Date or the Additional Closing Date, as the case may be, a
certificate or certificates of the Company and signed by the Chief
Executive Officer and the Chief Financial Officer of the Company to the
effect that, as of the Closing Date or the Additional Closing Date, as the
case may be:
(i) The Registration Statement has become
effective under the Act and no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission;
(ii) The representations and warranties of
the Company contained in Section 1 hereof are true and correct in all
material respects as of the Closing Date or the Additional Closing
Date, as the case may be;
(iii) All filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;
(iv) As of the effective date of the
Registration Statement, the statements contained in the Registration
Statement were true and correct in all material respects, and such
Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to
make the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred which
should have been set forth in a supplement to or an amendment of the
Prospectus which has not been so set forth in such supplement or
amendment; and
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(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company or any of the
Subsidiaries or the earnings, business, management, properties,
assets, rights, operations, condition (financial or otherwise) or
prospects of the Company or any of the Subsidiaries, whether or not
arising in the ordinary course of business, except as set forth in,
or contemplated by, the Prospectus or as described in such
certificate.
(g) The Company shall have furnished to the
Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein
and related matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, shall
have been approved for designation upon notice of issuance on the New York
Stock Exchange.
(i) The Lockup Agreements described in Section 4(j)
shall be in full force and effect.
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<PAGE>
(j) Each of the Founding Company Mergers shall have been
completed upon the terms set forth in the Prospectus simultaneously with
the closing of the purchase of the Firm Shares by the Underwriters.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Piper & Marbury L.L.P.,
counsel for the Underwriters, in their reasonable judgment.
If any of the conditions hereinabove provided for in this Section 6 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Underwriters by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Additional Closing Date, as the
case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 5 and 8
hereof).
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), against any and all losses,
liabilities, claims, damages and expenses whatsoever as incurred (including but
limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation), joint or several, to which they or any of them may
become subject under the Act, the Exchange Act or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the registration statement for the registration
of the Shares, as originally filed or any amendment thereof, or any related
preliminary prospectus or the Prospectus, or in any supplement thereto or
amendment thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have including under this Agreement.
(b) Each Underwriter severally, and not jointly, agrees to
indemnify and hold harmless the Company, each of the directors of the Company,
each of the officers of the Company who shall have signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
any losses, liabilities, claims, damages and expenses whatsoever as
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incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), jointly or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through you
expressly for use therein; PROVIDED, HOWEVER, that in no case shall any
Underwriter be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder. This indemnity will be in addition to any liability which any
Underwriter may otherwise have including under this Agreement. The Company
acknowledges that the statements set forth in the last paragraph of the cover
page and in the section under the caption "Underwriting" in the Prospectus
constitute the only information furnished in writing by or on behalf of any
Underwriter expressly for use in the registration statement relating to the
Shares as originally filed or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7). In case any such action is
brought against any indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that there may be
defenses available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying parties shall not have the right to direct the
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<PAGE>
defense of such action on behalf of the indemnified party or parties), in any of
which events such fees and expenses shall be borne by the indemnifying parties.
Anything in this subsection to the contrary notwithstanding, an indemnifying
party shall not be liable for any settlement of any claim or action effected
without its written consent; PROVIDED, HOWEVER, that such consent was not
unreasonably withheld.
8. CONTRIBUTION. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, the Company and
the Underwriters shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, officers of the Company who signed the Registration Statement and
directors of the Company) as incurred to which the Company and one or more of
the Underwriters may be subject, in such proportions as is appropriate to
reflect the relative benefits received by the Company and the Underwriters from
the offering of the Shares or, if such allocation is not permitted by applicable
law or indemnification is not available as a result of the indemnifying party
not having received notice as provided in Section 7 hereof, in such proportion
as is appropriate to reflect not only the relative benefits referred to above
but also the relative fault of the Company and the Underwriters in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as (x) the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting expenses)
received by the Company and (y) the underwriting discounts and commissions
received by the Underwriters, respectively, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault of the Company and
of the Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 8 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above. Notwithstanding the
provisions of this Section 8, (i) in no case shall any Underwriter be liable or
responsible for any amount in excess of the underwriting discount applicable to
the Shares purchased by such Underwriter hereunder, and (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Notwithstanding the provisions of this Section 8
and the preceding sentence,
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<PAGE>
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. For
purposes of this Section 8, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as such Underwriter, and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall have
signed the Registration Statement and each director of the Company shall have
the same rights to contribution as the Company, subject in each case to clauses
(i) and (ii) of this Section 8. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against another party or parties, notify each party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any obligation it or they may have under this Section 8 or otherwise. No party
shall be liable for contribution with respect to any action or claim settled
without its consent; PROVIDED, HOWEVER, that such consent was not unreasonably
withheld.
9. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in its or
their obligation to purchase Firm Shares or Additional Shares hereunder, and if
the Firm Shares or Additional Shares with respect to which such default relates
do not (after giving effect to arrangements, if any, made by you pursuant to
subsection (b) below) exceed in the aggregate 10% of the number of Firm Shares
or Additional Shares, to which the default relates shall be purchased by the
non-defaulting Underwriters in proportion to the respective proportions which
the numbers of Firm Shares set forth opposite their respective names in Schedule
I hereto bear to the aggregate number of Firm Shares set forth opposite the
names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of
the Firm Shares or Additional Shares, as the case may be, you may in your
discretion arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Additional Shares, as the case may be, to which such default relates
on the terms contained herein. In the event that within 5 calendar days after
such a default you do not arrange for the purchase of the Firm Shares or
Additional Shares, as the case may be, to which such default relates as provided
in this Section 9, this Agreement or, in the case of a default with respect to
the Additional Shares, the obligations of the Underwriters to purchase and of
the Company to sell the Additional Shares shall thereupon terminate, without
liability on the part of the Company with respect thereto (except in each case
as provided in Section 5, 7(a) and 8 hereof) or the Underwriters, but nothing in
this Agreement shall relieve a defaulting Underwriter or Underwriters of its or
their liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder.
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<PAGE>
(c) In the event that the Firm Shares or Additional Shares to
which the default relates are to be purchased by the non-defaulting
Underwriters, or are to be purchased by another party or parties as aforesaid,
you or the Company shall have the right to postpone the Closing Date or
Additional Closing Date, as the case may be for a period, not exceeding five
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus or in any other documents and
arrangements, and the Company agrees to file promptly any amendment or
supplement to the Registration Statement or the Prospectus which, in the opinion
of Underwriters' Counsel, may thereby be made necessary or advisable. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 9 with like effect as if it had originally been a party to
this Agreement with respect to such Firm Shares and Additional Shares.
10. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS. All representations
and warranties, covenants and agreements of the Underwriters and the Company
contained in this Agreement, including the agreements contained in Section 5,
the indemnity agreements contained in Section 7 and the contribution agreements
contained in Section 8, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter or any
controlling person thereof or by or on behalf of the Company, any of its
officers and directors or any controlling person thereof, and shall survive
delivery of and payment for the Shares to and by the Underwriters. The
representations contained in Section 1 and the agreements contained in Sections
5, 7, 8 and 11(d) hereof shall survive the termination of this Agreement,
including termination pursuant to Section 9 or 11 hereof.
11. EFFECTIVE DATE OF AGREEMENT; TERMINATION.
(a) This Agreement shall become effective, upon the later of
when (i) you and the Company shall have received notification of the
effectiveness of the Registration Statement or (ii) the execution of this
Agreement. If either the initial public offering price or the purchase price per
Share has not been agreed upon prior to 5:00 P.M., New York time, on the fifth
full business day after the Registration Statement shall have become effective,
this Agreement shall thereupon terminate without liability to the Company or the
Underwriters except as herein expressly provided. Until this Agreement becomes
effective as aforesaid, it may be terminated by the Company by notifying you or
by you notifying the Company. Notwithstanding the foregoing, the provisions of
this Section 11 and of Sections 1, 5, 7 and 8 hereof shall at all times be in
full force and effect.
(b) You shall have the right to terminate this Agreement at
any time prior to the Closing Date or the obligations of the Underwriters to
purchase the Additional Shares at any time prior to the Additional Closing Date,
as the case may be, if (A) any domestic or international event or act or
occurrence has materially disrupted, or in your opinion will in the immediate
future materially disrupt, the market for the Company's securities or securities
in general; or (B) if trading on the New York or American Stock Exchanges shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required, on
the New York or American Stock
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<PAGE>
Exchanges by the New York or American Stock Exchanges or by order of the
Commission or any other governmental authority having jurisdiction; or (C) if a
banking moratorium has been declared by a state or federal authority or if any
new restriction materially adversely affecting the distribution of the Firm
Shares or the Additional Shares, as the case may be, shall have become
effective; or (D) (i) if the United States becomes engaged in hostilities or
there is an escalation of hostilities involving the United States or there is a
declaration of a national emergency or war by the United States or (ii) if there
shall have been such change in political, financial or economic conditions if
the effect of any such event in (i) or (ii) as in your judgment makes it
impracticable or inadvisable to proceed with the offering, sale and delivery of
the Firm Shares or the Additional Shares, as the case may be, on the terms
contemplated by the Prospectus.
(c) Any notice of termination pursuant to this Section 11
shall be by telephone, telex, or telegraph, confirmed in writing by letter.
(d) If this Agreement shall be terminated pursuant to any of
the provisions hereof (otherwise than pursuant to (i) notification by you as
provided in Section 11(a) hereof or (ii) Section 9(b) or 11(b) hereof), or if
the sale of the Shares provided for herein is not consummated because any
condition to the obligations of the Underwriters set forth herein is not
satisfied or because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof, the
Company will, subject to demand by you, reimburse the Underwriters for all
out-of-pocket expenses (including the fees and expenses of their counsel),
incurred by the Underwriters in connection herewith.
12. NOTICES. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and , if sent to any
Underwriter, shall be mailed, delivered, or telexed or telegraphed and confirmed
in writing, to such Underwriter c/o Bear, Stearns & Co. Inc., 245 Park Avenue,
New York, N.Y. 10167, Attention: Rick A. Lacher; if sent to the Company, shall
be mailed, delivered, or telegraphed and confirmed in writing to the Company,
Three Riverway, Suite 630, Houston, Texas 77056, Attention: Paul Pryzant, Esq.
13. PARTIES. This Agreement shall insure solely to the benefit of,
and shall be binding upon, the Underwriters and the Company and the controlling
persons, directors, officers, employees and agents referred to in Section 7 and
8, and their respective successors and assigns, and no other person shall have
or be construed to have any legal or equitable right, remedy or claim under or
in respect of or by virtue of this Agreement or any provision herein contained.
The term "successors and assigns" shall not include a purchaser, in its capacity
as such, of Shares from any of the Underwriters.
14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
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<PAGE>
If the foregoing correctly sets forth the understanding between you
and the Company, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement among us.
Very truly yours,
TRANSPORTATION COMPONENTS, INC.
By ___________________________________
T. Michael Young
Chief Executive Officer
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
BT ALEX. BROWN INCORPORATED
SANDERS MORRIS MUNDY
By _______________
On behalf of themselves and the other Underwriters named in Schedule I hereto.
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<PAGE>
SCHEDULE I
NUMBER OF FIRM
NAME OF UNDERWRITER SHARES TO BE PURCHASED
- ------------------- ----------------------
Bear, Stearns & Co. Inc
BT Alex. Brown Incorporated
Sanders Morris Mundy
Total..................... 5,500,000
----------
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<PAGE>
SCHEDULE II
Shareholders subject to the lock-up provision
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EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AMBROSIA ACQUISITION CORP.
The undersigned, T. Michael Young, President, and Paul E. Pryzant,
Secretary of Ambrosia Acquisition Corp., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), do hereby certify
as follows:
FIRST: The name of the Corporation is
Ambrosia Acquisition Corp.
SECOND: The Certificate of Incorporation of the Corporation was filed in
the Office of the Secretary of State of Delaware on October 9, 1997.
THIRD: This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law, the Board of Directors having duly adopted
resolutions setting forth and declaring advisable this Amended and Restated
Certificate of Incorporation, and in lieu of a meeting of the stockholders,
written consent to this Amended and Restated Certificate of Incorporation having
been given by the holders of a majority of the outstanding stock of the
Corporation in accordance with Section 228 of the General Corporation Law of the
State of Delaware.
FOURTH: This Amended and Restated Certificate of Incorporation is being
filed pursuant to Sections 242 and 245 of the Delaware General Corporation Law
in order to restate the Certificate of Incorporation of the Corporation as
amended to date, and also to amend further the Certificate of Incorporation to
(i) change the name of the Company, (ii) increase the authorized capital stock
of the Corporation, (iii) authorize the issuance of preferred stock and
restricted voting common stock and (iv) to provide for the classification of the
Board of Directors of the Corporation.
FIFTH: The Certificate of Incorporation of the Corporation is hereby
amended and restated in its entirety as follows:
ARTICLE ONE
The name of the corporation is
Transportation Components, Inc.
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ARTICLE TWO
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street in the City of Wilmington, County of New Castle.
The name of its registered agent is The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE FOUR
The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred Seven Million (107,000,000) shares, of which
Five Million (5,000,000) shares, designated as Preferred Stock, shall have a par
value of One Cent ($.01) per share (the "Preferred Stock"), One Hundred Million
(100,000,000) shares, designated as Common Stock, shall have a par value of One
Cent ($.01) per share (the "Common Stock"), andTwo Million, (2,000,000) shares,
designated as Restricted Voting Common Stock, shall have a par value of One Cent
($.01) per share (the "Restricted Voting 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.
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<PAGE>
COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time to
time determine, payable to stockholders of record on such dates, not exceeding
60 days preceding the dividend payment dates, as shall be fixed for such purpose
by the Board of Directors in advance of payment of each particular dividend. All
dividends on Common Stock shall be paid PARI PASSU with dividends on Restricted
Voting Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
and Restricted Voting Common Stock ratably in proportion to the number of shares
of Common Stock and Restricted Voting Common Stock held by them respectively.
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 of the books of the Corporation.
RESTRICTED VOTING COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Restricted
Voting Common Stock shall be entitled to receive, as and when declared by the
Board of Directors out of the funds of the Corporation
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<PAGE>
legally available therefor, such dividends (payable in cash, stock or otherwise)
as the Board of Directors may from time to time determine, payable to
stockholders of record on such dates, not exceeding 60 days preceding the
dividend payment dates, as shall be fixed for such purpose by the Board of
Directors in advance of payment of each particular dividend. All dividends on
Restricted Voting Common Stock shall be paid PARI PASSU with dividends on Common
Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Restricted
Voting Common Stock and Common Stock ratably in proportion to the number of
shares of Restricted Voting Common Stock and Common Stock held by them
respectively.
3. VOTING RIGHTS.
Holders of Restricted Voting Common Stock voting as a class shall be
entitled to elect one member of the Board of Directors, but shall not otherwise
be entitled to vote in the election of directors of the Corporation. Subject to
the foregoing, and except as otherwise required by law, each holder of shares of
Restricted Voting Common Stock shall be entitled to ( ) of one vote for each
share of Restricted Voting Common Stock standing in such holder's name of the
books of the Corporation.
4. CONVERSION OF THE RESTRICTED VOTING COMMON STOCK.
Each share of Restricted Voting Common Stock will automatically convert
into Common Stock on a share for share basis (a) in the event of a disposition
of such share of Restricted Voting Common Stock by the holder thereof (other
than a disposition which is a distribution by a holder to its partners or
beneficial owners or a transfer to a related party of such holder (as defined in
Sections 267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986)), (b)
in the event any person acquires beneficial ownership of 15% or more of the
outstanding shares of Common Stock of the Corporation, (c) in the event any
person offers to acquire 15% or more of the outstanding shares of Common Stock
of the Corporation, (d) in the event the holder of Restricted Voting Common
Stock elects to convert it into Common Stock at any time after the second
anniversary of the consummation of the Corporation's initial public offering of
its Common Stock (the "Public Offering"), (e) on the third
4
<PAGE>
anniversary of the date of the consummation of the Corporation's Public
Offering, or (f) in the event a majority of the aggregate number of votes which
may be cast by the holders of outstanding shares of Common Stock and Restricted
Voting Common Stock entitled to vote approve such conversion.
After June 30, 2000, the Corporation may elect to convert any
outstanding shares of Restricted Voting Common Stock into shares of Common Stock
in the event 80% or more of the outstanding shares of Restricted Voting Common
Stock have been converted into shares of Common Stock.
ARTICLE FIVE
1. BOARD OF DIRECTORS.
Following the consummation of the Corporation's Public Offering, 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 1999 annual meeting of stockholders, the Class II Directors
shall be elected to hold office for an initial term expiring at the 2000 annual
meeting of stockholders and the Class III Directors shall be elected to hold
office for an initial term expiring at the 2001 annual meeting of stockholders,
with the members of each class of directors to hold office until their
successors have been duly elected and qualified. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election and until their successors have been duly elected and qualified. At
each annual meeting of stockholders at which a quorum is present, the persons
receiving a plurality of the votes cast shall be directors. No director or class
of directors may be removed from office by a vote of the stockholders at any
time except for cause. Election of directors need not be by written ballot
unless the Bylaws of the Corporation so provide.
Notwithstanding the foregoing, the holders of Restricted Voting Common
Stock voting as a class shall be entitled to elect one member of the Board of
Directors, and only the holders of the Restricted Voting Common Stock shall be
entitled to remove such member from the Board of Directors.
5
<PAGE>
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. If the
vacancy on the Board of Directors results from the death, retirement,
resignation, disqualification or removal from office of the director elected by
the holders of the Restricted Voting Common Stock, only the holders of the
Restricted Voting Common Stock shall be entitled to fill such vacancy.
Notwithstanding the foregoing, whenever the holders of one or more
classes or series of Preferred Stock shall have the right, voting separately, as
a class or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
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 FIVE.
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 votes which all stockholders of the then outstanding shares of capital stock
of the Corporation would be entitled to cast thereon, voting together as a
single class, shall be required to amend or repeal any provisions of this
ARTICLE FIVE or to adopt any provision inconsistent with this ARTICLE FIVE. In
the event such action
6
<PAGE>
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
FIVE or adopt any provision inconsistent with this ARTICLE FIVE.
ARTICLE SIX
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.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation law or (iv) for any transaction
from which the director derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify each director and officer of the Corporation from and
against any and all of the expenses, liabilities or other matters referred to in
or covered by said section and the indemnification provided for herein shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders, vote of disinterested
directors or otherwise, and shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such persons and the Corporation may purchase and maintain
insurance on behalf of any director or officer to the extent permitted by
Section 145 of the Delaware General Corporation Law.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Certificate of Incorporation on behalf of the Corporation and have
attested such execution and do verify and affirm, under penalty of perjury, that
this Amended and Restated Certificate of Incorporation is the act and deed of
the Corporation and that the facts stated herein are true as of this 14th of
April, 1998.
AMBROSIA ACQUISITION CORP.
By: /s/ T. MICHAEL YOUNG
T. Michael Young
President
Attest:
/s/ PAUL E. PRYZANT
Paul E. Pryzant
Secretary
8
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TRANSPORTATION COMPONENTS, INC.
Transportation Components, Inc., a corporation duly organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Company"), does hereby certify:
FIRST: That the Board of Directors of the Company, pursuant to a unanimous
written consent signed by all directors of the Company and effective as of May
22, 1998, adopted the following resolution, proposing and declaring advisable
and in the best interests of the Company the amendment to the Certificate of
Incorporation of the Company set forth in such resolution, and directed that the
same be submitted to a vote of the stockholders of the Company:
RESOLVED, that the Certificate of Incorporation of the Company be
amended by deleting Article Four in its entirety and substituting the
following therefor:
ARTICLE FOUR
The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred Seven Million (107,000,000) shares, of which
Five Million (5,000,000) shares, designated as Preferred Stock, shall have a par
value of One Cent ($.01) per share (the "Preferred Stock"), One Hundred Million
(100,000,000) shares, designated as Common Stock, shall have a par value of One
Cent ($.01) per share (the "Common Stock"), and Two Million, (2,000,000) shares,
designated as Restricted Voting Common Stock, shall have a par value of One Cent
($.01) per share (the "Restricted Voting 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
<PAGE>
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 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. All
dividends on Common Stock shall be paid PARI PASSU with dividends on Restricted
Voting Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
and Restricted Voting Common Stock ratably in proportion to the number of shares
of Common Stock and Restricted Voting Common Stock held by them respectively.
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 of the books of the Corporation.
RESTRICTED VOTING COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Restricted
Voting 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
<PAGE>
purpose by the Board of Directors in advance of payment of each particular
dividend. All dividends on Restricted Voting Common Stock shall be paid PARI
PASSU with dividends on Common Stock.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Restricted
Voting Common Stock and Common Stock ratably in proportion to the number of
shares of Restricted Voting Common Stock and Common Stock held by them
respectively.
3. VOTING RIGHTS.
Holders of Restricted Voting Common Stock voting as a class shall be
entitled to elect one member of the Board of Directors, but shall not otherwise
be entitled to vote in the election of directors of the Corporation. Subject to
the foregoing, and except as otherwise required by law, each holder of shares of
Restricted Voting Common Stock shall be entitled to three-fourths (.75) of one
vote for each share of Restricted Voting Common Stock standing in such holder's
name of the books of the Corporation.
4. CONVERSION OF THE RESTRICTED VOTING COMMON STOCK.
Each share of Restricted Voting Common Stock will automatically convert
into Common Stock on a share for share basis (a) in the event of a disposition
of such share of Restricted Voting Common Stock by the holder thereof (other
than a disposition which is a distribution by a holder to its partners or
beneficial owners or a transfer to a related party of such holder (as defined in
Sections 267, 707, 318 and/or 4946 of the Internal Revenue Code of 1986)), (b)
in the event any person acquires beneficial ownership of 15% or more of the
outstanding shares of Common Stock of the Corporation, (c) in the event any
person offers to acquire 15% or more of the outstanding shares of Common Stock
of the Corporation, or (d) in the event a majority of the aggregate number of
votes which may be cast by the holders of outstanding shares of Common Stock and
Restricted Voting Common Stock entitled to vote approve such conversion.
After June 30, 2000, the Corporation may elect to convert any outstanding
shares of Restricted Voting Common Stock into shares of Common Stock in the
event 80% or more of the outstanding shares of Restricted Voting Common Stock
have been converted into shares of Common Stock.
SECOND, that in lieu of a meeting and vote of stockholders, the holder of
all of the stock of the Corporation entitled to vote on said amendment has
consented in writing to said
<PAGE>
amendment in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Certificate of
Amendment to Amended and Restated Certificate of Incorporation on behalf of the
Corporation and have attested such execution and do verify and affirm, under
penalty of perjury, that this Certificate of Amendment to Amended and Restated
Certificate of Incorporation is the act and deed of the Corporation and that the
facts stated herein are true as of this 22nd of May, 1998.
TRANSPORTATION COMPONENTS, INC.
By: /s/ T. MICHAEL YOUNG
T. Michael Young
President
Attest:
/s/ PAUL E. PRYZANT
Paul E. Pryzant
Secretary
EXHIBIT 5.1
May 27, 1998
Transportation Components, Inc.
Three Riverway
Suite 630
Houston, Texas 77056
Gentlemen:
We have acted as counsel to Transportation Components, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of its
Registration Statement on Form S-1 (Registration No.333-50447) (the
"Registration Statement"), filed by the Company under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the offering and sale
by the Company of up to 5,500,000 shares of its common stock, par value $.01 per
share (the "Common Stock").
We have examined originals or copies of (i) the Amended and Restated Certificate
of Incorporation of the Company, as amended; (ii) the Bylaws of the Company, as
amended; (iii) certain resolutions of the Board of Directors of the Company; and
(iv) such other documents and records as we have deemed necessary and relevant
for purposes hereof. We have relied upon certificates of public officials and of
officers of the Company as to certain matters of fact relating to this opinion
and have made such investigations of law as we have deemed necessary and
relevant as a basis hereof.
We have assumed the genuineness of all signatures, the authenticity of all
documents, certificates and records submitted to us as copies, and the
conformity to original documents, certificates and records of all documents,
certificates and records submitted to us as copies.
<PAGE>
Transportation Components
May 27, 1998
Page 2
Based upon the foregoing, and subject to the limitations and assumptions set
forth herein, and having due regard for such legal considerations as we deem
relevant, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware.
2. The issuance of the Common Stock has been duly authorized, and when
issued and delivered by the Company against payment therefor as described in the
Registration Statement, such shares will be validly issued, fully paid and
nonassessable.
The foregoing opinion is based on and is limited to the laws of the State of
Delaware and the relevant law of the United States of America, and we render no
opinion with respect to the law of any other jurisdiction.
We hereby consent to the filing of this opinion with the Securities and Exchange
Commission as Exhibit 5.1 to the Registration Statement and to the reference to
this firm as having passed on the validity of the issuance of the Common Stock
under the caption "Legal Matters" in the prospectus contained in the
Registration Statement. By giving such consent, we do not admit that we are
included within the category of persons whose consent is required under Section
7 of the Securities Act or the rules and regulations issued thereunder.
Very truly yours,
Bracewell & Patterson, L.L.P.
EXHIBIT 10.3
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
CHARLES W. CARTER CO. - LOS ANGELES
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. CERTAIN INFORMATION....................................................5
1.1 Certain Information With Respect to the Capital Stock of the
Company and TCI..................................................5
2. EXCHANGE...............................................................5
2.1 Agreement to Effect Exchange.....................................5
3. DELIVERY OF CONSIDERATION..............................................5
4. CLOSING................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................6
5.1 Due Organization.................................................7
5.2 Authorization....................................................7
5.3 Capital Stock of the Company.....................................7
5.4 Transactions in Capital Stock, Organization Accounting...........8
5.5 No Bonus Shares..................................................8
5.6 Subsidiaries.....................................................8
5.7 Predecessor Status; etc..........................................8
5.8 Spin-off by the Company..........................................8
5.9 Financial Statements.............................................8
5.10 Liabilities and Obligations......................................9
5.11 Accounts and Notes Receivable....................................9
5.12 Permits and Intangibles..........................................9
5.13 Environmental Matters...........................................10
5.14 Personal Property...............................................10
5.15 Significant Customers; Material Contracts and Commitments.......11
5.16 Real Property...................................................11
5.17 Insurance.......................................................12
5.18 Compensation; Employment Agreements; Organized Labor Matters....12
5.19 Employee Plans..................................................13
5.20 Compliance with ERISA...........................................14
5.21 Conformity with Law; Litigation.................................14
5.22 Taxes...........................................................15
5.23 No Violations; No Consents Required, Etc.......................15
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5.24 Absence of Changes..............................................16
5.25 Deposit Accounts; Powers of Attorney............................17
5.26 Validity of Obligations.........................................18
5.27 Relations with Governments......................................18
5.28 Disclosure......................................................18
5.29 No Interests In Other Businesses................................18
5.30 Authority; Ownership............................................19
5.31 Preemptive Rights...............................................19
5.32 No Intention to Dispose of TCI Stock............................19
6. REPRESENTATIONS OF TCI................................................19
6.1 Due Organization................................................19
6.2 Authorization...................................................19
6.3 Capital Stock of TCI............................................20
6.4 Transactions in Capital Stock, Organization Accounting..........20
6.5 Subsidiaries....................................................20
6.6 Financial Statements............................................20
6.7 Liabilities and Obligations.....................................20
6.8 Conformity with Law; Litigation.................................21
6.9 No Violations...................................................21
6.10 Validity of Obligations.........................................22
6.11 TCI Stock.......................................................22
6.12 Other Agreements; No Side Agreements............................22
6.13 Business; Real Property; Material Agreements....................22
6.14 Taxes...........................................................22
6.15 Absence of Changes..............................................23
6.16 Disclosure......................................................24
7. COVENANTS PRIOR TO CLOSING............................................24
7.1 Access and Cooperation; Due Diligence...........................24
7.2 Conduct of Business Pending Closing.............................25
7.3 Prohibited Activities...........................................25
7.4 No Shop.........................................................27
7.5 Notice to Bargaining Agents.....................................27
7.6 Agreements......................................................27
7.7 Notification of Certain Matters.................................27
7.8 Amendment of Schedules..........................................28
7.9 Cooperation in Preparation of Registration Statement............29
7.10 Final Financial Statements......................................29
7.11 Further Assurances..............................................29
7.12 Authorized Capital..............................................29
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7.13 Compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "Hart-Scott-Rodino Act").......................30
7.14 Stockholders of TCI.............................................30
7.15 IPO.............................................................30
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY...............................................................30
8.1 Representations and Warranties; Performance of Obligations......31
8.2 Satisfaction....................................................31
8.3 No Litigation...................................................31
8.4 Opinion of Counsel..............................................31
8.5 Registration Statement..........................................31
8.6 Consents and Approvals..........................................32
8.7 Good Standing Certificates......................................32
8.8 No Material Adverse Change......................................32
8.9 Closing of IPO..................................................32
8.10 Secretary's Certificate.........................................32
8.11 Employment Agreements...........................................32
8.12 Tax Matters.....................................................32
8.13 Warrants........................................................33
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI............................33
9.1 Representations and Warranties; Performance of Obligations......33
9.2 No Litigation...................................................33
9.3 Secretary's Certificate.........................................33
9.4 No Material Adverse Effect......................................34
9.5 Stockholders' Release...........................................34
9.6 Satisfaction....................................................34
9.7 Termination of Related Party Agreements.........................34
9.8 Opinion of Counsel..............................................34
9.9 Consents and Approvals..........................................34
9.10 Good Standing Certificates......................................34
9.11 Registration Statement..........................................35
9.12 Employment Agreements...........................................35
9.13 Closing of IPO..................................................35
9.14 FIRPTA Certificate..............................................35
9.15 Environmental Reviews...........................................35
9.16 Options.........................................................35
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10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................35
10.1 Release From Guarantees; Repayment of Certain Obligations.......35
10.2 Preservation of Tax and Accounting Treatment....................36
10.3 Preparation and Filing of Tax Returns...........................36
10.4 Directors.......................................................37
11. INDEMNIFICATION.......................................................37
11.1 General Indemnification by the Stockholders.....................37
11.2 Indemnification by TCI..........................................38
11.3 Third Person Claims.............................................39
11.4 Exclusive Remedy................................................40
11.5 Limitations on Indemnification..................................40
12. TERMINATION OF AGREEMENT..............................................41
12.1 Termination.....................................................41
12.2 Liabilities in Event of Termination.............................41
13. NONCOMPETITION........................................................42
13.1 Prohibited Activities...........................................42
13.2 Damages.........................................................43
13.3 Reasonable Restraint............................................43
13.4 Severability; Reformation.......................................43
13.5 Independent Covenant............................................43
13.6 Materiality.....................................................43
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................43
14.1 Stockholders....................................................43
14.2 TCI.............................................................44
14.3 Damages.........................................................45
14.4 Survival........................................................45
15. TRANSFER RESTRICTIONS.................................................45
15.1 Transfer Restrictions...........................................45
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................45
16.1 Compliance with Law.............................................46
16.2 Economic Risk; Sophistication...................................46
17. REGISTRATION RIGHTS...................................................46
17.1 Piggyback Registration Rights...................................46
17.2 Demand Registration Rights......................................47
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17.3 Registration Procedures.........................................48
17.4 Indemnification.................................................49
17.5 Underwriting Agreement..........................................50
17.6 Rule 144 Reporting..............................................50
18. GENERAL...............................................................51
18.1 Cooperation.....................................................51
18.2 Successors and Assigns..........................................51
18.3 Entire Agreement................................................51
18.4 Counterparts....................................................51
18.5 Brokers and Agents..............................................52
18.6 Expenses........................................................52
18.7 Notices.........................................................52
18.8 Governing Law...................................................53
18.9 Survival of Representations and Warranties......................53
18.10 Exercise of Rights and Remedies.................................53
18.11 Time............................................................54
18.12 Reformation and Severability....................................54
18.13 Remedies Cumulative.............................................54
18.14 Captions........................................................54
18.15 Amendments and Waivers..........................................54
18.16 Special Provisions..............................................54
18.17 Continuation of ESOP............................................55
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<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as of
April 14, 1998, by and among TRANSPORTATION COMPONENTS, INC., a Delaware
corporation ("TCI"), Charles W. Carter Co. - Los Angeles, a California
corporation (the "Company"), and the stockholders listed on the signature pages
hereto (the "Stockholders"). The Stockholders are all the stockholders of the
Company.
RECITALS
WHEREAS, the Stockholders desire to exchange all of the outstanding
shares of capital stock of the Company for shares of TCI Common Stock (as
defined herein) and cash, all on the terms and subject to the conditions
set forth herein;
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of the
Company, the stockholders and the Board of Directors of TCI, each of the
Other Founding Companies and each of the subsidiaries of TCI that are
parties to the Other Agreements have approved and adopted the TCI Plan of
Organization as an integrated plan pursuant to which the Stockholders and
the stockholders of each of the Other Founding Companies will transfer the
capital stock of each of the Founding Companies (as defined herein) to TCI
and the stockholders of each of the Other Founding Companies will acquire
the stock of TCI (but not cash or other property) as a tax-free transfer
of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the TCI Plan of Organization in
order to transfer the capital stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
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"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means each of the Delaware companies created for
purposes of effecting the acquisitions of some or all of the Other Founding
Companies and wholly-owned by TCI prior to the Funding and Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ESOP" means the Charles W. Carter Co. Employee Stock Ownership Plan which
is a Stockholder of the Company.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
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(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Drive Line, Inc., a Florida corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
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"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of California.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" means the Company after the Exchange.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
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NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. CERTAIN INFORMATION
1.1 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY
AND TCI. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company and TCI
as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto; and
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will consist of 100,000,000 shares of TCI Stock,
of which the number of issued and outstanding shares will be set forth in the
Registration Statement, 5,000,000 shares of preferred stock, $.01 par value, of
which no shares will be issued and outstanding, and 2,000,000 shares of
Restricted Voting Common Stock, $.01 par value (the "Restricted Common Stock"),
all of which will be issued and outstanding except as otherwise set forth in the
Registration Statement.
2. EXCHANGE
2.1 AGREEMENT TO EFFECT EXCHANGE. As of the Closing, each Stockholder
shall exchange (the "Exchange") all of the shares of Company Stock held by such
Stockholder for the right to receive (1) the aggregate number of shares of TCI
Stock set forth on Annex I hereto with respect to such Stockholder and (2)
subject to the adjustments described in Annex I hereto, the aggregate amount of
cash set forth on Annex I hereto with respect to such Stockholder; provided,
however, that such consideration shall not be delivered to the Stockholders
until the Funding and Consummation Date, as described in Section 3 below. All
TCI Stock received by the Stockholders pursuant to this Agreement shall, except
for restrictions on resale or transfer described in Sections 15 and 16 hereof,
have the same rights as all the other shares of outstanding TCI Stock by reason
of the provisions of the Certificate of Incorporation of TCI or as otherwise
provided by the Delaware GCL. All TCI Stock received by the Stockholders shall
be issued and delivered to the Stockholders free and clear of any liens, claims
or encumbrances of any kind or nature. All voting rights of such TCI Stock
received by the Stockholders shall be fully exercisable by the Stockholders and
the Stockholders shall not be deprived nor restricted in exercising those
rights. At the Effective Time of the Exchange, TCI shall have no class of
capital stock issued and outstanding other than the TCI Stock and the Restricted
Voting Common Stock.
3. DELIVERY OF CONSIDERATION
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3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash to be
payable by certified check or wire transfer as so requested by the Stockholders
at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Exchange and (ii) effect the delivery of shares
referred to in Section 3 hereof; provided, that such actions shall not include
the actual completion of the Exchange or the delivery of the shares and funds
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. In the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4, the Exchange shall not be consummated. The taking of
the actions described in clauses (i) and (ii) above (the "Closing") shall take
place on the closing date (the "Closing Date") at the offices of Bracewell &
Patterson, L.L.P., South Tower Pennzoil Place, 711 Louisiana, Suite 2900,
Houston, Texas 77002. On the Funding and Consummation Date (x) all transactions
contemplated by this Agreement, including the delivery of shares and the
delivery of funds in the amount and in the manner provided in Section 3 hereof
and (y) the closing with respect to the IPO shall occur and be completed. The
date on which the actions described in the preceding clauses (x) and (y) occur
shall be referred to as the "Funding and Consummation Date." During the period
from the Closing Date to the Funding and Consummation Date, this Agreement may
only be terminated by the parties if the underwriting agreement in respect of
the IPO is terminated pursuant to the terms of such underwriting agreement. This
Agreement shall also in any event automatically terminate if the Funding and
Consummation Date has not occurred within 15 business days following the Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders, other than the ESOP, (severally, in accordance
with such Stockholder's proportionate interest in the Company Stock) represents
and warrants that all of the representations and warranties in this Section 5
are true at the date of this Agreement and, subject to Section 7.8 hereof, shall
be true at the time of Closing and the Funding and Consummation Date, and agrees
that such representations and warranties shall survive the Funding and
Consummation
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Date for a period of twelve months (the last day of such period being the
"Expiration Date"), except that the representations and warranties set forth in
Section 5.22 hereof shall survive until such time as the limitations period has
run for all tax periods ended on or prior to the Funding and Consummation Date,
which shall be deemed to be the Expiration Date for Section 5.22, and the
representations and warranties set forth in Section 5.30 hereof shall survive
perpetually. For purposes of this Section 5, the term "Company" shall mean and
refer to the Company and all of its Subsidiaries, if any, except where the
context indicates otherwise.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of the
Company, are all attached to Schedule 5.1. The Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement. Recent resolutions adopted by the Board
of Directors of the Company and resolutions adopted by the Stockholders to
approve this Agreement and the transactions contemplated hereby in all respects,
and copies of all such resolutions, certified by the Secretary or an Assistant
Secretary of the Company as being in full force and effect on the date hereof,
are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
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5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Exchange and/or the TCI Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Exchange or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis ("GAAP")
(except as disclosed therein or in the schedules hereto, and except that
unaudited statements may not include notes), and present fairly in all material
respects the financial position and results of operations of the Company as of
the dates of such statements and for the periods covered thereby.
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5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to TCI on Schedule 5.10, in the case
of those contingent liabilities known to Stockholders and related to pending or
threatened litigation, or other liabilities which are not fixed, a good faith
and reasonable estimate (to the extent the Company can reasonably make such an
estimate) of the maximum amount which the Company reasonably expects will be
payable and the amount, if any, accrued or reserved for each such potential
liability on the Company's Financial Statements; in the case of any such
liability for which no estimate has been provided, the estimate for purposes of
this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in
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violation of any of the foregoing except where such non-compliance or violation
would not have a Material Adverse Effect on the Company. Except as specifically
provided in Schedule 5.12, the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any such Licenses or other
rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company or TCI for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned,
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by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except
as set forth on Schedule 5.14, (i) all material personal property used by the
Company in its business is either owned by the Company or leased by the Company
pursuant to a lease included on Schedule 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted except to the extent such wear and tear would have a Material
Adverse Effect and (iii) to the knowledge of the Stockholders, all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to the enforcement of creditors' rights generally and by
general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form
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of Annex VI hereto at or prior to the Closing Date. Except as set forth on
Schedule 5.16, the lease relating to any such real property leased by the
Company from any of the Stockholders or any Affiliate of any of the Stockholders
will be terminated as of the Closing Date and a new lease in the form of Annex
VI hereto will be entered into as of the Closing Date on the terms set forth on
Schedule 5.16. The Company has good title to any real property owned by it that
is not shown on Schedule 5.16 as property intended to be sold or distributed
prior to the Closing Date, subject to no mortgage, pledge, lien, conditional
sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i)
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the Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years.
The Company believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all material
employee benefit plans of the Company, including all employment agreements and
other agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any material
plan, program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any material deferred compensation or retirement funding
arrangement on behalf of any employee or employees (such as, for example, and
without limitation, any individual retirement account or annuity, any "excess
benefit plan" (within the meaning of Section 3(36) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any material employee pension benefit plan other than the plans
set forth on the Benefit Plans Schedule. Except as set forth on the Benefit
Plans Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and
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local statutes, ordinances and regulations except to the extent that any failure
to comply would not have a Material Adverse Effect on the Company.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in all
material respects or are reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule,
copies of the Annual Form 5500s (if applicable) for the past two years are
included as part of the Benefit Plans Schedule. None of (i) the Stockholders,
(ii) the Company, or (iii) to the knowledge of the Stockholders, any other
person, has engaged in any transaction with any plan listed in the Benefit Plans
Schedule prohibited under the provisions of Section 4975 of the Code or Section
406 of ERISA. No plan listed in the Benefit Plans Schedule has incurred an
accumulated funding deficiency, as defined in Section 412(a) of the Code and
Section 302(1) of ERISA; and the Company has not incurred any liability for
excise tax or penalty due to the Internal Revenue Service nor any liability to
the Pension Benefit Guaranty Corporation. Except as set forth on the Benefit
Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth
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on Schedule 5.10 or 5.13, there are no material claims, actions, suits or
proceedings, pending or, to the knowledge of the Stockholders, threatened
against or affecting, the Company, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality having jurisdiction over it and no notice of
any claim, action, suit or proceeding, whether pending or threatened, has been
received by the Company, and, to the knowledge of the Stockholders, there is no
basis for any such claim, action, suit or proceeding. The Company has conducted
and is now conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in applicable federal, state and
local statutes, ordinances, orders, approvals, variances, rules and regulations,
including all such orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, except where any such noncompliance, individually or in
the aggregate, would not have a Material Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach of or constitute a default under, any of the
terms or
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provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect, and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any material right or benefit regarding the Material Documents. Except
as set forth on Schedule 5.23, none of the Material Documents prohibits the use
or publication by the Company or TCI of the name of any other party to such
Material Document, and none of the Material Documents prohibits or restricts the
Company from freely providing services to any other customer or potential
customer of the Company, TCI, or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
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(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
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Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither TCI or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement and to effect the Exchange has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to TCI or the prospective
IPO, except for statements and representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the
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Company or to any customers of the Company in connection with or as a direct or
indirect result of the Company's provision of services or products to its
customers.
5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.30, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI acknowledges that the representations in Sections 5.30, 5.31 and 5.32
are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI
TCI represents and warrants that all of the following representations and
warranties in this Section 6 are true at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of twelve months (the last day of
such period being the "Expiration Date"), except that the warranties and
representations set forth in Section 6.14 hereof shall survive until such time
as the limitations period has run for all tax periods ended on or prior to the
Funding and Consummation Date, which shall be deemed to be the Expiration Date
for Section 6.14.
6.1 DUE ORGANIZATION. TCI is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted. TCI is qualified to do business and is in good
standing in each jurisdiction in which the nature of its business makes such
qualification necessary, except where the failure to be so authorized or
qualified would not have a Material Adverse Effect. True, complete and correct
copies of the Certificate of Incorporation and By-laws of TCI (the "TCI Charter
Documents") have been or will be filed as exhibits to the Registration
Statement.
6.2 AUTHORIZATION. (i) The representatives of TCI executing this Agreement
have the authority to enter into and bind TCI to the terms of this Agreement and
(ii) TCI has the full legal right, power and authority to enter into this
Agreement and consummate the transactions
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contemplated hereby. All corporate acts and other proceedings required to have
been taken by TCI to authorize the execution, delivery and performance of this
Agreement and the consummation of the Exchange have been duly and properly
taken.
6.3 CAPITAL STOCK OF TCI. The authorized capital stock of TCI is as set
forth in Section 1.4. All of the issued and outstanding shares of the capital
stock of TCI have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI in compliance with all applicable state and federal laws concerning the
issuance of securities. Further, none of such shares were issued in violation of
the preemptive rights of any past or present stockholder of TCI.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI to issue any of its authorized but unissued capital stock; and (ii) TCI has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Complete and accurate copies of all
stock option or stock purchase plans and a list of all outstanding options,
warrants or other rights to acquire shares of the stock of TCI will be provided
to the Stockholders promptly upon request.
6.5 SUBSIDIARIES. TCI has no Subsidiaries except for each of the companies
identified as "Newco" in each of the Other Agreements and other newly
incorporated Subsidiaries that have conducted no business and have been created
solely to effectuate the business of TCI. Except as set forth in the preceding
sentence or set forth on Schedule 6.5 hereto, neither TCI nor any Subsidiary of
TCI presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
TCI is not, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities, contingent or otherwise, except as set
forth in or contemplated by this Agreement and the Other Agreements and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
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6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
which would have a Material Adverse Effect, (b) there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of TCI, threatened
against or affecting, TCI or any Subsidiary of TCI, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them, and (c) no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by TCI. TCI and its Subsidiaries have
conducted and are conducting their respective businesses in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI or, to the knowledge of TCI, any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which TCI
or any Subsidiary of TCI is a party, or by which TCI or any Subsidiary of TCI,
or any of their respective properties, are bound (collectively, the "TCI
Documents"); and (a) the rights and benefits of TCI and any Subsidiary of TCI
under the TCI Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by TCI
and the performance of its obligations hereunder do not, and the consummation of
the transactions contemplated hereby and compliance with the terms hereof will
not, conflict with, or result in any violation or default (with or without
notice or lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of TCI or
any Subsidiary of TCI under, any provision of (i) the Certificate of
Incorporation or Bylaws of TCI or the comparable governing instruments of any
Subsidiary of TCI, (ii) any note, bond, mortgage, indenture or deed of trust or
any license, lease, contract, commitment, agreement or arrangement to which TCI
and any Subsidiary of TCI is a party or by which any of their respective
properties or assets are bound or (iii) any judgment, order, decree or law,
ordinance, rule or regulation, applicable to TCI or any Subsidiary of TCI or
their respective properties or assets. The execution of this Agreement and the
Other Agreements and the performance of the obligations hereunder and thereunder
and the consummation of the transactions contemplated by the TCI Plan of
Organization will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the TCI Documents or the TCI
Charter Documents. Except as contemplated hereby or described in the
Registration Statement or on Schedule 6.9 hereto, none of the TCI Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated by the
TCI Plan of Organization in order to remain in full force and effect and
consummation of the transactions contemplated thereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and the performance of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of TCI and this Agreement
has been duly and validly authorized by all necessary corporate action and is a
legal, valid and binding obligation of TCI.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. TCI has not entered and will not enter
into any agreement with any of the Other Founding Companies or any of the
stockholders of the Other Founding Companies other than the Other Agreements and
the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES. TCI and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against TCI or any Subsidiary thereof
for federal, state and other Taxes (including penalties and interest) for any
such period and no notice of any claim for Taxes, whether pending or threatened,
has been received. All Taxes which TCI or any Subsidiary of TCI has been
required to collect or withhold have been duly and timely collected and withheld
and have been set aside in accounts for such purposes, or have been duly and
timely paid to the proper governmental authority. All Tax, including interest
and penalties (whether or not shown on any tax return) owed by TCI, any member
of an affiliated or
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consolidated group which includes or included TCI, or with respect to any
payment made or deemed made by TCI herein has been paid. Neither TCI nor any
Subsidiary thereof has entered into any tax sharing agreement or similar
arrangement. Neither TCI nor any Subsidiary thereof is an investment company as
defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI;
(iii) any change in the authorized capital of TCI or its outstanding
securities or any change in its ownership interests or any grant of any options,
warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
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(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI set forth in this Agreement, does not contain an untrue statement of a
material fact or omit to state a material fact necessary to make the statements
herein and therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing does not apply to
statements contained in or omitted from any of such documents made or omitted in
reliance upon information furnished by the Company or the Stockholders or the
Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of TCI access to all of the Company's
sites, properties, books and records and will furnish TCI with such additional
financial and operating data and other information as to the business and
properties of the Company as TCI may from time to time reasonably request. The
Company will cooperate with TCI and its representatives, auditors and counsel in
the preparation of any documents or other materials which may be required in
connection with any documents or materials required by this Agreement. TCI, the
Stockholders and the Company will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's sites, properties, books and records and will
furnish the Company with such additional financial and operating data and other
information as to the business and properties of TCI as the Company may from
time to time reasonably request. TCI will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required
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in connection with any documents or materials required by this Agreement. The
Company will cause all information obtained in connection with the negotiation
and performance of this Agreement to be treated as confidential in accordance
with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
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(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
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(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TCI on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to TCI. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders (other than the
ESOP) and the Company shall give prompt notice to TCI of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of the Company or the
Stockholders contained herein to be untrue or inaccurate in any material respect
at or prior to the Closing and (ii) any failure of any Stockholder or the
Company to comply with or satisfy in any material respect any material covenant,
condition or agreement to be complied with or satisfied by such person
hereunder. TCI shall give prompt notice to the Company of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of TCI contained herein to be
untrue or inaccurate in any material respect at or prior to the Closing and (ii)
any failure of TCI to comply with or satisfy
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in any material respect any material covenant, condition or agreement to be
complied with or satisfied by it hereunder. The delivery of any notice pursuant
to this Section 7.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, which modification may
only be made pursuant to Section 7.8, (ii) modify the conditions set forth in
Sections 8 and 9, or (iii) limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by TCI that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, TCI shall give the Company notice promptly after it
has knowledge thereof. If TCI and a majority of the Founding Companies (other
than the Founding Company seeking to amend or supplement a Schedule) consent to
such amendment or supplement, which consent shall have been deemed given by TCI
or any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the Company does not
give its consent, the Company may terminate this Agreement pursuant to Section
12.1(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 7.8, and TCI and a majority of the Other
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that TCI seeks to amend or supplement a Schedule
pursuant to this Section 7.8 and a majority of the Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. No party to
this Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this
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Section 7.8. No amendment of or supplement to a Schedule shall be made later
than 24 hours prior to the anticipated effectiveness of the Registration
Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the
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SEC or requirements of any exchange or automated trading system for which
application is made to register the TCI Stock and any changes necessary or
advisable in order to permit the delivery of the opinion contemplated by Section
8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI shall be deemed a condition
precedent in addition to the conditions precedent set forth in Section 8 of this
Agreement. If filings under the Hart-Scott-Rodino Act are required, the costs
and expenses thereof (including legal fees and costs and filing fees) shall be
borne by TCI. The obligation of each party to consummate the transactions
contemplated by this Agreement is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Act, if applicable.
7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as
of the Funding and Consummation Date, if any such conditions have not been
satisfied, the Company or the Stockholders (acting in unison) shall have the
right to terminate this Agreement, or in the alternative, waive any condition
not so satisfied. Any act or action of the
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Stockholders in consummating the Closing or delivering certificates representing
Company Stock as of the Funding and Consummation Date shall constitute a waiver
of any conditions not so satisfied. However, no such waiver shall be deemed to
affect the survival of the representations and warranties of TCI contained in
Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI contained in Section 6, as amended or
supplemented in accordance with Section 7.8, shall be true and correct in all
material respects as of the Closing Date and the Funding and Consummation Date
as though such representations and warranties had been made as of that time; all
of the terms, covenants and conditions of this Agreement to be complied with and
performed by TCI on or before the Closing Date and the Funding and Consummation
Date shall have been duly complied with and performed in all material respects;
and certificates to the foregoing effect dated the Closing Date and the Funding
and Consummation Date, respectively, and signed by the President or any Vice
President of TCI shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform TCI in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the IPO and no governmental agency or body shall
have taken any other action or made any request of the Company as a result of
which the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Funding and Consummation Date, in the form annexed
hereto as Annex III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement,on terms such that the aggregate value of
the cash and the number of shares of TCI Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
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8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Exchange and no governmental agency or body shall have taken any other
action or made any request of the Company as a result of which the Company deems
it inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the Closing
Date, duly issued by the Delaware Secretary of State and in each state in which
TCI is authorized to do business, showing that TCI is in good standing and
authorized to do business and that all state franchise and/or income tax returns
and taxes for TCI for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI which has had or is reasonably likely to have a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder on terms such that the aggregate value of the cash
and the number of shares of TCI Stock to be received by the Stockholders is not
less than the Minimum Value set forth on Annex I..
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI, certifying the truth and correctness of attached copies of TCI's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the boards of directors and, if
required, the Stockholders of TCI approving TCI's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for TCI Stock (but not cash or other property) pursuant to the TCI Plan
of Organization.
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8.13 WARRANTS. TCI shall have executed and delivered to Messrs. Ketchum
and Work the Warrants described in the Registration Statement, which Warrants
shall entitle each of Messrs. Ketchum and Work to purchase 334,947 shares of TCI
Stock at the purchase price described in the Registration Statement.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI
The obligations of TCI with respect to actions to be taken on the Closing
Date are subject to the satisfaction or waiver on or prior to the Closing Date
of all of the following conditions (other than 9.13). The obligations of TCI
with respect to actions to be taken on the Funding and Consummation Date are
subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI shall have the right to terminate this
Agreement, or waive any such condition, but no such waiver shall be deemed to
affect the survival of the representations and warranties contained in Section 5
hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the IPO and no governmental agency or body shall
have taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
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9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders, other than the ESOP, shall
have delivered to TCI an instrument dated the Closing Date which shall be
effective only upon the occurrence of the Funding and Consummation Date
releasing the Company from (i) any and all claims of the Stockholders against
the Company and (ii) obligations of the Company to the Stockholders, except for
(x) items specifically identified on Schedules 5.10 and 5.15 as being claims of
or obligations to the Stockholders, and (y) continuing obligations to
Stockholders relating to their employment by the Company, and (z) any and all
claims relating to the transactions contemplated by this Agreement. In the event
that the Funding and Consummation Date does not occur, then the release
instrument referenced herein shall be void and of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by TCI, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
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9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
9.16 OPTIONS. The holders of the options identified on Annex I shall have
exercised such options or such options shall otherwise have been cancelled
effective at or prior to the Closing, and no other options, warrants or other
rights to acquire shares of Company Stock of any nature whatsoever shall be
outstanding; it being agreed that any such outstanding options, warrants or
other rights shall be cancelled effective immediately prior to the Closing.
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be
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subrogated to any rights of the Stockholders accruing as a result of any such
payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
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(iv) Each of the Company,TCI and each Stockholder shall comply with
the Tax reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and treat the transaction as a tax-free contribution
under Section 351(a) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders and TCI each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders (other than the ESOP) covenant and agree that they severally
(in accordance with their percentage ownership interest in the Company; it being
agreed that the interest of Mr. Ketchum in the Company is equal to 25.0%, and
the interest of Mr. Work in the Company is equal to 25.9%) will indemnify,
defend, protect and hold harmless TCI, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation at all times, from
and after the date of this Agreement until the Expiration Date (provided that
for purposes of Section 11.1(iii) below, the Expiration Date shall be the date
on which the applicable statute of limitations expires), from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, the Company or
the Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the Stockholders or the Company set forth
herein or on the schedules or certificates delivered in connection herewith,
(ii) any breach of any agreement on the part of the Stockholders or the Company
under this Agreement, or (iii) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, arising
out of or based upon any untrue statement of a material fact relating to the
Company or the Stockholders, and provided to TCI or its counsel by the Company
or the Stockholders (but in the case of the Stockholders, only if such statement
was provided in writing) which is contained in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact relating to the Company or the Stockholders
required to be stated therein or necessary to make the statements therein not
misleading, provided, however, that such indemnity shall not inure to the
benefit of TCI, the Company or the Surviving Corporation to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the Company or the
Stockholders provided, in writing, corrected information to TCI for inclusion in
the final prospectus, and such information was not so included or the final
prospectus
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was not properly delivered, and provided further, that no Stockholder shall be
liable for any indemnification obligation pursuant to this Section 11.1 to the
extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other Stockholder.
TCI acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI further acknowledges and agrees that, should the Funding and
Consummation Date occur, its sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. Each of TCI and the Surviving Corporation hereby waives, from and
after the Funding and Consummation Date, to the fullest extent permitted under
applicable law, any and all rights, claims and causes of action it or any
indemnified person may have against any Stockholder relating to this Agreement
or the transactions arising under or based upon any federal, state, local or
foreign statute, law, rule, regulation or otherwise, including, for any act or
omission occuring prior to the Funding and Consummation Date, except under this
Section 11.
11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI under this Agreement, (iii) any liabilities which the Stockholders may incur
due to TCI's failure to be responsible for the liabilities and obligations of
the Company as provided in Section 1 hereof (except to the extent that TCI has
claims against the Stockholders by reason of such liabilities); or (iv) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to TCI or any
of the Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to TCI or
any of the Other Founding Companies required to be stated therein or necessary
to make the statements therein not misleading.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment, and the Indemnifying Party shall
have no further liability or obligation to the Indemnified Party under Sections
11.1 or 11.2 with respect to such claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may
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undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. TCI, the Surviving Corporation and
the other persons or entities indemnified pursuant to Section 11.1 or 11.2 shall
not assert any claim for indemnification hereunder against the Stockholders
until such time as, and solely to the extent that, the aggregate of all claims
which such persons may have against such the Stockholders shall exceed the
greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders plus (ii)
the value of the TCI Stock delivered to Stockholders (calculated as provided in
this Section 11.5) or (b) $100,000 (the "Indemnification Threshold"). Except
with respect to the right to receive the consideration as set forth on Annex I,
the Stockholders shall not assert any claim for indemnification hereunder
against TCI until such time as, and solely to the extent that, the aggregate of
all claims which the Stockholders may have against TCI shall exceed the
Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Exchange (including, in the
cases of Messrs. Ketchum and Work, the value of the Warrants issued to them by
TCI in connection with the Closing). For purposes of calculating the value of
the TCI Stock received by a Stockholder, TCI Stock shall be valued at its
initial public
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offering price as set forth in the Registration Statement. It is hereby agreed
that a Stockholder shall have the right to satisfy an indemnification obligation
through payment of a combination of stock and cash in proportion equal to the
proportion of stock and cash received by such Stockholder in connection with the
Exchange, valued as described immediately above, but shall also have the right
to satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default by the Stockholders) in the observance or in
the due and timely performance of any of the covenants or agreements contained
herein, and the curing of such default shall not have been made on or before the
Funding and Consummation Date, or by the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by TCI, if the conditions set
forth in Section 9 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations,
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warranties, covenants or agreements contained in this Agreement including, but
not limited to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital
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stock of a competing business whose stock is traded on a national securities
exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized
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representatives of TCI, (b) following the Closing, such Confidential Information
may be disclosed by the Stockholders as is required in the course of performing
their duties for TCI or the Surviving Corporation and (c) to counsel and other
advisers, provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 14.1, unless (i) such Confidential
Information becomes known to the public generally through no fault of the
Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any Confidential Information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to TCI and provide TCI
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, TCI shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting TCI from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate Confidential Information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any Confidential Information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all Confidential Information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 TCI. TCI recognizes and acknowledges that it had in the past and
currently has access to certain Confidential Information of the Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company's business. TCI agrees that, prior to the
Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such Confidential Information to any Person
for any purpose or reason whatsoever, except (a) to authorized representatives
of the Company, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such Confidential Information is or becomes known to
the public generally through no fault of TCI, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), TCI shall, if
possible, give prior written notice thereof to the Company and the Stockholders
and provide the Company and the Stockholders with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, and (d) to the public to the extent necessary or advisable in
connection with the filing of the Registration Statement and the IPO and the
securities laws applicable thereto and to the operation of TCI as a publicly
held entity after the IPO. In the event of a breach or threatened breach by TCI
of the provisions of this Section 14.2, the Company and the Stockholders
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shall be entitled to an injunction restraining TCI from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting the Company and the Stockholders from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of TCI Stock received by the Stockholders in the Exchange. The
certificates evidencing the TCI Stock delivered to the Stockholders pursuant to
Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as TCI may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
NOTWITHSTANDING THE FOREGOING, THIS SECTION 15 SHALL NOT APPLY TO
THE ESOP.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
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16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of TCI Stock issued to
such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the TCI Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders (other than the ESOP)
are able to bear the economic risk of an investment in the TCI Stock to be
acquired pursuant to this Agreement and can afford to sustain a total loss of
such investment and have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the proposed
investment in the TCI Stock. The Stockholders party hereto (other than the ESOP)
have had an adequate opportunity to ask questions and receive answers from the
officers of TCI concerning any and all matters relating to the transactions
described herein including, without limitation, the background and experience of
the current and proposed officers and directors of TCI, the plans for the
operations of the business of TCI, the business, operations and financial
condition of the Founding Companies other than the Company, and any plans for
additional acquisitions and the like. The Stockholders (other than the ESOP)
have asked any and all questions in the nature described in the preceding
sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the
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Stockholders pursuant to this Agreement (including any stock issued as (or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by TCI as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of such TCI
Stock) which any such Stockholder requests, provided that TCI shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
TCI or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free organization
under Section 351 of the Code. In addition, if TCI is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 17.1
that the number of shares to be sold by persons other than TCI is greater than
the number of such shares which can be offered without adversely affecting the
offering, TCI may reduce pro rata the number of shares offered for the accounts
of such persons (based upon the number of shares proposed to be sold by each
such person) to a number deemed satisfactory by such managing underwriter,
provided, that, for each such offering made by TCI after the IPO, such reduction
shall be made first by reducing the number of shares to be sold by persons other
than TCI, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep the registration statement relating to
such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such
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public offering) may defer the filing of the registration statement for up to a
30 day period after the date on which TCI would otherwise be required to make
such filing pursuant to the foregoing paragraph if such directors determine in
good faith that the filing of such a registration statement or the making of any
required disclosure in connection therewith would have an adverse effect on TCI
or interfere with a transaction in which TCI is then engaged or is then
pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the
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period such registration statement is to be kept effective, provided that TCI
shall not be required to become subject to taxation, to qualify to do business
or to file a general consent to service of process in any such states or
jurisdictions;
e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees
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and expenses of investigation) resulting from any untrue or alleged untrue
statement of a material fact or any omission or alleged omission of a material
fact required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission is
contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.4 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
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(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders and TCI shall each deliver
or cause to be delivered to the other on the Funding and Consummation Date, and
at such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company and TCI and supersede any prior agreement and understanding relating to
the subject matter of this Agreement. This Agreement, upon execution,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by the Stockholders, the Company and TCI, acting through
their respective officers or trustees, duly authorized by their respective
Boards of Directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
required hereby, provided that the Company shall make a good faith effort to
cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
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18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Exchange, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or TCI, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying solely on
the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to reimburse
an aggregate of up to $75,000 of expenses or fees incurred by the Stockholders
and the stockholders of the Other Founding Companies, as a group, promptly after
the Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, addressed to it at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
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with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston Texas 77002
(c) If to the Company, addressed to it at:
Charles W. Carter Co. - Los Angeles
551 W. Crowther Avenue
Placentia, CA 92871
Attention: President
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
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any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, the Company and Stockholders who hold or who will hold
at least 50% of the TCI Stock issued or to be issued upon consummation of the
Exchange. Any amendment or waiver effected in accordance with this Section 18.15
shall be binding upon each of the parties hereto, any other person receiving TCI
Stock in connection with the Exchange and each future holder of such TCI Stock.
18.16 SPECIAL PROVISIONS. The Stockholders include Thomas A. Ketchum,
Steven N. Okamura and Thomas A. Work, as Trustees (the "Trustees") of the
Charles W. Carter Co. Employee Stock Ownership Plan (the "ESOP"). Any provision
hereof to the contrary notwithstanding, neither (i) the Trustees, acting in
their capacities as such, nor (ii) the assets of the ESOP trust, shall be liable
for or subject to claims for breach of any of the representations or warranties
contained herein or the indemnification provisions hereof. The Trustees hereby
represent and warrant that (a) the Trustees have the right, title and power to
enter into this Agreement and to perform hereunder, (b) except for the interests
of the ESOP beneficiaries created by the trust and related instruments pursuant
to which the ESOP was created (as amended from time to time), the shares of
Company Stock held by the Trustees are held free and clear of all liens, claims,
encumbrances and shares of every kind, other than for the repayment of the debt
it incurred to purchase the stock and the obligation to pay that stock in the
form of benefits to participants in the ESOP, and (c) the ESOP is a
non-contributory employee benefit plan within the meaning of Title I of the
Employee Retirement Income Security Act of 1974, and, except as required by
Section 401(a) (28) of the Code, the Trustees make all investment decisions for
the ESOP. Section 15 shall not apply to the ESOP.
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18.17 CONTINUATION OF ESOP. TCI agrees that the Surviving Corporation
shall have the right to continue to maintain the ESOP until the funds borrowed
by the ESOP from the Company ("ESOP Debt") have been fully repaid. TCI further
agrees that the Surviving Corporation may make contributions to the ESOP in
excess of those required under the documents establishing the ESOP Debt
("Prepayments") at such times and in amounts as is determined in the discretion
of the Surviving Corporation, provided that the Prepayments are used to repay
the ESOP Debt and that any such Prepayments are fully deductible for federal
income tax purposes.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:_____________________________________
T. Michael Young
President and Chief Executive Officer
CHARLES W. CARTER CO. - LOS ANGELES
By:_____________________________________
Name: Thomas A. Ketchum
Title: President
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Stockholders:
CHARLES W. CARTER CO. EMPLOYEE STOCK
OWNERSHIP PLAN
By:_____________________________________
Name: Thomas A. Ketchum
Title: Trustee
By:_____________________________________
Name: Steven N. Okamura
Title: Trustee
By:_____________________________________
Name: Thomas A. Work
Title: Trustee
________________________________________
Thomas A. Ketchum
*
Thomas A. Work
*
Natalie Ketchum
________________________________________
Thomas A. Ketchum as Legal Representative
for Natalie Ketchum
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*
Jillian Ketchum
________________________________________
Thomas A. Ketchum as Legal Representative
for Jillian Ketchum
*
Steven N. Okamura
*
JoAnne Ketchum
*
Marlene Ketchum
*
Charles F. Weston
* By Thomas H. Ketchum pursuant to Power of Attorney dated April 7, 1998.
_______________________
Thomas H. Ketchum
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SCHEDULE 6.4
None.
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SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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SCHEDULE 6.12
None.
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SCHEDULE 6.15
None.
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EXHIBIT 10.4
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
PROVEEDOR MAYORISTA AL REFACCIONARIO, S.A. DE C.V.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. CERTAIN INFORMATION....................................................5
1.1 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL
STOCK OF THE COMPANY AND TCI.....................................5
2.1 AGREEMENT TO EFFECT EXCHANGE.....................................5
3. DELIVERY OF CONSIDERATION..............................................5
4. CLOSING................................................................6
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................6
5.1 DUE ORGANIZATION.................................................7
5.2 AUTHORIZATION....................................................7
5.3 CAPITAL STOCK OF THE COMPANY.....................................7
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING...........7
5.5 NO BONUS SHARES..................................................8
5.6 SUBSIDIARIES.....................................................8
5.7 PREDECESSOR STATUS; ETC..........................................8
5.8 SPIN-OFF BY THE COMPANY..........................................8
5.9 FINANCIAL STATEMENTS.............................................8
5.10 LIABILITIES AND OBLIGATIONS......................................8
5.11 ACCOUNTS AND NOTES RECEIVABLE....................................9
5.12 PERMITS AND INTANGIBLES..........................................9
5.13 ENVIRONMENTAL MATTERS...........................................10
5.14 PERSONAL PROPERTY...............................................10
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......11
5.16 REAL PROPERTY...................................................11
5.17 INSURANCE.......................................................12
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....12
5.19 EMPLOYEE PLANS..................................................13
5.20 COMPLIANCE WITH ERISA...........................................14
5.21 CONFORMITY WITH LAW; LITIGATION.................................14
5.22 TAXES...........................................................15
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................15
5.24 ABSENCE OF CHANGES..............................................16
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................17
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5.26 VALIDITY OF OBLIGATIONS.........................................18
5.27 RELATIONS WITH GOVERNMENTS......................................18
5.28 DISCLOSURE......................................................18
5.29 NO INTERESTS IN OTHER BUSINESSES................................18
5.30 AUTHORITY; OWNERSHIP............................................19
5.31 PREEMPTIVE RIGHTS...............................................19
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................19
6. REPRESENTATIONS OF TCI................................................19
6.1 DUE ORGANIZATION................................................19
6.2 AUTHORIZATION...................................................19
6.3 CAPITAL STOCK OF TCI............................................20
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........20
6.5 SUBSIDIARIES....................................................20
6.6 FINANCIAL STATEMENTS............................................20
6.7 LIABILITIES AND OBLIGATIONS.....................................20
6.8 CONFORMITY WITH LAW; LITIGATION.................................20
6.9 NO VIOLATIONS...................................................21
6.10 VALIDITY OF OBLIGATIONS.........................................21
6.11 TCI STOCK.......................................................22
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................22
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................22
6.14 TAXES...........................................................22
6.15 ABSENCE OF CHANGES..............................................23
6.16 DISCLOSURE......................................................23
7. COVENANTS PRIOR TO CLOSING............................................24
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................24
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................24
7.3 PROHIBITED ACTIVITIES...........................................25
7.4 NO SHOP.........................................................26
7.5 NOTICE TO BARGAINING AGENTS.....................................27
7.6 AGREEMENTS......................................................27
7.7 NOTIFICATION OF CERTAIN MATTERS.................................27
7.8 AMENDMENT OF SCHEDULES..........................................27
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............28
7.10 FINAL FINANCIAL STATEMENTS......................................29
7.11 FURTHER ASSURANCES..............................................29
7.12 AUTHORIZED CAPITAL..............................................29
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST
IMPROVEMENTS ACT OF 1976 (THE "HART-SCOTT-RODINO ACT")..........29
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7.14 STOCKHOLDERS OF TCI.............................................30
7.15 IPO.............................................................30
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......30
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......30
8.2 SATISFACTION....................................................31
8.3 NO LITIGATION...................................................31
8.4 OPINION OF COUNSEL..............................................31
8.5 REGISTRATION STATEMENT..........................................31
8.6 CONSENTS AND APPROVALS..........................................31
8.7 GOOD STANDING CERTIFICATES......................................31
8.8 NO MATERIAL ADVERSE CHANGE......................................32
8.9 CLOSING OF IPO..................................................32
8.10 SECRETARY'S CERTIFICATE.........................................32
8.11 EMPLOYMENT AGREEMENTS...........................................32
8.12 TAX MATTERS.....................................................32
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI............................32
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......33
9.2 NO LITIGATION...................................................33
9.3 SECRETARY'S CERTIFICATE.........................................33
9.4 NO MATERIAL ADVERSE EFFECT......................................33
9.5 STOCKHOLDERS' RELEASE...........................................33
9.6 SATISFACTION....................................................33
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................34
9.8 OPINION OF COUNSEL..............................................34
9.9 CONSENTS AND APPROVALS..........................................34
9.10 GOOD STANDING CERTIFICATES......................................34
9.11 REGISTRATION STATEMENT..........................................34
9.12 EMPLOYMENT AGREEMENTS...........................................34
9.13 CLOSING OF IPO..................................................34
9.14 FIRPTA CERTIFICATE..............................................34
9.15 ENVIRONMENTAL REVIEWS...........................................34
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................35
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......35
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................35
10.3 PREPARATION AND FILING OF TAX RETURNS...........................35
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10.4 DIRECTORS.......................................................36
11. INDEMNIFICATION.......................................................36
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................36
11.2 INDEMNIFICATION BY TCI..........................................38
11.3 THIRD PERSON CLAIMS.............................................38
11.4 EXCLUSIVE REMEDY................................................39
11.5 LIMITATIONS ON INDEMNIFICATION..................................40
12. TERMINATION OF AGREEMENT..............................................40
12.1 TERMINATION.....................................................40
12.2 LIABILITIES IN EVENT OF TERMINATION.............................41
13. NONCOMPETITION........................................................41
13.1 PROHIBITED ACTIVITIES...........................................41
13.2 DAMAGES.........................................................42
13.3 REASONABLE RESTRAINT............................................42
13.4 SEVERABILITY; REFORMATION.......................................42
13.5 INDEPENDENT COVENANT............................................43
13.6 MATERIALITY.....................................................43
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................43
14.1 STOCKHOLDERS....................................................43
14.2 TCI.............................................................44
14.3 DAMAGES.........................................................44
14.4 SURVIVAL........................................................44
15. TRANSFER RESTRICTIONS.................................................44
15.1 TRANSFER RESTRICTIONS...........................................44
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................45
16.1 COMPLIANCE WITH LAW.............................................45
16.2 ECONOMIC RISK; SOPHISTICATION...................................45
17. REGISTRATION RIGHTS...................................................46
17.1 PIGGYBACK REGISTRATION RIGHTS...................................46
17.2 DEMAND REGISTRATION RIGHTS......................................46
17.3 REGISTRATION PROCEDURES.........................................47
17.4 INDEMNIFICATION.................................................49
17.5 UNDERWRITING AGREEMENT..........................................50
17.6 RULE 144 REPORTING..............................................50
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18. GENERAL...............................................................50
18.1 COOPERATION.....................................................50
18.2 SUCCESSORS AND ASSIGNS..........................................51
18.3 ENTIRE AGREEMENT................................................51
18.4 COUNTERPARTS....................................................51
18.5 BROKERS AND AGENTS..............................................51
18.6 EXPENSES........................................................51
18.7 NOTICES.........................................................52
18.8 GOVERNING LAW...................................................53
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................53
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................53
18.11 TIME............................................................53
18.12 REFORMATION AND SEVERABILITY....................................53
18.13 REMEDIES CUMULATIVE.............................................53
18.14 CAPTIONS........................................................54
18.15 AMENDMENTS AND WAIVERS..........................................54
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
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18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), Proveedor Mayorista al Refaccionario, S.A. de C.V., a
Mexican corporation (the "Company"), and the stockholders listed on the
signature pages hereto (the "Stockholders"). The Stockholders are all the
stockholders of the Company.
RECITALS
WHEREAS, the Stockholders desire to exchange all of the outstanding
shares of capital stock of the Company for shares of TCI Common Stock (as
defined herein) and cash, all on the terms and subject to the conditions
set forth herein;
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of the
Company, the stockholders and the Board of Directors of TCI, each of the
Other Founding Companies and each of the subsidiaries of TCI that are
parties to the Other Agreements have approved and adopted the TCI Plan of
Organization as an integrated plan pursuant to which the Stockholders and
the stockholders of each of the Other Founding Companies will transfer the
capital stock of each of the Founding Companies (as defined herein) to TCI
and the stockholders of each of the Other Founding Companies will acquire
the stock of TCI (but not cash or other property) as a tax-free transfer
of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the TCI Plan of Organization in
order to transfer the capital stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
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"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means each of the Delaware companies created for
purposes of effecting the acquisitions of some or all of the Other Founding
Companies and wholly-owned by TCI prior to the Funding and Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Federal" refers to both the United States of America and to the United
Mexican States.
"Founding Companies" means, collectively:
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(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Hardy's Truck Parts, Inc., a Tennessee corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
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"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Jurisdiction of Incorporation" means Mexico.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" means the Company after the Exchange.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
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NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. CERTAIN INFORMATION
1.1 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY
AND TCI. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company and TCI
as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto; and
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will consist of 100,000,000 shares of TCI Stock,
of which the number of issued and outstanding shares will be set forth in the
Registration Statement, 5,000,000 shares of preferred stock, $.01 par value, of
which no shares will be issued and outstanding, and 2,000,000 shares of
Restricted Voting Common Stock, $.01 par value (the "Restricted Common Stock"),
all of which will be issued and outstanding except as otherwise set forth in the
Registration Statement.
2. EXCHANGE
2.1 AGREEMENT TO EFFECT EXCHANGE. As of the Closing, each Stockholder
shall exchange (the "Exchange") all of the shares of Company Stock held by such
Stockholder for the right to receive (1) the aggregate number of shares of TCI
Stock set forth on Annex I hereto with respect to such Stockholder and (2)
subject to the adjustments described in Annex I hereto, the aggregate amount of
cash set forth on Annex I hereto with respect to such Stockholder; provided,
however, that such consideration shall not be delivered to the Stockholders
until the Funding and Consummation Date, as described in Section 3 below. All
TCI Stock received by the Stockholders pursuant to this Agreement shall, except
for restrictions on resale or transfer described in Sections 15 and 16 hereof,
have the same rights as all the other shares of outstanding TCI Stock by reason
of the provisions of the Certificate of Incorporation of TCI or as otherwise
provided by the Delaware GCL. All TCI Stock received by the Stockholders shall
be issued and delivered to the Stockholders free and clear of any liens, claims
or encumbrances of any kind or nature. All voting rights of such TCI Stock
received by the Stockholders shall be fully exercisable by the Stockholders and
the Stockholders shall not be deprived nor restricted in exercising those
rights. At the Effective Time of the Exchange, TCI shall have no class of
capital stock issued and outstanding other than the TCI Stock and the Restricted
Voting Common Stock.
3. DELIVERY OF CONSIDERATION
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3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash to be
payable by certified check or wire transfer as so requested by the Stockholders
at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Exchange and (ii) effect the delivery of shares
referred to in Section 3 hereof; provided, that such actions shall not include
the actual completion of the Exchange or the delivery of the shares and funds
referred to in Section 3 hereof, each of which actions shall only be taken upon
the Funding and Consummation Date as herein provided. In the event that there is
no Funding and Consummation Date and this Agreement automatically terminates as
provided in this Section 4, the Exchange shall not be consummated. The taking of
the actions described in clauses (i) and (ii) above (the "Closing") shall take
place on the closing date (the "Closing Date") at the offices of Bracewell &
Patterson, L.L.P., South Tower Pennzoil Place, 711 Louisiana, Suite 2900,
Houston, Texas 77002. On the Funding and Consummation Date (x) all transactions
contemplated by this Agreement, including the delivery of shares and the
delivery of funds in the amount and in the manner provided in Section 3 hereof
and (y) the closing with respect to the IPO shall occur and be completed. The
date on which the actions described in the preceding clauses (x) and (y) occur
shall be referred to as the "Funding and Consummation Date." During the period
from the Closing Date to the Funding and Consummation Date, this Agreement may
only be terminated by the parties if the underwriting agreement in respect of
the IPO is terminated pursuant to the terms of such underwriting agreement. This
Agreement shall also in any event automatically terminate if the Funding and
Consummation Date has not occurred within 15 business days following the Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders (severally, in accordance with such Stockholder's
proportionate interest in the Company Stock) represents and warrants that all of
the representations and warranties in this Section 5 are true at the date of
this Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the
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last day of such period being the "Expiration Date"), except that the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the limitations period has run for all tax periods ended on
or prior to the Funding and Consummation Date, which shall be deemed to be the
Expiration Date for Section 5.22, and the representations and warranties set
forth in Section 5.30 hereof shall survive perpetually. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of its
Subsidiaries, if any, except where the context indicates otherwise.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the
Jurisdiction of Incorporation, and has the requisite power and authority to
carry on its business as it is now being conducted. The Company is duly
qualified to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification necessary, except (i) as set forth on Schedule 5.1 or (ii)
where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, properties, assets or condition
(financial or otherwise), of the Company and its subsidiaries taken as a whole
(as used herein with respect to the Company, or with respect to any other
Person, a "Material Adverse Effect"). Schedule 5.1 sets forth a list of all
jurisdictions in which the Company is authorized or qualified to do business.
True, complete and correct copies of (i) the Certificate of Incorporation and
By-laws, each as amended, of the Company, or other governing documents (the
"Charter Documents"), and (ii) the stock records of the Company, are all
attached to Schedule 5.1. The Company has delivered complete and correct copies
of all minutes of meetings, written consents and other evidence, if any, of
deliberations of or actions taken by the Company's Board of Directors and
stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement. Recent resolutions adopted by the Board
of Directors of the Company and resolutions adopted by the Stockholders to
approve this Agreement and the transactions contemplated hereby in all respects,
and copies of all such resolutions, certified by the Secretary or an Assistant
Secretary of the Company as being in full force and effect on the date hereof,
are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as
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set forth on Schedule 5.4, (i) no option, warrant, call, conversion right or
commitment of any kind exists which obligates the Company to issue any of its
authorized but unissued capital stock; (ii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof; and (iii) neither the voting stock structure of
the Company nor the relative ownership of shares among any of its respective
Stockholders has been altered or changed in contemplation of the Exchange and/or
the TCI Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Exchange or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
United States generally accepted accounting principles applied on a consistent
basis ("GAAP") (except as disclosed therein or in the schedules hereto, and
except that unaudited statements may not include notes), and present fairly in
all material respects the financial position and results of operations of the
Company as of the dates of such statements and for the periods covered thereby.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the
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balance sheet of the Company at the Balance Sheet Date or otherwise reflected in
the Company Financial Statements at the Balance Sheet Date and which are not
disclosed on any of the other Schedules to this Agreement, and (ii) all loan
agreements, indemnity or guaranty agreements, bonds, mortgages, pledges and
material security agreements to which the Company is a party or by which its
properties may be bound. To the knowledge of the Stockholders, except as set
forth on Schedule 5.10, since the Balance Sheet Date the Company has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The Company has also
delivered to TCI on Schedule 5.10, in the case of those contingent liabilities
known to Stockholders and related to pending or threatened litigation, or other
liabilities which are not fixed, a good faith and reasonable estimate (to the
extent the Company can reasonably make such an estimate) of the maximum amount
which the Company reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the Company's Financial
Statements; in the case of any such liability for which no estimate has been
provided, the estimate for purposes of this Agreement shall be deemed to be
zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, the transactions contemplated by this Agreement will not result
in a default under or a breach or
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violation of, or adversely affect the rights and benefits afforded to the
Company by, any such Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company or TCI for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all material personal property used by the Company in its business is
either owned by the Company or leased by the Company pursuant to a lease
included on Schedule 5.14, (ii) all
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of the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted except to the extent such wear and
tear would have a Material Adverse Effect and (iii) to the knowledge of the
Stockholders, all leases and agreements included on Schedule 5.14 are in full
force and effect and constitute valid and binding agreements of the parties (and
their successors) thereto in accordance with their respective terms except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form of Annex VI hereto at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affiliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in the
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form of Annex VI hereto will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good title to any real property
owned by it that is not shown on Schedule 5.16 as property intended to be sold
or distributed prior to the Closing Date, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any
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special bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented and bonuses paid on a basis consistent
with past practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years.
The Company believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations except to the extent that any failure to
comply would not have a Material Adverse Effect on the Company.
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All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to
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the knowledge of the Stockholders, threatened against or affecting, the Company,
at law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by the Company,
and, to the knowledge of the Stockholders, there is no basis for any such claim,
action, suit or proceeding. The Company has conducted and is now conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations, including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach of or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule
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5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit regarding the Material Documents. Except as set forth
on Schedule 5.23, none of the Material Documents prohibits the use or
publication by the Company or TCI of the name of any other party to such
Material Document, and none of the Material Documents prohibits or restricts the
Company from freely providing services to any other customer or potential
customer of the Company, TCI, or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
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(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii)any contract entered into or commitment incurred involving any
liability or commitment to make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
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5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither TCI or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement and to effect the Exchange has been or will be made
independent of, and without reliance upon, any statements, opinions or other
communications, or due diligence investigations which have been or will be made
or performed by any prospective Underwriter, relative to TCI or the prospective
IPO, except for statements and representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
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5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.30, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI acknowledges that the representations in Sections 5.30, 5.31 and 5.32
are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI
TCI represents and warrants that all of the following representations and
warranties in this Section 6 are true at the date of this Agreement and, subject
to Section 7.8 hereof, shall be true at the time of Closing and the Funding and
Consummation Date, and that such representations and warranties shall survive
the Funding and Consummation Date for a period of twelve months (the last day of
such period being the "Expiration Date"), except that the warranties and
representations set forth in Section 6.14 hereof shall survive until such time
as the limitations period has run for all tax periods ended on or prior to the
Funding and Consummation Date, which shall be deemed to be the Expiration Date
for Section 6.14.
6.1 DUE ORGANIZATION. TCI is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted. TCI is qualified to do business and is in good
standing in each jurisdiction in which the nature of its business makes such
qualification necessary, except where the failure to be so authorized or
qualified would not have a Material Adverse Effect. True, complete and correct
copies of the Certificate of Incorporation and By-laws of TCI (the "TCI Charter
Documents") have been or will be filed as exhibits to the Registration
Statement.
6.2 AUTHORIZATION. (i) The representatives of TCI executing this Agreement
have the authority to enter into and bind TCI to the terms of this Agreement and
(ii) TCI has the full legal right, power and authority to enter into this
Agreement and consummate the transactions contemplated hereby. All corporate
acts and other proceedings required to have been taken by TCI to authorize the
execution, delivery and performance of this Agreement and the consummation of
the Exchange have been duly and properly taken.
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6.3 CAPITAL STOCK OF TCI. The authorized capital stock of TCI is as set
forth in Section 1.4. All of the issued and outstanding shares of the capital
stock of TCI have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI in compliance with all applicable state and federal laws concerning the
issuance of securities. Further, none of such shares were issued in violation of
the preemptive rights of any past or present stockholder of TCI.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI to issue any of its authorized but unissued capital stock; and (ii) TCI has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Complete and accurate copies of all
stock option or stock purchase plans and a list of all outstanding options,
warrants or other rights to acquire shares of the stock of TCI will be provided
to the Stockholders promptly upon request.
6.5 SUBSIDIARIES. TCI has no Subsidiaries except for each of the companies
identified as "Newco" in each of the Other Agreements and other newly
incorporated Subsidiaries that have conducted no business and have been created
solely to effectuate the business of TCI. Except as set forth in the preceding
sentence or set forth on Schedule 6.5 hereto, neither TCI nor any Subsidiary of
TCI presently owns, of record or beneficially, or controls, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, and
TCI is not, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities, contingent or otherwise, except as set
forth in or contemplated by this Agreement and the Other Agreements and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
which would have a Material Adverse Effect, (b) there are no material claims,
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actions, suits or proceedings, pending or, to the knowledge of TCI, threatened
against or affecting, TCI or any Subsidiary of TCI, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
any of them, and (c) no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by TCI. TCI and its Subsidiaries have
conducted and are conducting their respective businesses in substantial
compliance with the requirements, standards, criteria and conditions set forth
in applicable Federal, state and local statutes, ordinances, permits, licenses,
orders, approvals, variances, rules and regulations and are not in violation of
any of the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI or, to the knowledge of TCI, any other party thereto, is in
default under any lease, instrument, agreement, license, or permit to which TCI
or any Subsidiary of TCI is a party, or by which TCI or any Subsidiary of TCI,
or any of their respective properties, are bound (collectively, the "TCI
Documents"); and (a) the rights and benefits of TCI and any Subsidiary of TCI
under the TCI Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution and delivery of this Agreement by TCI
and the performance of its obligations hereunder do not, and the consummation of
the transactions contemplated hereby and compliance with the terms hereof will
not, conflict with, or result in any violation or default (with or without
notice or lapse of time, or both), under or give rise to a right of termination,
cancellation, or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any lien upon any of the assets of TCI or
any Subsidiary of TCI under, any provision of (i) the Certificate of
Incorporation or Bylaws of TCI or the comparable governing instruments of any
Subsidiary of TCI, (ii) any note, bond, mortgage, indenture or deed of trust or
any license, lease, contract, commitment, agreement or arrangement to which TCI
and any Subsidiary of TCI is a party or by which any of their respective
properties or assets are bound or (iii) any judgment, order, decree or law,
ordinance, rule or regulation, applicable to TCI or any Subsidiary of TCI or
their respective properties or assets. The execution of this Agreement and the
Other Agreements and the performance of the obligations hereunder and thereunder
and the consummation of the transactions contemplated by the TCI Plan of
Organization will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the TCI Documents or the TCI
Charter Documents. Except as contemplated hereby or described in the
Registration Statement or on Schedule 6.9 hereto, none of the TCI Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated by the
TCI Plan of Organization in order to remain in full force and effect and
consummation of the transactions contemplated thereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and the performance of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of TCI and this Agreement
has been duly and validly authorized by all necessary corporate action and is a
legal, valid and binding obligation of TCI.
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6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. TCI has not entered and will not enter
into any agreement with any of the Other Founding Companies or any of the
stockholders of the Other Founding Companies other than the Other Agreements and
the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES.TCI and each Subsidiary thereof have timely filed all requisite
federal, state and other Returns or extension requests for all fiscal periods
ended prior to the date hereof for which such Returns are due; and there are no
examinations in progress or claims against TCI or any Subsidiary thereof for
federal, state and other Taxes (including penalties and interest) for any such
period and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Taxes which TCI or any Subsidiary of TCI has been required to
collect or withhold have been duly and timely collected and withheld and have
been set aside in accounts for such purposes, or have been duly and timely paid
to the proper governmental authority. All Tax, including interest and penalties
(whether or not shown on any tax return) owed by TCI, any member of an
affiliated or consolidated group which includes or included TCI, or with respect
to any payment made or deemed made by TCI herein has been paid. Neither TCI nor
any Subsidiary thereof has entered into any tax sharing agreement or similar
arrangement. Neither TCI nor any Subsidiary thereof is an investment company as
defined in Section 351(e)(1) of the Code.
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6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI;
(iii) any change in the authorized capital of TCI or its outstanding
securities or any change in its ownership interests or any grant of any options,
warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI set forth in this Agreement, does not contain an untrue statement of a
material fact or omit to state a material fact necessary to
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make the statements herein and therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the foregoing does
not apply to statements contained in or omitted from any of such documents made
or omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of TCI access to all of the Company's
sites, properties, books and records and will furnish TCI with such additional
financial and operating data and other information as to the business and
properties of the Company as TCI may from time to time reasonably request. The
Company will cooperate with TCI and its representatives, auditors and counsel in
the preparation of any documents or other materials which may be required in
connection with any documents or materials required by this Agreement. TCI, the
Stockholders and the Company will treat all information obtained in connection
with the negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's sites, properties, books and records and will
furnish the Company with such additional financial and operating data and other
information as to the business and properties of TCI as the Company may from
time to time reasonably request. TCI will cooperate with the Company, its
representatives, auditors and counsel in the preparation of any documents or
other material which may be required in connection with any documents or
materials required by this Agreement. The Company will cause all information
obtained in connection with the negotiation and performance of this Agreement to
be treated as confidential in accordance with the provisions of Section 14
hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
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(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
(viii)maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S
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corporation earnings after June 30, 1998 and prior to the Closing Date, declare
or pay any dividend, or make any distribution in respect of its stock whether
now or hereafter outstanding, or purchase, redeem or otherwise acquire or retire
for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
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(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TCI on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to TCI. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any material respect any material covenant, condition or agreement to be
complied with or satisfied by such person hereunder. TCI shall give prompt
notice to the Company of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of TCI contained herein to be untrue or inaccurate in
any material respect at or prior to the Closing and (ii) any failure of TCI to
comply with or satisfy in any material respect any material covenant, condition
or agreement to be complied with or satisfied by it hereunder. The delivery of
any notice pursuant to this Section 7.7 shall not be deemed to (i) modify the
representations or warranties hereunder of the party delivering such notice,
which modification may only be made pursuant to Section 7.8, (ii) modify the
conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the
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continuing obligation until 24 hours prior to the anticipated effectiveness of
the Registration Statement to supplement or amend promptly the Schedules hereto
with respect to any matter hereafter arising or discovered which, if existing or
known at the date of this Agreement, would have been required to be set forth or
described in the Schedules, provided however, that supplements and amendments to
Schedules 5.10, 5.11, 5.14 and 5.15 shall only have to be delivered at the
Closing Date, unless such Schedule is to be amended to reflect an event
occurring other than in the ordinary course of business. Notwithstanding the
foregoing sentence, no amendment or supplement to a Schedule prepared by the
Company that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless TCI and a majority of the Founding
Companies other than the Company consent to such amendment or supplement; and
provided further, that no amendment or supplement to a Schedule prepared by TCI
that constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless a majority of the Founding Companies consent
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
7.8. In the event that one of the Other Founding Companies seeks to amend or
supplement a Schedule pursuant to Section 7.8 of one of the Other Agreements,
and such amendment or supplement constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on such Other Founding Company, TCI
shall give the Company notice promptly after it has knowledge thereof. If TCI
and a majority of the Founding Companies (other than the Founding Company
seeking to amend or supplement a Schedule) consent to such amendment or
supplement, which consent shall have been deemed given by TCI or any Founding
Company if no response is received within 24 hours following receipt of notice
of such amendment or supplement (or sooner if required by the circumstances
under which such consent is requested), but the Company does not give its
consent, the Company may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and TCI and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that TCI seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i) hereof. No party to this Agreement shall
be liable to any other party if this Agreement shall be terminated pursuant to
the provisions of this Section 7.8. No amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the
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Stockholders agree promptly to advise TCI if at any time during the period in
which a prospectus relating to the IPO is required to be delivered under the
1933 Act, any information contained in the prospectus concerning the Company or
the Stockholders becomes incorrect or incomplete in any material respect, and to
provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the Company or the Stockholders, the Company
represents and warrants as to such information with respect to itself, and each
Stockholder represents and warrants, as to such information with respect to the
Company and himself or herself, that the Registration Statement will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth
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in Section 9 of this Agreement, and such compliance by TCI shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as
of the Funding and Consummation Date, if any such conditions have not been
satisfied, the Company or the Stockholders (acting in unison) shall have the
right to terminate this Agreement, or in the alternative, waive any condition
not so satisfied. Any act or action of the Stockholders in consummating the
Closing or delivering certificates representing Company Stock as of the Funding
and Consummation Date shall constitute a waiver of any conditions not so
satisfied. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of TCI contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI contained in Section 6, as amended or
supplemented in accordance with Section 7.8, shall be true and correct in all
material respects as of the Closing Date and the Funding and Consummation Date
as though such representations and warranties had been made as of that time; all
of the terms, covenants and conditions of this Agreement to be complied with and
performed by TCI on or before the Closing Date and the Funding and Consummation
Date
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shall have been duly complied with and performed in all material respects; and
certificates to the foregoing effect dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by the President or any Vice
President of TCI shall have been delivered to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform TCI in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the IPO and no governmental agency or body shall
have taken any other action or made any request of the Company as a result of
which the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TCI Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Exchange and no governmental agency or body shall have taken any other
action or made any request of the Company as a result of which the Company deems
it inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI shall have delivered to the Company a
certificate, dated as of a date no later than ten days prior to the Closing
Date, duly issued by the Delaware Secretary of State and in each state in which
TCI is authorized to do business, showing that TCI is
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in good standing and authorized to do business and that all state franchise
and/or income tax returns and taxes for TCI for all periods prior to the Closing
have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI which has had or is reasonably likely to have a
Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI, certifying the truth and correctness of attached copies of TCI's
Certificate of Incorporation (including amendments thereto), By-Laws (including
amendments thereto), and resolutions of the boards of directors and, if
required, the Stockholders of TCI approving TCI's entering into this Agreement
and the consummation of the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for TCI Stock (but not cash or other property) pursuant to the TCI Plan
of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI
The obligations of TCI with respect to actions to be taken on the Closing
Date are subject to the satisfaction or waiver on or prior to the Closing Date
of all of the following conditions. The obligations of TCI with respect to
actions to be taken on the Funding and Consummation Date are subject to the
satisfaction or waiver on or prior to the Funding and Consummation Date of the
conditions set forth in Sections 9.1, 9.4 and 9.13. As of the Closing Date or,
with respect to the conditions set forth in Sections 9.1, 9.4 and 9.13, as of
the Funding and Consummation Date, if any such conditions have not been
satisfied, TCI shall have the right to terminate this Agreement, or waive any
such condition, but no such waiver shall be deemed to affect the survival of the
representations and warranties contained in Section 5 hereof.
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9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Exchange or the IPO and no governmental agency or body shall
have taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
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9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
Jurisdiction of Incorporation and, unless waived by TCI, in each state in which
the Company is authorized to do business, showing the Company is in good
standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
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10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be subrogated to any
rights of the Stockholders accruing as a result of any such payments by the
Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall
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permit the Stockholders a reasonable opportunity to review all such Returns for
periods including the Funding and Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(iv) Each of the Company,TCI and each Stockholder shall comply with
the Tax reporting requirements of Section 1.351-3 of the Treasury Regulations
promulgated under the Code, and treat the transaction as a tax-free contribution
under Section 351(a) of the Code subject to gain, if any, recognized on the
receipt of cash or other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders and TCI each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, and, subsequent to the Funding and Consummation
Date, the Company and the Surviving Corporation at all times, from and after the
date of this Agreement until the Expiration Date (provided that for purposes of
Section 11.1(iii) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, the Company or
the Surviving Corporation as a result of or arising from (i) any breach of the
representations and warranties of the Stockholders or the Company set forth
herein or on the schedules or certificates
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delivered in connection herewith, (ii) any breach of any agreement on the part
of the Stockholders or the Company under this Agreement, or (iii) any liability
under the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to TCI
or its counsel by the Company or the Stockholders (but in the case of the
Stockholders, only if such statement was provided in writing) which is contained
in the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Stockholders required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of TCI, the Company or the Surviving Corporation
to the extent that such untrue statement (or alleged untrue statement) was made
in, or omission (or alleged omission) occurred in, any preliminary prospectus
and the Company or the Stockholders provided, in writing, corrected information
to TCI for inclusion in the final prospectus, and such information was not so
included or the final prospectus was not properly delivered, and provided
further, that no Stockholder shall be liable for any indemnification obligation
pursuant to this Section 11.1 to the extent attributable to a breach of any
representation, warranty or agreement made herein individually by any other
Stockholder.
In addition to the foregoing, each of the Stockholders covenants and
agrees that such Stockholder will indemnify, defend, protect and hold harmless
TCI, and, subsequent to the Funding and Consummation Date, the Company and the
Surviving Corporation at all times, from and after the date of this Agreement
until the date on which the applicable statute of limitations expires, from and
against all claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation) incurred by TCI, the
Company or the Surviving Corporation as a result of or arising from any income
tax or other tax obligation of such Stockholder under any Federal, state, local,
foreign or other law applicable to such Stockholder.
TCI acknowledges and agrees that other than the representations and
warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI further acknowledges and agrees that, should the Funding and
Consummation Date occur, its sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI hereby waives, from and after the Funding and Consummation Date,
to the fullest extent permitted under applicable law, any and all rights, claims
and causes of action it or any indemnified person may have against any
Stockholder relating to this Agreement or the transactions arising under or
based upon any federal, state, local or foreign statute, law, rule, regulation
or otherwise except under this Section 11.
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11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI of its
representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI under this Agreement, (iii) any liabilities which the Stockholders may incur
due to TCI's failure to be responsible for the liabilities and obligations of
the Company as provided in Section 1 hereof (except to the extent that TCI has
claims against the Stockholders by reason of such liabilities); or (iv) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact relating to TCI or any
of the Other Founding Companies contained in any preliminary prospectus, the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to TCI or
any of the Other Founding Companies required to be stated therein or necessary
to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the
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right to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the reasonable
expenses of its counsel. After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment,
and the Indemnifying Party shall have no further liability or obligation to the
Indemnified Party under Sections 11.1 or 11.2 with respect to such claim. If the
Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
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11.5 LIMITATIONS ON INDEMNIFICATION. TCI, the Surviving Corporation and
the other persons or entities indemnified pursuant to Section 11.1 or 11.2 shall
not assert any claim for indemnification hereunder against the Stockholders
until such time as, and solely to the extent that, the aggregate of all claims
which such persons may have against such the Stockholders shall exceed the
greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders plus (ii)
the value of the TCI Stock delivered to Stockholders (calculated as provided in
this Section 11.5) or (b) $100,000 (the "Indemnification Threshold"). Except
with respect to the right to receive the consideration as set forth on Annex I,
the Stockholders shall not assert any claim for indemnification hereunder
against TCI until such time as, and solely to the extent that, the aggregate of
all claims which the Stockholders may have against TCI shall exceed the
Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Exchange. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Exchange, valued as
described immediately above, but shall also have the right to satisfy any such
obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default
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by the Stockholders) in the observance or in the due and timely performance of
any of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Funding and Consummation Date,
or by the Company, if the conditions set forth in Section 8 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable, or by TCI, if the conditions set forth in Section 9 hereof have
not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
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(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
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13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such Confidential Information becomes known to the
public generally through no fault of the Stockholders, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any Confidential Information pursuant to this
clause (ii), the Stockholders shall, if possible, give prior written notice
thereof to TCI and provide TCI with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by any of the Stockholders
of the provisions of this Section 14.1, TCI shall be entitled to an injunction
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting TCI
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate Confidential
Information with respect to the Company. Each Stockholder further agrees that in
the event the transactions contemplated herein are not consummated (i) neither
the Company nor any Stockholder can thereafter use any Confidential Information
of the Other Founding Companies for any purpose and (ii) upon written request of
any Other Founding Company to the Company, the Company and
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Stockholders will return all Confidential Information pertaining to such Other
Founding Company to such Other Founding Company.
14.2 TCI. TCI recognizes and acknowledges that it had in the past and
currently has access to certain Confidential Information of the Company, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of the Company's business. TCI agrees that, prior to the
Closing, or if the Transactions contemplated by this Agreement are not
consummated, it will not disclose such Confidential Information to any Person
for any purpose or reason whatsoever, except (a) to authorized representatives
of the Company, (b) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.2, (c) to the Other Founding Companies and their representatives pursuant to
Section 7.1(a), unless (i) such Confidential Information is or becomes known to
the public generally through no fault of TCI, (ii) disclosure is required by law
or the order of any governmental authority under color of law, provided, that
prior to disclosing any information pursuant to this clause (ii), TCI shall, if
possible, give prior written notice thereof to the Company and the Stockholders
and provide the Company and the Stockholders with the opportunity to contest
such disclosure, or (iii) the disclosing party reasonably believes that such
disclosure is required in connection with the defense of a lawsuit against the
disclosing party, and (d) to the public to the extent necessary or advisable in
connection with the filing of the Registration Statement and the IPO and the
securities laws applicable thereto and to the operation of TCI as a publicly
held entity after the IPO. In the event of a breach or threatened breach by TCI
of the provisions of this Section 14.2, the Company and the Stockholders shall
be entitled to an injunction restraining TCI from disclosing, in whole or in
part, such Confidential Information. Nothing herein shall be construed as
prohibiting the Company and the Stockholders from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date,
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except pursuant to Section 17 hereof, none of the Stockholders shall sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint, or otherwise
dispose of any shares of TCI Stock received by the Stockholders in the Exchange.
The certificates evidencing the TCI Stock delivered to the Stockholders pursuant
to Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as TCI may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of TCI Stock issued to
such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the TCI Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment
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in the TCI Stock. The Stockholders party hereto have had an adequate opportunity
to ask questions and receive answers from the officers of TCI concerning any and
all matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TCI, the plans for the operations of the business of TCI, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the Stockholders pursuant to this Agreement (including any stock
issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by TCI as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of
such TCI Stock) which any such Stockholder requests, provided that TCI shall
have the right to reduce the number of shares included in such registration to
the extent that inclusion of such shares could, in the written opinion of tax
counsel to TCI or its independent auditors, jeopardize the status of the
transactions contemplated hereby and by the Registration Statement as a tax-free
organization under Section 351 of the Code. In addition, if TCI is advised in
writing in good faith by any managing underwriter of an underwritten offering of
the securities being offered pursuant to any registration statement under this
Section 17.1 that the number of shares to be sold by persons other than TCI is
greater than the number of such shares which can be offered without adversely
affecting the offering, TCI may reduce pro rata the number of shares offered for
the accounts of such persons (based upon the number of shares proposed to be
sold by each such person) to a number deemed satisfactory by such managing
underwriter, provided, that, for each such offering made by TCI after the IPO,
such reduction shall be made first by reducing the number of shares to be sold
by persons other than TCI, the Stockholders and the stockholders of the Other
Founding Companies (collectively, the Stockholders and the stockholders of the
other Founding Companies being referred to herein as the "Founding
Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date,
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the holders of a majority of the shares of TCI Stock issued to the Founding
Stockholders pursuant to this Agreement and the Other Agreements which have not
been previously registered or sold and which are not entitled to be sold under
Rule 144(k) (or any similar or successor provision) promulgated under the 1933
Act may request in writing that TCI file a registration statement under the 1933
Act covering the registration of any or all of the shares of TCI Stock issued to
the Stockholders pursuant to this Agreement and the Other Agreements (including
any stock issued as (or issuable upon the conversion or exchange of any
convertible security, warrant, right or other security which is issued by TCI
as) a dividend or other distribution with respect to, or in exchange for, or in
replacement of such TCI Stock) then held by such Founding Stockholders (a
"Demand Registration"). Within ten (10) days of the receipt of such request, TCI
shall give written notice of such request to all other Founding Stockholders and
shall, as soon as practicable but in no event later than 45 days after notice
from any Stockholder, file and use its best efforts to cause to become effective
a registration statement covering all such shares. TCI shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
the registration statement relating to such Demand Registration current and
effective for not less than 120 days (or such shorter period as is required to
sell all of the shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or the making of any required disclosure in connection
therewith would have an adverse effect on TCI or interfere with a transaction in
which TCI is then engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
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a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
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17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such Stockholder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of a Stockholder under this Section
17.4 shall be limited to an amount equal to the net proceeds actually received
by such Stockholder from the sale of the relevant shares covered by the
registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of
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interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders and TCI shall each deliver
or cause to be delivered to the other on the Funding and Consummation Date, and
at such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement.
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18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company and TCI and supersede any prior agreement and understanding relating to
the subject matter of this Agreement. This Agreement, upon execution,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by the Stockholders, the Company and TCI, acting through
their respective officers or trustees, duly authorized by their respective
Boards of Directors. Any disclosure made on any Schedule delivered pursuant
hereto shall be deemed to have been disclosed for purposes of any other Schedule
required hereby, provided that the Company shall make a good faith effort to
cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Exchange, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or TCI, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated
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hereby include tax risks, with respect to which the Stockholders are relying
solely on the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to
reimburse an aggregate of up to $75,000 of expenses or fees incurred by the
Stockholders and the stockholders of the Other Founding Companies, as a group,
promptly after the Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, addressed to it at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston Texas 77002
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(c) If to the Company, addressed to it at:
Gonzalez Gallo 1689
Colonia Atlas S. Reforma
Guadalajara, Jal. 44870
MEXICO
Attention: Administrador Unico de la Sociedad
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
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<PAGE>
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, the Company and Stockholders who hold or who will hold
at least 50% of the TCI Stock issued or to be issued upon consummation of the
Exchange. Any amendment or waiver effected in accordance with this Section 18.15
shall be binding upon each of the parties hereto, any other person receiving TCI
Stock in connection with the Exchange and each future holder of such TCI Stock.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
PROVEEDOR MAYORISTA AL
REFACCIONARIO, S.A. DE C.V.
By:
Name: Rodolfo A. Duemichen
Title: Administrador Unico de la Sociedad
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<PAGE>
Stockholders:
Rodolfo A. Duemichen
Elisa Duemichen
George Patrick Kuzmer
Patricia J. Kuzmer
Gregory R. Hatton
Betsy A. Hatton
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SCHEDULE 6.4
None.
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<PAGE>
SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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<PAGE>
SCHEDULE 6.12
None.
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SCHEDULE 6.15
None.
-63-
EXHIBIT 10.5
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
PIA ACQUISITION CORPORATION
(a subsidiary of Transportation Components, Inc.)
PLAZA AUTOMOTIVE, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, TCI AND NEWCO...........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........10
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................11
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................12
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
5.16 REAL PROPERTY...................................................14
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....15
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5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................17
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................18
5.24 ABSENCE OF CHANGES..............................................19
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................20
5.26 VALIDITY OF OBLIGATIONS.........................................20
5.27 RELATIONS WITH GOVERNMENTS......................................21
5.28 DISCLOSURE......................................................21
5.29 NO INTERESTS IN OTHER BUSINESSES................................21
5.30 AUTHORITY; OWNERSHIP............................................21
5.31 PREEMPTIVE RIGHTS...............................................22
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................22
6. REPRESENTATIONS OF TCI AND NEWCO......................................22
6.1 DUE ORGANIZATION................................................22
6.2 AUTHORIZATION...................................................22
6.3 CAPITAL STOCK OF TCI AND NEWCO..................................23
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........23
6.5 SUBSIDIARIES....................................................23
6.6 FINANCIAL STATEMENTS............................................23
6.7 LIABILITIES AND OBLIGATIONS.....................................23
6.8 CONFORMITY WITH LAW; LITIGATION.................................23
6.9 NO VIOLATIONS...................................................24
6.10 VALIDITY OF OBLIGATIONS.........................................24
6.11 TCI STOCK.......................................................25
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................25
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................25
6.14 TAXES...........................................................25
6.15 ABSENCE OF CHANGES..............................................26
6.16 DISCLOSURE......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................27
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................28
7.3 PROHIBITED ACTIVITIES...........................................28
7.4 NO SHOP.........................................................30
7.5 NOTICE TO BARGAINING AGENTS.....................................30
7.6 AGREEMENTS......................................................30
7.7 NOTIFICATION OF CERTAIN MATTERS.................................30
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7.8 AMENDMENT OF SCHEDULES..........................................31
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............32
7.10 FINAL FINANCIAL STATEMENTS......................................32
7.11 FURTHER ASSURANCES..............................................32
7.12 AUTHORIZED CAPITAL..............................................33
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................33
7.14 STOCKHOLDERS OF TCI.............................................33
7.15 HARDY'S TRUCK PARTS.............................................33
7.16 IPO.............................................................33
7.17 INDEMNIFICATION AGREEMENT.......................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......33
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......34
8.2 SATISFACTION....................................................34
8.3 NO LITIGATION...................................................34
8.4 OPINION OF COUNSEL..............................................35
8.5 REGISTRATION STATEMENT..........................................35
8.6 CONSENTS AND APPROVALS..........................................35
8.7 GOOD STANDING CERTIFICATES......................................35
8.8 NO MATERIAL ADVERSE CHANGE......................................35
8.9 CLOSING OF IPO..................................................35
8.10 SECRETARY'S CERTIFICATE.........................................35
8.11 EMPLOYMENT AGREEMENTS...........................................35
8.12 TAX MATTERS.....................................................36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO..................36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
9.2 NO LITIGATION...................................................36
9.3 SECRETARY'S CERTIFICATE.........................................36
9.4 NO MATERIAL ADVERSE EFFECT......................................37
9.5 STOCKHOLDERS' RELEASE...........................................37
9.6 SATISFACTION....................................................37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................37
9.8 OPINION OF COUNSEL..............................................37
9.9 CONSENTS AND APPROVALS..........................................37
9.10 GOOD STANDING CERTIFICATES......................................37
9.11 REGISTRATION STATEMENT..........................................38
9.12 EMPLOYMENT AGREEMENTS...........................................38
9.13 CLOSING OF IPO..................................................38
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9.14 FIRPTA CERTIFICATE..............................................38
9.15 ENVIRONMENTAL REVIEWS...........................................38
9.16 INDEMNIFICATION AGREEMENT.......................................38
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................38
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......38
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................38
10.3 PREPARATION AND FILING OF TAX RETURNS...........................39
10.4 DIRECTORS.......................................................40
10.5 REAL ESTATE.....................................................40
11. INDEMNIFICATION.......................................................40
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................40
11.2 INDEMNIFICATION BY TCI..........................................41
11.3 THIRD PERSON CLAIMS.............................................42
11.4 EXCLUSIVE REMEDY................................................43
11.5 LIMITATIONS ON INDEMNIFICATION..................................43
12. TERMINATION OF AGREEMENT..............................................44
12.1 TERMINATION.....................................................44
12.2 LIABILITIES IN EVENT OF TERMINATION.............................44
13. NONCOMPETITION........................................................45
13.1 PROHIBITED ACTIVITIES...........................................45
13.2 DAMAGES.........................................................46
13.3 REASONABLE RESTRAINT............................................46
13.4 SEVERABILITY; REFORMATION.......................................46
13.5 INDEPENDENT COVENANT............................................46
13.6 MATERIALITY.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 STOCKHOLDERS....................................................46
14.2 TCI AND NEWCO...................................................47
14.3 DAMAGES.........................................................48
14.4 SURVIVAL........................................................48
15. TRANSFER RESTRICTIONS.................................................48
15.1 TRANSFER RESTRICTIONS...........................................48
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 COMPLIANCE WITH LAW.............................................48
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16.2 ECONOMIC RISK; SOPHISTICATION...................................49
17. REGISTRATION RIGHTS...................................................49
17.1 PIGGYBACK REGISTRATION RIGHTS...................................49
17.2 DEMAND REGISTRATION RIGHTS......................................50
17.3 REGISTRATION PROCEDURES.........................................51
17.4 INDEMNIFICATION.................................................52
17.5 UNDERWRITING AGREEMENT..........................................53
17.6 RULE 144 REPORTING..............................................53
18. GENERAL...............................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................54
18.5 BROKERS AND AGENTS..............................................54
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................56
18.11 TIME............................................................56
18.12 REFORMATION AND SEVERABILITY....................................56
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), PIA Acquisition Corporation, a Delaware corporation
("Newco"), Plaza Automotive, Inc., a Missouri corporation (the "Company"), and
the Stockholders identified on the signature pages hereto (the "Stockholders").
The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on April
9, 1998 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of TCI, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and the
Company (Newco and the Company together are hereinafter collectively
referred to as "Constituent Corporations") deem it advisable and in the
best interests of the Constituent Corporations and their respective
stockholders that Newco merge with and into the Company pursuant to this
Agreement and the applicable provisions of the laws of the States of
Delaware and the State of Incorporation (as defined below);
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of the
Company, the stockholders and the Board of Directors of Newco and TCI,
each of the Other Founding Companies and each of the subsidiaries of TCI
that are parties to the Other Agreements have approved and adopted the TCI
Plan of Organization as an integrated plan pursuant to which the
Stockholders and the stockholders of each of the Other Founding Companies
will transfer the capital stock of each of the Founding Companies (as
defined herein) to TCI and the stockholders of each of the Other Founding
Companies will acquire the stock of TCI (but not cash or other property)
as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this
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<PAGE>
Agreement (which is subject to the terms and conditions herein set forth),
as part of the TCI Plan of Organization in order to transfer the capital
stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by TCI prior to the Funding and
Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
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<PAGE>
"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Drive Line, Inc., a Florida corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
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<PAGE>
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Missouri.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
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<PAGE>
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to TCI at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. The Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
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<PAGE>
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that T. Michael
Young or another officer of TCI shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger David Gooch, Hugh McConnell and Paul Pryzant shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
TCI AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company, TCI and
Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will consist of 100,000,000 shares of TCI Stock,
of which the number of issued and outstanding shares will be set forth in the
Registration Statement, 5,000,000 shares of preferred stock, $.01 par value, of
which no shares will be issued and outstanding, and 2,000,000 shares of
Restricted Voting
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Common Stock, $.01 par value (the "Restricted Common Stock"), all of which will
be issued and outstanding except as otherwise set forth in the Registration
Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against such Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) TCI Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(i) the aggregate number of shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holders thereof,
automatically shall be converted into and deemed to represent the right to
receive (1) the aggregate number of shares of TCI Stock set forth on Annex I
hereto and (2) subject to the adjustments described in Annex I hereto, the
aggregate amount of cash set forth on Annex I hereto (the number of shares of
TCI Stock and, subject to the adjustments described on Annex I hereto, the
amount of cash allocable to the holders of the Company Stock being set forth on
Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of TCI Stock or other
consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of TCI, automatically be converted into one fully
paid and non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock of the
Surviving Corporation immediately after the Effective Time of the Merger, all of
which shall be owned by TCI.
All TCI Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding TCI
Stock by reason of the provisions of the Certificate of Incorporation of TCI or
as otherwise provided by the Delaware GCL. All TCI Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such TCI Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, TCI shall have no
class of capital stock issued and outstanding other than the TCI Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash to be
payable by certified check or wire transfer as so requested by the Stockholders
at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders'
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expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to TCI for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants that all of the
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22, and the representations
and warranties set forth in Section 5.30 hereof shall survive perpetually. For
purposes of this Section
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5, the term "Company" shall mean and refer to the Company and all of its
Subsidiaries, if any, except where the context indicates otherwise.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of the
Company, are all attached to Schedule 5.1. The Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. Recent resolutions
adopted by the Board of Directors of the Company and resolutions adopted by the
Stockholders to approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in
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respect thereof; and (iii) neither the voting stock structure of the Company nor
the relative ownership of shares among any of its respective Stockholders has
been altered or changed in contemplation of the Merger and/or the TCI Plan of
Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis and
throughout the periods involved ("GAAP") (except as disclosed therein or in the
schedules hereto, and except that any unaudited statements included therein may
omit footnote disclosures), and present fairly, in all material respects, the
financial position and results of operations of the Company as of the dates and
for the periods covered thereby.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which
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its properties may be bound. To the knowledge of the Stockholders, except as set
forth on Schedule 5.10, since the Balance Sheet Date the Company has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The Company has also
delivered to TCI on Schedule 5.10, in the case of those contingent liabilities
known to Stockholders and related to pending or threatened litigation, or other
liabilities which are not fixed, a good faith and reasonable estimate (to the
extent the Company can reasonably make such an estimate) of the maximum amount
which the Company reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the Company's Financial
Statements; in the case of any such liability for which no estimate has been
provided, the estimate for purposes of this Agreement shall be deemed to be
zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company by, any such Licenses or other rights.
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5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company, TCI or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all material personal property used by the Company in its business is
either owned by the Company or leased by the Company pursuant to a lease
included on Schedule 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted
except to the extent such wear and tear would have a Material Adverse Effect and
(iii) to the knowledge of the Stockholders, all leases and agreements included
on Schedule 5.14
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are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form of Annex VI hereto at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affiliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in the
form of Annex VI hereto will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good title to any real property
owned by it that is not shown on
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Schedule 5.16 as property intended to be sold or distributed prior to the
Closing Date, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
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Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations except to the extent that any failure to
comply would not have a Material Adverse Effect on the Company.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
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5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the
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knowledge of the Stockholders, there is no basis for any such claim, action,
suit or proceeding. The Company has conducted and is now conducting its business
in compliance with the requirements, standards, criteria and conditions set
forth in applicable federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations, including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach of or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
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hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any material right or benefit regarding the Material
Documents. Except as set forth on Schedule 5.23, none of the Material Documents
prohibits the use or publication by the Company, TCI or Newco of the name of any
other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services to any other
customer or potential customer of the Company, TCI, Newco or any Other Founding
Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
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(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly
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authorized by all necessary corporate action and is a legal, valid and binding
obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither TCI or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to TCI or the prospective IPO, except for statements and
representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the
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shares of the Company Stock identified on Annex II as being owned by such
Stockholder, and, except as set forth on Schedule 5.30, such Company Stock is
owned free and clear of all liens, security interests, pledges, voting
agreements, voting trusts, contractual restrictions on transfer, encumbrances
and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI and Newco acknowledge that the representations in Sections 5.30, 5.31
and 5.32 are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI AND NEWCO
TCI and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. TCI and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. TCI and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of TCI (the "TCI Charter Documents") have been or will
be filed as exhibits to the Registration Statement, and copies thereof and
copies of the Certificate of Incorporation and Bylaws of Newco will be provided
to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of TCI and Newco
executing this Agreement have the authority to enter into and bind TCI and Newco
to the terms of this Agreement and (ii) TCI and Newco have the full legal right,
power and authority to enter into this Agreement and consummate the Merger. All
corporate acts and other proceedings required to have been taken by TCI and
Newco to authorize the execution, delivery and performance of this Agreement and
the consummation of the Merger have been duly and properly taken.
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6.3 CAPITAL STOCK OF TCI AND NEWCO. The authorized capital stock of TCI
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
TCI. All of the issued and outstanding shares of the capital stock of TCI and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI and Newco in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of TCI
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI or Newco to issue any of their respective authorized but unissued capital
stock; and (ii) neither TCI nor Newco has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of TCI will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. TCI has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of TCI.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither TCI nor any Subsidiary of TCI presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and neither TCI nor Newco, directly or
indirectly, is a participant in any joint venture, partnership or other
non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities, contingent or otherwise, except as set
forth in or contemplated by this Agreement and the Other Agreements and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other
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governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect,
(b) there are no material claims, actions, suits or proceedings, pending or, to
the knowledge of TCI or Newco, threatened against or affecting, TCI or any
Subsidiary of TCI, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by TCI or Newco. TCI and its Subsidiaries have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI, Newco, or, to the knowledge of TCI and Newco, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which TCI or any Subsidiary of TCI is a party, or by which TCI or any
Subsidiary of TCI, or any of their respective properties, are bound
(collectively, the "TCI Documents"); and (a) the rights and benefits of TCI and
any Subsidiary of TCI under the TCI Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution and delivery of this
Agreement by TCI and Newco and the performance of their obligations hereunder do
not, and the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of TCI or any Subsidiary of TCI under, any provision of (i) the
Certificate of Incorporation or Bylaws of TCI or the comparable governing
instruments of any Subsidiary of TCI, (ii) any note, bond, mortgage, indenture
or deed of trust or any license, lease, contract, commitment, agreement or
arrangement to which TCI and any Subsidiary of TCI is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to TCI or any
Subsidiary of TCI or their respective properties or assets. The execution of
this Agreement and the Other Agreements and the performance of the obligations
hereunder and thereunder and the consummation of the transactions contemplated
by the TCI Plan of Organization will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the TCI
Documents or the TCI Charter Documents. Except as contemplated hereby or
described in the Registration Statement or on Schedule 6.9 hereto, none of the
TCI Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated by the TCI Plan of Organization in order to remain in full force
and effect and consummation of the transactions contemplated thereby will not
give rise to any right to termination, cancellation or acceleration or loss of
any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and Newco and the performance of the transactions contemplated herein
have been duly and validly
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authorized by the respective Boards of Directors of TCI and Newco and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of TCI and Newco.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. Neither TCI nor Newco has entered or
will enter into any agreement with any of the Other Founding Companies or any of
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES.TCI and each Subsidiary thereof have timely filed all requisite
federal, state and other Returns or extension requests for all fiscal periods
ended prior to the date hereof for which such Returns are due; and there are no
examinations in progress or claims against TCI or any Subsidiary thereof for
federal, state and other Taxes (including penalties and interest) for any such
period and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Taxes which TCI or any Subsidiary of TCI has been required to
collect or withhold have been duly and timely collected and withheld and have
been set aside in accounts for such purposes, or have been duly and timely paid
to the proper governmental authority. All Tax, including interest and penalties
(whether or not shown on any tax return) owed by TCI, any member of an
affiliated or consolidated group which includes or included TCI, or with respect
to any payment made or deemed
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made by TCI herein has been paid. Neither TCI nor any Subsidiary thereof has
entered into any tax sharing agreement or similar arrangement. Neither TCI nor
any Subsidiary thereof is an investment company as defined in Section 351(e)(1)
of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI or
Newco;
(iii) any change in the authorized capital of TCI or Newco or their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
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6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of TCI access to all of the Company's
sites, properties, books and records and will furnish TCI with such additional
financial and operating data and other information as to the business and
properties of the Company as TCI may from time to time reasonably request. The
Company will cooperate with TCI and its representatives, auditors and counsel in
the preparation of any documents or other materials which may be required in
connection with any documents or materials required by this Agreement. TCI,
Newco, the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of TCI and Newco as the
Company may from time to time reasonably request. TCI and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the
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negotiation and performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
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(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
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(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TCI on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to TCI. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any material respect any material covenant, condition or agreement to be
complied with or satisfied by such person hereunder. TCI and Newco shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be
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likely to cause any representation or warranty of TCI or Newco contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of TCI or Newco to comply with or satisfy in any material
respect any material covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by TCI or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, TCI shall give the Company notice promptly after it
has knowledge thereof. If TCI and a majority of the Founding Companies (other
than the Founding Company seeking to amend or supplement a Schedule) consent to
such amendment or supplement, which consent shall have been deemed given by TCI
or any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the Company does not
give its consent, the Company may terminate this Agreement pursuant to Section
12.1(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 7.8, and TCI and a majority of the Other
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that TCI or Newco seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding
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Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
No party to this Agreement shall be liable to any other party if this Agreement
shall be terminated pursuant to the provisions of this Section 7.8. No amendment
of or supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
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7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 HARDY'S TRUCK PARTS. Effective on or prior to the Closing Date, the
Company shall, at its option, (i) cause the dissolution of Hardy's Truck Parts,
Inc., a Tennessee corporation ("HTP"), (ii) acquire all of the outstanding
capital stock of HTP not then owned by the Company, or (iii) dispose of the
shares of capital stock of HTP owned by the Company.
7.16 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
7.17 INDEMNIFICATION AGREEMENT.At the closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall deliver to TCI an environmental
indemnification agreement in such form as may be approved by TCI in its
reasonable discretion.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
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The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as
of the Funding and Consummation Date, if any such conditions have not been
satisfied, the Company or the Stockholders (acting in unison) shall have the
right to terminate this Agreement, or in the alternative, waive any condition
not so satisfied. Any act or action of the Stockholders in consummating the
Closing or delivering certificates representing Company Stock as of the Funding
and Consummation Date shall constitute a waiver of any conditions not so
satisfied. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of TCI and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by TCI and Newco on or before the Closing Date and
the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of TCI shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform TCI in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
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8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TCI Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI and Newco each shall have delivered to
the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TCI or Newco is authorized to do business, showing that each of
TCI and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for TCI and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI or Newco which has had or is reasonably likely to
have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI and of Newco, certifying the truth and correctness of attached copies of
the TCI's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of TCI and Newco
approving TCI's and Newco's entering into this Agreement and the consummation of
the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by
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the Company after consultation with TCI shall be afforded the opportunity to
enter into employment agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for TCI Stock (but not cash or other property) pursuant to the TCI Plan
of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO
The obligations of TCI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TCI and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including
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amendments thereto), and resolutions of the board of directors and the
Stockholders approving the Company's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by TCI, in each state in which the
Company is authorized to do business, showing the Company is in
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good standing and authorized to do business and that all state franchise and/or
income tax returns and taxes for the Company for all periods prior to the
Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
9.16 INDEMNIFICATION AGREEMENT. At the Closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall have delivered to TCI an
environmental indemnification agreement in such form as may be approved by TCI
in its reasonable discretion.
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be subrogated to any
rights of the Stockholders accruing as a result of any such payments by the
Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not
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and shall not permit any of its subsidiaries to undertake any act that would
jeopardize the tax-free status of the organization, including without
limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(iv) Each of the Company, Newco, TCI and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
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10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
10.5 REAL ESTATE. Within 14 days after the Funding and Consummation Date
the Stockholders (or one or more of them or an entity controlled by them) shall
purchase the real estate owned by the Company on the terms set forth in Schedule
10.5 hereto, and shall lease such real estate to the Company pursuant to a lease
in substantially the form of Annex VI hereto on the terms set forth in Schedule
10.5 hereto or otherwise agreed upon by the parties.
11. INDEMNIFICATION
The Stockholders, TCI and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, Newco, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation at all times, from
and after the date of this Agreement until the Expiration Date (provided that
for purposes of Section 11.1(iii) below, the Expiration Date shall be the date
on which the applicable statute of limitations expires), from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholders or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholders or
the Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholders, and provided to TCI or its counsel
by the Company or the Stockholders (but in the case of the Stockholders, only if
such statement was provided in writing) which is contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of TCI, Newco, the Company or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Company or the Stockholders provided, in writing, corrected information to TCI
for inclusion in the final prospectus, and such information was not so included
or the final prospectus was not properly delivered, and provided further, that
no
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Stockholder shall be liable for any indemnification obligation pursuant to this
Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other Stockholder.
TCI and Newco acknowledge and agree that other than the representations
and warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI and Newco further acknowledge and agree that, should the Funding and
Consummation Date occur, their sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to TCI's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that TCI or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to TCI, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to TCI or Newco or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment, and the Indemnifying Party shall
have no further liability or obligation to the Indemnified Party under Sections
11.1 or 11.2 with respect to such claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may
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undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. TCI, Newco, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 or 11.2
shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the TCI Stock delivered to Stockholders (calculated as
provided in this Section 11.5) or (b) $100,000 (the "Indemnification
Threshold"). Except with respect to the right to receive the merger
consideration as set forth on Annex I, the Stockholders shall not assert any
claim for indemnification hereunder against TCI or Newco until such time as, and
solely to the extent that, the aggregate of all claims which the Stockholders
may have against TCI or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an
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indemnification obligation through payment of a combination of stock and cash in
proportion equal to the proportion of stock and cash received by such
Stockholder in connection with the Merger, valued as described immediately
above, but shall also have the right to satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default by the Stockholders) in the observance or in
the due and timely performance of any of the covenants or agreements contained
herein, and the curing of such default shall not have been made on or before the
Funding and Consummation Date, or by the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by TCI, if the conditions set
forth in Section 9 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
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13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
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13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel)
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agree to the confidentiality provisions of this Section 14.1, unless (i) such
Confidential Information becomes known to the public generally through no fault
of the Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any Confidential Information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to TCI and provide TCI
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, TCI shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting TCI from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate Confidential Information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any Confidential Information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all Confidential Information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 TCI AND NEWCO. TCI and Newco recognize and acknowledge that they had
in the past and currently have access to certain Confidential Information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. TCI and Newco
agree that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such Confidential
Information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such Confidential
Information is or becomes known to the public generally through no fault of TCI
or Newco, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), TCI and Newco shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of TCI as a publicly held entity after
the IPO. In the event of a breach or threatened breach by TCI or Newco of the
provisions of this Section 14.2, the Company and the Stockholders shall be
entitled to an injunction restraining TCI and Newco from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting the
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Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of TCI Stock received by the Stockholders in the Merger. The certificates
evidencing the TCI Stock delivered to the Stockholders pursuant to Section 3 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as TCI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders
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pursuant to this Agreement is being acquired solely for their own respective
accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. The Stockholders covenant, warrant and represent that none of the
shares of TCI Stock issued to such Stockholders will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC. All the TCI Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the TCI
Stock. The Stockholders party hereto have had an adequate opportunity to ask
questions and receive answers from the officers of TCI concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TCI, the plans for the operations of the business of TCI, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the Stockholders pursuant to this Agreement (including any stock
issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by TCI as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of
such TCI Stock) which any such Stockholder requests, provided that TCI shall
have the right to
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reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to TCI or
its independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization under
Section 351 of the Code. In addition, if TCI is advised in writing in good faith
by any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than TCI is greater than the number
of such shares which can be offered without adversely affecting the offering,
TCI may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by TCI after the IPO, such reduction shall be
made first by reducing the number of shares to be sold by persons other than
TCI, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep the registration statement relating to
such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or
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the making of any required disclosure in connection therewith would have an
adverse effect on TCI or interfere with a transaction in which TCI is then
engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
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e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is
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contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.4 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
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(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, TCI and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and TCI and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and TCI,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for
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fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or TCI, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying solely on
the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to reimburse
an aggregate of up to $75,000 of expenses or fees incurred by the Stockholders
and the stockholders of the Other Founding Companies, as a group, promptly after
the Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, or Newco, addressed to them at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
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(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
(c) If to the Company, addressed to it at:
1520 South Broadway
St. Louis, Missouri 63104
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such
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modification is not possible, such provision shall be severed from this
Agreement, and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, Newco, the Company and Stockholders who hold or who will
hold at least 50% of the TCI Stock issued or to be issued upon consummation of
the Merger. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving TCI Stock in connection with the Merger and each future holder of such
TCI Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
PIA ACQUISITION CORPORATION
By:
Vice President
PLAZA AUTOMOTIVE, INC.
By:
Name: Louis J. Boggeman, Jr.
Title: President
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Stockholders:
Louis J. Boggeman
Dorothy D. Boggeman and Louis J. Boggeman as
Trustees of the U/A/D 2/28/90 FBO Dorothy
Boggeman
Louis J. Boggeman, Jr.
Louis J. Boggeman, Jr. as Custodian for
Kevin Boggeman under the Missouri Transfers
to Minors Act
Louis J. Boggeman, Jr. as Custodian for
Peter Boggeman under the Missouri Transfers
to Minors Act
Louis J. Boggeman, Jr. as Custodian for Paul
Boggeman under the Missouri Transfers to
Minors Act
Louis J. Boggeman, Jr. as Custodian for Jane
Boggeman under the Missouri Transfers to
Minors Act
Barbara Feiner
Mary O'Malley
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Margaret Mole
Mark Wilson
Paul Steffen
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SCHEDULE 6.4
None.
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SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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SCHEDULE 6.12
None.
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SCHEDULE 6.15
None.
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EXHIBIT 10.6
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
CBC ACQUISITION CORPORATION
(a subsidiary of Transportation Components, Inc.)
THE COOK BROTHERS COMPANIES, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, TCI AND NEWCO...........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........10
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................11
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................12
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
5.16 REAL PROPERTY...................................................14
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....15
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5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................17
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................18
5.24 ABSENCE OF CHANGES..............................................19
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................20
5.26 VALIDITY OF OBLIGATIONS.........................................20
5.27 RELATIONS WITH GOVERNMENTS......................................21
5.28 DISCLOSURE......................................................21
5.29 NO INTERESTS IN OTHER BUSINESSES................................21
5.30 AUTHORITY; OWNERSHIP............................................21
5.31 PREEMPTIVE RIGHTS...............................................22
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................22
6. REPRESENTATIONS OF TCI AND NEWCO......................................22
6.1 DUE ORGANIZATION................................................22
6.2 AUTHORIZATION...................................................22
6.3 CAPITAL STOCK OF TCI AND NEWCO..................................23
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........23
6.5 SUBSIDIARIES....................................................23
6.6 FINANCIAL STATEMENTS............................................23
6.7 LIABILITIES AND OBLIGATIONS.....................................23
6.8 CONFORMITY WITH LAW; LITIGATION.................................23
6.9 NO VIOLATIONS...................................................24
6.10 VALIDITY OF OBLIGATIONS.........................................24
6.11 TCI STOCK.......................................................25
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................25
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................25
6.14 TAXES...........................................................25
6.15 ABSENCE OF CHANGES..............................................26
6.16 DISCLOSURE......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................27
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................28
7.3 PROHIBITED ACTIVITIES...........................................28
7.4 NO SHOP.........................................................30
7.5 NOTICE TO BARGAINING AGENTS.....................................30
7.6 AGREEMENTS......................................................30
7.7 NOTIFICATION OF CERTAIN MATTERS.................................30
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7.8 AMENDMENT OF SCHEDULES..........................................31
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............32
7.10 FINAL FINANCIAL STATEMENTS......................................32
7.11 FURTHER ASSURANCES..............................................32
7.12 AUTHORIZED CAPITAL..............................................33
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................33
7.14 STOCKHOLDERS OF TCI.............................................33
7.15 IPO.............................................................33
7.16 INDEMNIFICATION AGREEMENT.......................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......33
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......34
8.2 SATISFACTION....................................................34
8.3 NO LITIGATION...................................................34
8.4 OPINION OF COUNSEL..............................................34
8.5 REGISTRATION STATEMENT..........................................34
8.6 CONSENTS AND APPROVALS..........................................35
8.7 GOOD STANDING CERTIFICATES......................................35
8.8 NO MATERIAL ADVERSE CHANGE......................................35
8.9 CLOSING OF IPO..................................................35
8.10 SECRETARY'S CERTIFICATE.........................................35
8.11 EMPLOYMENT AGREEMENTS...........................................35
8.12 TAX MATTERS.....................................................35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO..................36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
9.2 NO LITIGATION...................................................36
9.3 SECRETARY'S CERTIFICATE.........................................36
9.4 NO MATERIAL ADVERSE EFFECT......................................36
9.5 STOCKHOLDERS' RELEASE...........................................37
9.6 SATISFACTION....................................................37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................37
9.8 OPINION OF COUNSEL..............................................37
9.9 CONSENTS AND APPROVALS..........................................37
9.10 GOOD STANDING CERTIFICATES......................................37
9.11 REGISTRATION STATEMENT..........................................37
9.12 EMPLOYMENT AGREEMENTS...........................................37
9.13 CLOSING OF IPO..................................................38
9.14 FIRPTA CERTIFICATE..............................................38
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9.15 ENVIRONMENTAL REVIEWS...........................................38
9.16 INDEMNIFICATION AGREEMENT.......................................38
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................38
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......38
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................38
10.3 PREPARATION AND FILING OF TAX RETURNS...........................39
10.4 DIRECTORS.......................................................39
11. INDEMNIFICATION.......................................................39
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................40
11.2 INDEMNIFICATION BY TCI..........................................41
11.3 THIRD PERSON CLAIMS.............................................41
11.4 EXCLUSIVE REMEDY................................................42
11.5 LIMITATIONS ON INDEMNIFICATION..................................43
12. TERMINATION OF AGREEMENT..............................................43
12.1 TERMINATION.....................................................43
12.2 LIABILITIES IN EVENT OF TERMINATION.............................44
13. NONCOMPETITION........................................................44
13.1 PROHIBITED ACTIVITIES...........................................44
13.2 DAMAGES.........................................................45
13.3 REASONABLE RESTRAINT............................................45
13.4 SEVERABILITY; REFORMATION.......................................45
13.5 INDEPENDENT COVENANT............................................46
13.6 MATERIALITY.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 STOCKHOLDERS....................................................46
14.2 TCI AND NEWCO...................................................47
14.3 DAMAGES.........................................................47
14.4 SURVIVAL........................................................47
15. TRANSFER RESTRICTIONS.................................................48
15.1 TRANSFER RESTRICTIONS...........................................48
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 COMPLIANCE WITH LAW.............................................48
16.2 ECONOMIC RISK; SOPHISTICATION...................................49
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17. REGISTRATION RIGHTS...................................................49
17.1 PIGGYBACK REGISTRATION RIGHTS...................................49
17.2 DEMAND REGISTRATION RIGHTS......................................50
17.3 REGISTRATION PROCEDURES.........................................51
17.4 INDEMNIFICATION.................................................52
17.5 UNDERWRITING AGREEMENT..........................................53
17.6 RULE 144 REPORTING..............................................53
18. GENERAL...............................................................53
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................54
18.5 BROKERS AND AGENTS..............................................54
18.6 EXPENSES........................................................54
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................56
18.11 TIME............................................................56
18.12 REFORMATION AND SEVERABILITY....................................56
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), CBC Acquisition Corporation, a Delaware corporation
("Newco"), The Cook Brothers Companies, Inc., a New York corporation (the
"Company"), and the Stockholders identified on the signature pages hereto (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 9,
1998 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of TCI, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(Newco and the Company together are hereinafter collectively referred to
as "Constituent Corporations") deem it advisable and in the best interests
of the Constituent Corporations and their respective stockholders that
Newco merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of the
Company, the stockholders and the Board of Directors of Newco and TCI,
each of the Other Founding Companies and each of the subsidiaries of TCI
that are parties to the Other Agreements have approved and adopted the TCI
Plan of Organization as an integrated plan pursuant to which the
Stockholders and the stockholders of each of the Other Founding Companies
will transfer the capital stock of each of the Founding Companies (as
defined herein) to TCI and the stockholders of each of the Other Founding
Companies will acquire the stock of TCI (but not cash or other property)
as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this
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Agreement (which is subject to the terms and conditions herein set forth),
as part of the TCI Plan of Organization in order to transfer the capital
stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by TCI prior to the Funding and
Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
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"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Drive Line, Inc., a Florida corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
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"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of New York.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
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"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to TCI at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. The Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that T. Michael
Young or another officer of TCI shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger David Gooch, Hugh McConnell and Paul Pryzant shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
TCI AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company, TCI and
Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will consist of 100,000,000 shares of TCI Stock,
of which the number of issued and outstanding shares will be set forth in the
Registration Statement, 5,000,000 shares of preferred stock, $.01 par value, of
which no shares will be issued and outstanding, and 2,000,000 shares of
Restricted Voting
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Common Stock, $.01 par value (the "Restricted Common Stock"), all of which will
be issued and outstanding except as otherwise set forth in the Registration
Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against such Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) TCI Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(i) the aggregate number of shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holders thereof,
automatically shall be converted into and deemed to represent the right to
receive (1) the aggregate number of shares of TCI Stock set forth on Annex I
hereto and (2) subject to the adjustments described in Annex I hereto, the
aggregate amount of cash set forth on Annex I hereto (the number of shares of
TCI Stock and, subject to the adjustments described on Annex I hereto, the
amount of cash allocable to the holders of the Company Stock being set forth on
Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of TCI Stock or other
consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of TCI, automatically be converted into one fully
paid and non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock of the
Surviving Corporation immediately after the Effective Time of the Merger, all of
which shall be owned by TCI.
All TCI Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding TCI
Stock by reason of the provisions of the Certificate of Incorporation of TCI or
as otherwise provided by the Delaware GCL. All TCI Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such TCI Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, TCI shall have no
class of capital stock issued and outstanding other than the TCI Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash to be
payable by certified check or wire transfer as so requested by the Stockholders
at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders'
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expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to TCI for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants that all of the
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22, and the representations
and warranties set forth in Section 5.30 hereof shall survive perpetually. For
purposes of this Section
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5, the term "Company" shall mean and refer to the Company and all of its
Subsidiaries, if any, except where the context indicates otherwise.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of the
Company, are all attached to Schedule 5.1. The Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. Recent resolutions
adopted by the Board of Directors of the Company and resolutions adopted by the
Stockholders to approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in
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respect thereof; and (iii) neither the voting stock structure of the Company nor
the relative ownership of shares among any of its respective Stockholders has
been altered or changed in contemplation of the Merger and/or the TCI Plan of
Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis and
throughout the periods involved ("GAAP") (except as disclosed therein or in the
schedules hereto, and except that any unaudited statements included therein may
omit footnote disclosures), and present fairly, in all material respects, the
financial position and results of operations of the Company as of the dates and
for the periods covered thereby.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which
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its properties may be bound. To the knowledge of the Stockholders, except as set
forth on Schedule 5.10, since the Balance Sheet Date the Company has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The Company has also
delivered to TCI on Schedule 5.10, in the case of those contingent liabilities
known to Stockholders and related to pending or threatened litigation, or other
liabilities which are not fixed, a good faith and reasonable estimate (to the
extent the Company can reasonably make such an estimate) of the maximum amount
which the Company reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the Company's Financial
Statements; in the case of any such liability for which no estimate has been
provided, the estimate for purposes of this Agreement shall be deemed to be
zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company by, any such Licenses or other rights.
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5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company, TCI or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all material personal property used by the Company in its business is
either owned by the Company or leased by the Company pursuant to a lease
included on Schedule 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted
except to the extent such wear and tear would have a Material Adverse Effect and
(iii) to the knowledge of the Stockholders, all leases and agreements included
on Schedule 5.14
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are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form of Annex VI hereto at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affiliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in the
form of Annex VI hereto will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good title to any real property
owned by it that is not shown on
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Schedule 5.16 as property intended to be sold or distributed prior to the
Closing Date, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
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Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations except to the extent that any failure to
comply would not have a Material Adverse Effect on the Company.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
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5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the
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knowledge of the Stockholders, there is no basis for any such claim, action,
suit or proceeding. The Company has conducted and is now conducting its business
in compliance with the requirements, standards, criteria and conditions set
forth in applicable federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations, including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach of or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any
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material right or benefit regarding the Material Documents. Except as set forth
on Schedule 5.23, none of the Material Documents prohibits the use or
publication by the Company, TCI or Newco of the name of any other party to such
Material Document, and none of the Material Documents prohibits or restricts the
Company from freely providing services to any other customer or potential
customer of the Company, TCI, Newco or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
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(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly
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authorized by all necessary corporate action and is a legal, valid and binding
obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither TCI or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to TCI or the prospective IPO, except for statements and
representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the
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shares of the Company Stock identified on Annex II as being owned by such
Stockholder, and, except as set forth on Schedule 5.30, such Company Stock is
owned free and clear of all liens, security interests, pledges, voting
agreements, voting trusts, contractual restrictions on transfer, encumbrances
and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI and Newco acknowledge that the representations in Sections 5.30, 5.31
and 5.32 are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI AND NEWCO
TCI and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. TCI and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. TCI and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of TCI (the "TCI Charter Documents") have been or will
be filed as exhibits to the Registration Statement, and copies thereof and
copies of the Certificate of Incorporation and Bylaws of Newco will be provided
to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of TCI and Newco
executing this Agreement have the authority to enter into and bind TCI and Newco
to the terms of this Agreement and (ii) TCI and Newco have the full legal right,
power and authority to enter into this Agreement and consummate the Merger. All
corporate acts and other proceedings required to have been taken by TCI and
Newco to authorize the execution, delivery and performance of this Agreement and
the consummation of the Merger have been duly and properly taken.
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6.3 CAPITAL STOCK OF TCI AND NEWCO. The authorized capital stock of TCI
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
TCI. All of the issued and outstanding shares of the capital stock of TCI and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI and Newco in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of TCI
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI or Newco to issue any of their respective authorized but unissued capital
stock; and (ii) neither TCI nor Newco has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of TCI will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. TCI has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of TCI.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither TCI nor any Subsidiary of TCI presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and neither TCI nor Newco, directly or
indirectly, is a participant in any joint venture, partnership or other
non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities, contingent or otherwise, except as set
forth in or contemplated by this Agreement and the Other Agreements and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other
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governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect,
(b) there are no material claims, actions, suits or proceedings, pending or, to
the knowledge of TCI or Newco, threatened against or affecting, TCI or any
Subsidiary of TCI, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by TCI or Newco. TCI and its Subsidiaries have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI, Newco, or, to the knowledge of TCI and Newco, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which TCI or any Subsidiary of TCI is a party, or by which TCI or any
Subsidiary of TCI, or any of their respective properties, are bound
(collectively, the "TCI Documents"); and (a) the rights and benefits of TCI and
any Subsidiary of TCI under the TCI Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution and delivery of this
Agreement by TCI and Newco and the performance of their obligations hereunder do
not, and the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of TCI or any Subsidiary of TCI under, any provision of (i) the
Certificate of Incorporation or Bylaws of TCI or the comparable governing
instruments of any Subsidiary of TCI, (ii) any note, bond, mortgage, indenture
or deed of trust or any license, lease, contract, commitment, agreement or
arrangement to which TCI and any Subsidiary of TCI is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to TCI or any
Subsidiary of TCI or their respective properties or assets. The execution of
this Agreement and the Other Agreements and the performance of the obligations
hereunder and thereunder and the consummation of the transactions contemplated
by the TCI Plan of Organization will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the TCI
Documents or the TCI Charter Documents. Except as contemplated hereby or
described in the Registration Statement or on Schedule 6.9 hereto, none of the
TCI Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated by the TCI Plan of Organization in order to remain in full force
and effect and consummation of the transactions contemplated thereby will not
give rise to any right to termination, cancellation or acceleration or loss of
any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and Newco and the performance of the transactions contemplated herein
have been duly and validly
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authorized by the respective Boards of Directors of TCI and Newco and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of TCI and Newco.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. Neither TCI nor Newco has entered or
will enter into any agreement with any of the Other Founding Companies or any of
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES. TCI and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against TCI or any Subsidiary thereof
for federal, state and other Taxes (including penalties and interest) for any
such period and no notice of any claim for Taxes, whether pending or threatened,
has been received. All Taxes which TCI or any Subsidiary of TCI has been
required to collect or withhold have been duly and timely collected and withheld
and have been set aside in accounts for such purposes, or have been duly and
timely paid to the proper governmental authority. All Tax, including interest
and penalties (whether or not shown on any tax return) owed by TCI, any member
of an affiliated or consolidated group which includes or included TCI, or with
respect to any payment made or deemed
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made by TCI herein has been paid. Neither TCI nor any Subsidiary thereof has
entered into any tax sharing agreement or similar arrangement. Neither TCI nor
any Subsidiary thereof is an investment company as defined in Section 351(e)(1)
of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI or
Newco;
(iii) any change in the authorized capital of TCI or Newco or their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
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6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of TCI access to all of the Company's
sites, properties, books and records and will furnish TCI with such additional
financial and operating data and other information as to the business and
properties of the Company as TCI may from time to time reasonably request. The
Company will cooperate with TCI and its representatives, auditors and counsel in
the preparation of any documents or other materials which may be required in
connection with any documents or materials required by this Agreement. TCI,
Newco, the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of TCI and Newco as the
Company may from time to time reasonably request. TCI and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the
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negotiation and performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
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(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
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(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TCI on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to TCI. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any material respect any material covenant, condition or agreement to be
complied with or satisfied by such person hereunder. TCI and Newco shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be
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likely to cause any representation or warranty of TCI or Newco contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of TCI or Newco to comply with or satisfy in any material
respect any material covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by TCI or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, TCI shall give the Company notice promptly after it
has knowledge thereof. If TCI and a majority of the Founding Companies (other
than the Founding Company seeking to amend or supplement a Schedule) consent to
such amendment or supplement, which consent shall have been deemed given by TCI
or any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the Company does not
give its consent, the Company may terminate this Agreement pursuant to Section
12.1(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 7.8, and TCI and a majority of the Other
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that TCI or Newco seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding
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Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
No party to this Agreement shall be liable to any other party if this Agreement
shall be terminated pursuant to the provisions of this Section 7.8. No amendment
of or supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
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7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
7.16 INDEMNIFICATION AGREEMENT. At the closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall deliver to TCI an environmental
indemnification agreement in such form as may be approved by TCI in its
reasonable discretion.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8,
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8.9 and 8.12, as of the Funding and Consummation Date, if any such conditions
have not been satisfied, the Company or the Stockholders (acting in unison)
shall have the right to terminate this Agreement, or in the alternative, waive
any condition not so satisfied. Any act or action of the Stockholders in
consummating the Closing or delivering certificates representing Company Stock
as of the Funding and Consummation Date shall constitute a waiver of any
conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of TCI and Newco contained in
Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by TCI and Newco on or before the Closing Date and
the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of TCI shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform TCI in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm
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commitment basis, subject to the conditions set forth in the underwriting
agreement, on terms such that the aggregate value of the cash and the number of
shares of TCI Stock to be received by the Stockholders is not less than the
Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI and Newco each shall have delivered to
the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TCI or Newco is authorized to do business, showing that each of
TCI and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for TCI and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI or Newco which has had or is reasonably likely to
have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI and of Newco, certifying the truth and correctness of attached copies of
the TCI's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of TCI and Newco
approving TCI's and Newco's entering into this Agreement and the consummation of
the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the
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Stockholders will not recognize gain to the extent the Stockholders exchange
stock of the Company for TCI Stock (but not cash or other property) pursuant to
the TCI Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO
The obligations of TCI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TCI and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
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9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by TCI, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
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9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
9.16 INDEMNIFICATION AGREEMENT. At the Closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall have delivered to TCI an
environmental indemnification agreement in such form as may be approved by TCI
in its reasonable discretion.
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be subrogated to any
rights of the Stockholders accruing as a result of any such payments by the
Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
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10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(iv) Each of the Company, Newco, TCI and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, TCI and Newco each make the following covenants that are
applicable to them, respectively:
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11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, Newco, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation at all times, from
and after the date of this Agreement until the Expiration Date (provided that
for purposes of Section 11.1(iii) below, the Expiration Date shall be the date
on which the applicable statute of limitations expires), from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholders or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholders or
the Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholders, and provided to TCI or its counsel
by the Company or the Stockholders (but in the case of the Stockholders, only if
such statement was provided in writing) which is contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of TCI, Newco, the Company or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Company or the Stockholders provided, in writing, corrected information to TCI
for inclusion in the final prospectus, and such information was not so included
or the final prospectus was not properly delivered, and provided further, that
no Stockholder shall be liable for any indemnification obligation pursuant to
this Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other Stockholder.
TCI and Newco acknowledge and agree that other than the representations
and warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI and Newco further acknowledge and agree that, should the Funding and
Consummation Date occur, their sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
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all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to TCI's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that TCI or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to TCI, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to TCI or Newco or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting
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the Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment, and the Indemnifying Party shall
have no further liability or obligation to the Indemnified Party under Sections
11.1 or 11.2 with respect to such claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
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injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. TCI, Newco, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 or 11.2
shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the TCI Stock delivered to Stockholders (calculated as
provided in this Section 11.5) or (b) $100,000 (the "Indemnification
Threshold"). Except with respect to the right to receive the merger
consideration as set forth on Annex I, the Stockholders shall not assert any
claim for indemnification hereunder against TCI or Newco until such time as, and
solely to the extent that, the aggregate of all claims which the Stockholders
may have against TCI or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including,
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in the case of TCI's right to terminate, any such failure of the Stockholders)
seeking to terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default by the Stockholders) in the observance or in
the due and timely performance of any of the covenants or agreements contained
herein, and the curing of such default shall not have been made on or before the
Funding and Consummation Date, or by the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by TCI, if the conditions set
forth in Section 9 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
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(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties
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that such restrictions be enforced to the fullest extent which the court deems
reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such Confidential Information becomes known to the
public generally through no fault of the Stockholders, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any Confidential Information pursuant to this
clause (ii), the Stockholders shall, if possible, give prior written notice
thereof to TCI and provide TCI with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by any of the Stockholders
of the provisions of this Section 14.1, TCI shall be entitled to an injunction
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting TCI
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate Confidential
Information with respect to the Company. Each Stockholder further agrees that in
the event the transactions contemplated herein are not consummated (i) neither
the Company nor any Stockholder
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can thereafter use any Confidential Information of the Other Founding Companies
for any purpose and (ii) upon written request of any Other Founding Company to
the Company, the Company and Stockholders will return all Confidential
Information pertaining to such Other Founding Company to such Other Founding
Company.
14.2 TCI AND NEWCO. TCI and Newco recognize and acknowledge that they had
in the past and currently have access to certain Confidential Information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. TCI and Newco
agree that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such Confidential
Information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such Confidential
Information is or becomes known to the public generally through no fault of TCI
or Newco, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), TCI and Newco shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of TCI as a publicly held entity after
the IPO. In the event of a breach or threatened breach by TCI or Newco of the
provisions of this Section 14.2, the Company and the Stockholders shall be
entitled to an injunction restraining TCI and Newco from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting the Company and the Stockholders from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
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15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of TCI Stock received by the Stockholders in the Merger. The certificates
evidencing the TCI Stock delivered to the Stockholders pursuant to Section 3 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as TCI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of TCI Stock issued to
such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the TCI Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
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TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND
APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the TCI
Stock. The Stockholders party hereto have had an adequate opportunity to ask
questions and receive answers from the officers of TCI concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TCI, the plans for the operations of the business of TCI, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the Stockholders pursuant to this Agreement (including any stock
issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by TCI as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of
such TCI Stock) which any such Stockholder requests, provided that TCI shall
have the right to reduce the number of shares included in such registration to
the extent that inclusion of such shares could, in the written opinion of tax
counsel to TCI or its independent auditors, jeopardize the status of the
transactions contemplated hereby and by the Registration Statement as a tax-free
organization under Section 351 of the Code. In addition, if TCI is advised in
writing in good faith by any managing underwriter of an underwritten offering of
the securities being offered pursuant to any registration statement under this
Section 17.1 that the number of shares to be sold by persons other than TCI is
greater than the number of such shares which can be offered without adversely
affecting the offering, TCI may reduce pro rata the number of shares offered for
the accounts of such persons (based upon the number of shares proposed to be
sold by each such person) to a number deemed satisfactory by such managing
underwriter, provided, that, for each such offering made by TCI after the IPO,
such reduction shall be made first by reducing the number of shares to be sold
by persons
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other than TCI, the Stockholders and the stockholders of the Other Founding
Companies (collectively, the Stockholders and the stockholders of the other
Founding Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep the registration statement relating to
such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or the making of any required disclosure in connection
therewith would have an adverse effect on TCI or interfere with a transaction in
which TCI is then engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
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In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain
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an untrue statement of material fact or omit to state any fact necessary to make
the statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such Stockholder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of a Stockholder under this Section
17.4 shall be limited to an amount equal to the net proceeds actually received
by such Stockholder from the sale of the relevant shares covered by the
registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure
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to give prompt notice shall deprive a party of its right to indemnification
hereunder only to the extent that such failure shall have adversely affected the
indemnifying party. If the defense of any claim is assumed, the indemnified
party will not be subject to any liability for any settlement made without its
consent (but such consent shall not be unreasonably withheld). An indemnifying
party who is not entitled or elects not to assume the defense of a claim will
not be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party, a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
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18.1 COOPERATION. The Company, the Stockholders, TCI and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and TCI and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and TCI,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer
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Taxes") imposed in connection with the Merger, other than Transfer Taxes, if
any, imposed by the State of Delaware. Each Stockholder shall file all necessary
documentation and Returns with respect to such Transfer Taxes. In addition, each
Stockholder acknowledges that he, and not the Company or TCI, will pay all taxes
due upon receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying solely on
the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to reimburse
an aggregate of up to $75,000 of expenses or fees incurred by the Stockholders
and the stockholders of the Other Founding Companies, as a group, promptly after
the Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, or Newco, addressed to them at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
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<PAGE>
(c) If to the Company, addressed to it at:
76 Frederick St.
Binghamton, NY 13901
Attn: Michael D. Venuti, Esq.
with copy to:
Hinman, Howard & Kattell, LLP
700 Security Mutual Building
80 Exchange Street
P.O. Box 5250
Binghamton, New York 13902-5250
Attn: James R. Franz, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case
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the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, Newco, the Company and Stockholders who hold or who will
hold at least 50% of the TCI Stock issued or to be issued upon consummation of
the Merger. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving TCI Stock in connection with the Merger and each future holder of such
TCI Stock.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
CBC ACQUISITION CORPORATION
By:
Vice President
THE COOK BROTHERS COMPANIES, INC.
By:
Name: Henry B. Cook, Jr.
Title: President
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<PAGE>
Stockholders:
Henry B. Cook, Jr.
Michael D. Venuti as Trustee of the Edward
Seyerlein Trust Number One
Michael D. Venuti
Jacqueline L. Venuti
Michael D. Venuti as Trustee of the Kyle K.
Cook Trust Number One
Michael D. Venuti as Trustee of the Carolyn
Cook Trust Number Two
Michael D. Venuti as Trustee of the Henry B.
Cook, III Trust Number Two
Michael D. Venuti as Trustee of the Heather
L. Cook Trust Number Two
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Michael D. Venuti as Trustee of the Helen R.
Cook Trust Number Two
Henry B. Cook, Jr. as Custodian for Helen
Ruth Cook
Michael D. Venuti as Trustee of the Henry B.
Cook, III Trust Number One
Michael D. Venuti as Trustee of the Heather
L. Cook Trust Number One
Michael D. Venuti as Trustee of the Helen R.
Cook Trust Number One
Michael D. Venuti as Trustee of the Carolyn
Cook Trust Number One
Michael D. Venuti as Trustee of the Robert
J. Seyerlein Family Trust Number One
Edward Seyerlein
Henry B. Cook, III
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Heather Lynn Cook
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SCHEDULE 6.4
None.
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SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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SCHEDULE 6.12
None.
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SCHEDULE 6.15
None.
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EXHIBIT 10.7
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
TPE ACQUISITION CORPORATION
(a subsidiary of Transportation Components, Inc.)
TPE, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, TCI AND NEWCO...........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........10
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................11
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................12
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
5.16 REAL PROPERTY...................................................14
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....15
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5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................17
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................18
5.24 ABSENCE OF CHANGES..............................................19
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................20
5.26 VALIDITY OF OBLIGATIONS.........................................20
5.27 RELATIONS WITH GOVERNMENTS......................................21
5.28 DISCLOSURE......................................................21
5.29 NO INTERESTS IN OTHER BUSINESSES................................21
5.30 AUTHORITY; OWNERSHIP............................................22
5.31 PREEMPTIVE RIGHTS...............................................22
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................22
6. REPRESENTATIONS OF TCI AND NEWCO......................................22
6.1 DUE ORGANIZATION................................................22
6.2 AUTHORIZATION...................................................22
6.3 CAPITAL STOCK OF TCI AND NEWCO..................................23
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........23
6.5 SUBSIDIARIES....................................................23
6.6 FINANCIAL STATEMENTS............................................23
6.7 LIABILITIES AND OBLIGATIONS.....................................23
6.8 CONFORMITY WITH LAW; LITIGATION.................................24
6.9 NO VIOLATIONS...................................................24
6.10 VALIDITY OF OBLIGATIONS.........................................25
6.11 TCI STOCK.......................................................25
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................25
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................25
6.14 TAXES...........................................................25
6.15 ABSENCE OF CHANGES..............................................26
6.16 DISCLOSURE......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................27
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................28
7.3 PROHIBITED ACTIVITIES...........................................28
7.4 NO SHOP.........................................................30
7.5 NOTICE TO BARGAINING AGENTS.....................................30
7.6 AGREEMENTS......................................................30
7.7 NOTIFICATION OF CERTAIN MATTERS.................................30
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7.8 AMENDMENT OF SCHEDULES..........................................31
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............32
7.10 FINAL FINANCIAL STATEMENTS......................................32
7.11 FURTHER ASSURANCES..............................................33
7.12 AUTHORIZED CAPITAL..............................................33
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST
IMPROVEMENTS ACT OF 1976 (THE "HART-SCOTT-RODINO ACT")..........33
7.14 STOCKHOLDERS OF TCI.............................................33
7.15 PERFECTION EQUIPMENT COMPANY....................................33
7.16 IPO.............................................................33
7.17 INDEMNIFICATION AGREEMENT.......................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY...............................................................34
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......34
8.2 SATISFACTION....................................................34
8.3 NO LITIGATION...................................................34
8.4 OPINION OF COUNSEL..............................................35
8.5 REGISTRATION STATEMENT..........................................35
8.6 CONSENTS AND APPROVALS..........................................35
8.7 GOOD STANDING CERTIFICATES......................................35
8.8 NO MATERIAL ADVERSE CHANGE......................................35
8.9 CLOSING OF IPO..................................................35
8.10 SECRETARY'S CERTIFICATE.........................................35
8.11 EMPLOYMENT AGREEMENTS...........................................36
8.12 TAX MATTERS.....................................................36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO..................36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
9.2 NO LITIGATION...................................................36
9.3 SECRETARY'S CERTIFICATE.........................................37
9.4 NO MATERIAL ADVERSE EFFECT......................................37
9.5 STOCKHOLDERS' RELEASE...........................................37
9.6 SATISFACTION....................................................37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................37
9.8 OPINION OF COUNSEL..............................................37
9.9 CONSENTS AND APPROVALS..........................................37
9.10 GOOD STANDING CERTIFICATES......................................37
9.11 REGISTRATION STATEMENT..........................................38
9.12 EMPLOYMENT AGREEMENTS...........................................38
9.13 CLOSING OF IPO..................................................38
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9.14 FIRPTA CERTIFICATE..............................................38
9.15 ENVIRONMENTAL REVIEWS...........................................38
9.16 PERFECTION EQUIPMENT COMPANY....................................38
9.17 INDEMNIFICATION AGREEMENT.......................................38
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................38
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......38
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................39
10.3 PREPARATION AND FILING OF TAX RETURNS...........................39
10.4 DIRECTORS.......................................................40
11. INDEMNIFICATION.......................................................40
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................40
11.2 INDEMNIFICATION BY TCI..........................................41
11.3 THIRD PERSON CLAIMS.............................................42
11.4 EXCLUSIVE REMEDY................................................43
11.5 LIMITATIONS ON INDEMNIFICATION..................................43
12. TERMINATION OF AGREEMENT..............................................44
12.1 TERMINATION.....................................................44
12.2 LIABILITIES IN EVENT OF TERMINATION.............................44
13. NONCOMPETITION........................................................45
13.1 PROHIBITED ACTIVITIES...........................................45
13.2 DAMAGES.........................................................46
13.3 REASONABLE RESTRAINT............................................46
13.4 SEVERABILITY; REFORMATION.......................................46
13.5 INDEPENDENT COVENANT............................................46
13.6 MATERIALITY.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 STOCKHOLDERS....................................................46
14.2 TCI AND NEWCO...................................................47
14.3 DAMAGES.........................................................48
14.4 SURVIVAL........................................................48
15. TRANSFER RESTRICTIONS.................................................48
15.1 TRANSFER RESTRICTIONS...........................................48
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 COMPLIANCE WITH LAW.............................................48
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16.2 ECONOMIC RISK; SOPHISTICATION...................................49
17. REGISTRATION RIGHTS...................................................49
17.1 PIGGYBACK REGISTRATION RIGHTS...................................49
17.2 DEMAND REGISTRATION RIGHTS......................................50
17.3 REGISTRATION PROCEDURES.........................................51
17.4 INDEMNIFICATION.................................................52
17.5 UNDERWRITING AGREEMENT..........................................53
17.6 RULE 144 REPORTING..............................................53
18. GENERAL...............................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................54
18.5 BROKERS AND AGENTS..............................................54
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................56
18.11 TIME............................................................56
18.12 REFORMATION AND SEVERABILITY....................................57
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), TPE Acquisition Corporation, a Delaware corporation
("Newco"), TPE, Inc., an Oklahoma corporation (the "Company"), and the
Stockholders identified on the signature pages hereto (the "Stockholders"). The
Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 9,
1998 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of TCI, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(Newco and the Company together are hereinafter collectively referred to
as "Constituent Corporations") deem it advisable and in the best interests
of the Constituent Corporations and their respective stockholders that
Newco merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of the
Company, the stockholders and the Board of Directors of Newco and TCI,
each of the Other Founding Companies and each of the subsidiaries of TCI
that are parties to the Other Agreements have approved and adopted the TCI
Plan of Organization as an integrated plan pursuant to which the
Stockholders and the stockholders of each of the Other Founding Companies
will transfer the capital stock of each of the Founding Companies (as
defined herein) to TCI and the stockholders of each of the Other Founding
Companies will acquire the stock of TCI (but not cash or other property)
as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this
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<PAGE>
Agreement (which is subject to the terms and conditions herein set forth),
as part of the TCI Plan of Organization in order to transfer the capital
stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by TCI prior to the Funding and
Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
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<PAGE>
"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Drive Line, Inc., a Florida corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
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"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Oklahoma.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
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"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to TCI at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. The Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that T. Michael
Young or another officer of TCI shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger David Gooch, Hugh McConnell and Paul Pryzant shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
TCI AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company, TCI and
Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will consist of 100,000,000 shares of TCI Stock,
of which the number of issued and outstanding shares will be set forth in the
Registration Statement, 5,000,000 shares of preferred stock, $.01 par value, of
which no shares will be issued and outstanding, and 2,000,000 shares of
Restricted Voting
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Common Stock, $.01 par value (the "Restricted Common Stock"), all of which will
be issued and outstanding except as otherwise set forth in the Registration
Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against such Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) TCI Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(i) the aggregate number of shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holders thereof,
automatically shall be converted into and deemed to represent the right to
receive (1) the aggregate number of shares of TCI Stock set forth on Annex I
hereto and (2) subject to the adjustments described in Annex I hereto, the
aggregate amount of cash set forth on Annex I hereto (the number of shares of
TCI Stock and, subject to the adjustments described on Annex I hereto, the
amount of cash allocable to the holders of the Company Stock being set forth on
Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of TCI Stock or other
consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of TCI, automatically be converted into one fully
paid and non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock of the
Surviving Corporation immediately after the Effective Time of the Merger, all of
which shall be owned by TCI.
All TCI Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding TCI
Stock by reason of the provisions of the Certificate of Incorporation of TCI or
as otherwise provided by the Delaware GCL. All TCI Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such TCI Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, TCI shall have no
class of capital stock issued and outstanding other than the TCI Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash to be
payable by certified check or wire transfer as so requested by the Stockholders
at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders'
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expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to TCI for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants that all of the
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22, and the representations
and warranties set forth in Section 5.30 hereof shall survive perpetually. For
purposes of this Section 5, the term "Company" shall mean and refer to the
Company and all of its Subsidiaries, including
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Perfection Equipment Company, an Oklahoma corporation, except where the context
indicates otherwise.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of the
Company, are all attached to Schedule 5.1. The Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. Recent resolutions
adopted by the Board of Directors of the Company and resolutions adopted by the
Stockholders to approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in
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respect thereof; and (iii) neither the voting stock structure of the Company nor
the relative ownership of shares among any of its respective Stockholders has
been altered or changed in contemplation of the Merger and/or the TCI Plan of
Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries other than Perfection Equipment Company, an Oklahoma corporation,
100% of the outstanding stock of which will be owned, of record and
beneficially, by the Company immediately prior to the consummation of the
Merger. Except as set forth above or in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis and
throughout the periods involved ("GAAP") (except as disclosed therein or in the
schedules hereto, and except that any unaudited statements included therein may
omit footnote disclosures), and present fairly, in all material respects, the
financial position and results of operations of the Company as of the dates and
for the periods covered thereby.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company
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Financial Statements at the Balance Sheet Date and which are not disclosed on
any of the other Schedules to this Agreement, and (ii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, pledges and material
security agreements to which the Company is a party or by which its properties
may be bound. To the knowledge of the Stockholders, except as set forth on
Schedule 5.10, since the Balance Sheet Date the Company has not incurred any
material liabilities of any kind, character or description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than liabilities
incurred in the ordinary course of business. The Company has also delivered to
TCI on Schedule 5.10, in the case of those contingent liabilities known to
Stockholders and related to pending or threatened litigation, or other
liabilities which are not fixed, a good faith and reasonable estimate (to the
extent the Company can reasonably make such an estimate) of the maximum amount
which the Company reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the Company's Financial
Statements; in the case of any such liability for which no estimate has been
provided, the estimate for purposes of this Agreement shall be deemed to be
zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, the transactions contemplated by this Agreement will not result
in a default under or a breach or
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violation of, or adversely affect the rights and benefits afforded to the
Company by, any such Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company, TCI or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all material personal property used by the Company in its business is
either owned by the Company or leased by the Company pursuant to a lease
included on Schedule 5.14, (ii) all
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of the personal property listed on Schedule 5.14 is in good working order and
condition, ordinary wear and tear excepted except to the extent such wear and
tear would have a Material Adverse Effect and (iii) to the knowledge of the
Stockholders, all leases and agreements included on Schedule 5.14 are in full
force and effect and constitute valid and binding agreements of the parties (and
their successors) thereto in accordance with their respective terms except as
the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form of Annex VI hereto at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affiliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in the
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form of Annex VI hereto will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good title to any real property
owned by it that is not shown on Schedule 5.16 as property intended to be sold
or distributed prior to the Closing Date, subject to no mortgage, pledge, lien,
conditional sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any
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special bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented and bonuses paid on a basis consistent
with past practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations except to the extent that any failure to
comply would not have a Material Adverse Effect on the Company.
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All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to
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the knowledge of the Stockholders, threatened against or affecting, the Company,
at law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over it and no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by the Company,
and, to the knowledge of the Stockholders, there is no basis for any such claim,
action, suit or proceeding. The Company has conducted and is now conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in applicable federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations, including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach of or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule
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5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and
effect, and consummation of the transactions contemplated hereby will not give
rise to any right to termination, cancellation or acceleration or loss of any
material right or benefit regarding the Material Documents. Except as set forth
on Schedule 5.23, none of the Material Documents prohibits the use or
publication by the Company, TCI or Newco of the name of any other party to such
Material Document, and none of the Material Documents prohibits or restricts the
Company from freely providing services to any other customer or potential
customer of the Company, TCI, Newco or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
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(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly
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authorized by the Board of Directors of the Company and this Agreement has been
duly and validly authorized by all necessary corporate action and is a legal,
valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither TCI or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to TCI or the prospective IPO, except for statements and
representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
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5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.30, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI and Newco acknowledge that the representations in Sections 5.30, 5.31
and 5.32 are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI AND NEWCO
TCI and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. TCI and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. TCI and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of TCI (the "TCI Charter Documents") have been or will
be filed as exhibits to the Registration Statement, and copies thereof and
copies of the Certificate of Incorporation and Bylaws of Newco will be provided
to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of TCI and Newco
executing this Agreement have the authority to enter into and bind TCI and Newco
to the terms of this Agreement and (ii) TCI and Newco have the full legal right,
power and authority to enter into this Agreement and consummate the Merger. All
corporate acts and other proceedings required to have been taken
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by TCI and Newco to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF TCI AND NEWCO. The authorized capital stock of TCI
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
TCI. All of the issued and outstanding shares of the capital stock of TCI and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI and Newco in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of TCI
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI or Newco to issue any of their respective authorized but unissued capital
stock; and (ii) neither TCI nor Newco has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of TCI will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. TCI has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of TCI.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither TCI nor any Subsidiary of TCI presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and neither TCI nor Newco, directly or
indirectly, is a participant in any joint venture, partnership or other
non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities, contingent or otherwise, except as set
forth in or contemplated by this Agreement and the Other Agreements and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
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6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
which would have a Material Adverse Effect, (b) there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of TCI or Newco,
threatened against or affecting, TCI or any Subsidiary of TCI, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them, and (c) no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by TCI or Newco.
TCI and its Subsidiaries have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which would have a
Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI, Newco, or, to the knowledge of TCI and Newco, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which TCI or any Subsidiary of TCI is a party, or by which TCI or any
Subsidiary of TCI, or any of their respective properties, are bound
(collectively, the "TCI Documents"); and (a) the rights and benefits of TCI and
any Subsidiary of TCI under the TCI Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution and delivery of this
Agreement by TCI and Newco and the performance of their obligations hereunder do
not, and the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of TCI or any Subsidiary of TCI under, any provision of (i) the
Certificate of Incorporation or Bylaws of TCI or the comparable governing
instruments of any Subsidiary of TCI, (ii) any note, bond, mortgage, indenture
or deed of trust or any license, lease, contract, commitment, agreement or
arrangement to which TCI and any Subsidiary of TCI is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to TCI or any
Subsidiary of TCI or their respective properties or assets. The execution of
this Agreement and the Other Agreements and the performance of the obligations
hereunder and thereunder and the consummation of the transactions contemplated
by the TCI Plan of Organization will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the TCI
Documents or the TCI Charter Documents. Except as contemplated hereby or
described in the Registration Statement or on Schedule 6.9 hereto, none of the
TCI Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated by the TCI Plan of Organization in order to remain in full force
and effect and consummation of the transactions contemplated thereby will not
give rise to any right to termination, cancellation or acceleration or loss of
any right or benefit.
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6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
TCI and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of TCI
and Newco.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. Neither TCI nor Newco has entered or
will enter into any agreement with any of the Other Founding Companies or any of
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES.TCI and each Subsidiary thereof have timely filed all requisite
federal, state and other Returns or extension requests for all fiscal periods
ended prior to the date hereof for which such Returns are due; and there are no
examinations in progress or claims against TCI or any Subsidiary thereof for
federal, state and other Taxes (including penalties and interest) for any such
period and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Taxes which TCI or any Subsidiary of TCI has been required to
collect or withhold have been duly and timely collected and withheld and have
been set aside in accounts for such purposes, or have been duly and timely paid
to the proper governmental authority. All Tax, including interest and
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penalties (whether or not shown on any tax return) owed by TCI, any member of an
affiliated or consolidated group which includes or included TCI, or with respect
to any payment made or deemed made by TCI herein has been paid. Neither TCI nor
any Subsidiary thereof has entered into any tax sharing agreement or similar
arrangement. Neither TCI nor any Subsidiary thereof is an investment company as
defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI or
Newco;
(iii) any change in the authorized capital of TCI or Newco or their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii)any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
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(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of TCI access to all of the Company's
sites, properties, books and records and will furnish TCI with such additional
financial and operating data and other information as to the business and
properties of the Company as TCI may from time to time reasonably request. The
Company will cooperate with TCI and its representatives, auditors and counsel in
the preparation of any documents or other materials which may be required in
connection with any documents or materials required by this Agreement. TCI,
Newco, the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of TCI and Newco as the
Company may from time to time reasonably request. TCI and Newco will cooperate
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with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
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(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii)merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
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(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TCI on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to TCI. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any
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material respect any material covenant, condition or agreement to be complied
with or satisfied by such person hereunder. TCI and Newco shall give prompt
notice to the Company of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of TCI or Newco contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
failure of TCI or Newco to comply with or satisfy in any material respect any
material covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by TCI or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, TCI shall give the Company notice promptly after it
has knowledge thereof. If TCI and a majority of the Founding Companies (other
than the Founding Company seeking to amend or supplement a Schedule) consent to
such amendment or supplement, which consent shall have been deemed given by TCI
or any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the Company does not
give its consent, the Company may terminate this Agreement pursuant to Section
12.1(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 7.8, and TCI and a majority of the Other
Founding
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Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that TCI or Newco seeks to amend or supplement a Schedule pursuant
to this Section 7.8 and a majority of the Founding Companies do not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
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7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 PERFECTION EQUIPMENT COMPANY. The Company shall use its best efforts
to cause the consummation of the transactions contemplated by the Agreement and
Plan of Organization dated the date hereof to which TCI, Perfection Equipment
Company, an Oklahoma corporation ("Perfection"), the Company and the Employee
Stock Ownership Plan for Employees of the Perfection Equipment Companies (the "
Perfection ESOP") are parties (the "Perfection Agreement").
7.16 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
7.17 INDEMNIFICATION AGREEMENT. At the closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall deliver to TCI an environmental
indemnification agreement in such form as may be approved by TCI in its
reasonable discretion.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as
of the Funding and Consummation Date, if any such conditions have not been
satisfied, the Company or the Stockholders (acting in unison) shall have the
right to terminate this Agreement, or in the alternative, waive any condition
not so satisfied. Any act or action of the Stockholders in consummating the
Closing or delivering certificates representing Company Stock as of the Funding
and Consummation Date shall constitute a waiver of any conditions not so
satisfied. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of TCI and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by TCI and Newco on or before the Closing Date and
the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of TCI shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform TCI in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO
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and no governmental agency or body shall have taken any other action or made any
request of the Company as a result of which the management of the Company deems
it inadvisable to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TCI Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI and Newco each shall have delivered to
the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TCI or Newco is authorized to do business, showing that each of
TCI and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for TCI and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI or Newco which has had or is reasonably likely to
have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI and of Newco, certifying the truth and correctness of attached copies of
the TCI's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of TCI and Newco
approving TCI's and Newco's entering into this Agreement and the consummation of
the transactions contemplated hereby.
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8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for TCI Stock (but not cash or other property) pursuant to the TCI Plan
of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO
The obligations of TCI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TCI and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
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9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the
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appropriate governmental authority in the Company's state of incorporation and,
unless waived by TCI, in each state in which the Company is authorized to do
business, showing the Company is in good standing and authorized to do business
and that all state franchise and/or income tax returns and taxes for the Company
for all periods prior to the Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
9.16 PERFECTION EQUIPMENT COMPANY. The transactions contemplated by the
Perfection Agreement shall have been consummated immediately prior to the
consummation of the transactions contemplated hereby.
9.17 INDEMNIFICATION AGREEMENT. At the Closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall have delivered to TCI an
environmental indemnification agreement in such form as may be approved by TCI
in its reasonable discretion.
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the
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Stockholders are obligated to pay under any such guarantees listed on Schedule
10.1, and shall be subrogated to any rights of the Stockholders accruing as a
result of any such payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
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(iv) Each of the Company, Newco, TCI and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, TCI and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, Newco, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation at all times, from
and after the date of this Agreement until the Expiration Date (provided that
for purposes of Section 11.1(iii) below, the Expiration Date shall be the date
on which the applicable statute of limitations expires), from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholders or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholders or
the Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholders, and provided to TCI or its counsel
by the Company or the Stockholders (but in the case of the Stockholders, only if
such statement was provided in writing) which is contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of TCI, Newco, the Company or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Company or the Stockholders provided, in writing, corrected information to TCI
for inclusion in the final prospectus, and such information was not so included
or the final prospectus was not properly delivered, and provided further, that
no Stockholder shall be liable for any indemnification obligation pursuant to
this Section 11.1 to the
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extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other Stockholder.
TCI and Newco acknowledge and agree that other than the representations
and warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI and Newco further acknowledge and agree that, should the Funding and
Consummation Date occur, their sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to TCI's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that TCI or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to TCI, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to TCI or Newco or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment, and the Indemnifying Party shall
have no further liability or obligation to the Indemnified Party under Sections
11.1 or 11.2 with respect to such claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may
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undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. TCI, Newco, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 or 11.2
shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the TCI Stock delivered to Stockholders (calculated as
provided in this Section 11.5) or (b) $100,000 (the "Indemnification
Threshold"). Except with respect to the right to receive the merger
consideration as set forth on Annex I, the Stockholders shall not assert any
claim for indemnification hereunder against TCI or Newco until such time as, and
solely to the extent that, the aggregate of all claims which the Stockholders
may have against TCI or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an
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indemnification obligation through payment of a combination of stock and cash in
proportion equal to the proportion of stock and cash received by such
Stockholder in connection with the Merger, valued as described immediately
above, but shall also have the right to satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default by the Stockholders) in the observance or in
the due and timely performance of any of the covenants or agreements contained
herein, and the curing of such default shall not have been made on or before the
Funding and Consummation Date, or by the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by TCI, if the conditions set
forth in Section 9 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
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13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
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13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel)
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agree to the confidentiality provisions of this Section 14.1, unless (i) such
Confidential Information becomes known to the public generally through no fault
of the Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any Confidential Information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to TCI and provide TCI
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, TCI shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting TCI from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate Confidential Information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any Confidential Information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all Confidential Information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 TCI AND NEWCO. TCI and Newco recognize and acknowledge that they had
in the past and currently have access to certain Confidential Information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. TCI and Newco
agree that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such Confidential
Information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such Confidential
Information is or becomes known to the public generally through no fault of TCI
or Newco, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), TCI and Newco shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of TCI as a publicly held entity after
the IPO. In the event of a breach or threatened breach by TCI or Newco of the
provisions of this Section 14.2, the Company and the Stockholders shall be
entitled to an injunction restraining TCI and Newco from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting the
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Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of TCI Stock received by the Stockholders in the Merger. The certificates
evidencing the TCI Stock delivered to the Stockholders pursuant to Section 3 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as TCI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders
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pursuant to this Agreement is being acquired solely for their own respective
accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. The Stockholders covenant, warrant and represent that none of the
shares of TCI Stock issued to such Stockholders will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC. All the TCI Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the TCI
Stock. The Stockholders party hereto have had an adequate opportunity to ask
questions and receive answers from the officers of TCI concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TCI, the plans for the operations of the business of TCI, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the Stockholders pursuant to this Agreement (including any stock
issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by TCI as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of
such TCI Stock) which any such Stockholder requests, provided that TCI shall
have the right to
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reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to TCI or
its independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization under
Section 351 of the Code. In addition, if TCI is advised in writing in good faith
by any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than TCI is greater than the number
of such shares which can be offered without adversely affecting the offering,
TCI may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by TCI after the IPO, such reduction shall be
made first by reducing the number of shares to be sold by persons other than
TCI, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep the registration statement relating to
such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or
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the making of any required disclosure in connection therewith would have an
adverse effect on TCI or interfere with a transaction in which TCI is then
engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
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e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is
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contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.4 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
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(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, TCI and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and TCI and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and TCI,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for
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fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or TCI, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying solely on
the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to reimburse
an aggregate of up to $75,000 of expenses or fees incurred by the Stockholders
and the stockholders of the Other Founding Companies, as a group, promptly after
the Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, or Newco, addressed to them at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
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(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston Texas 77002
(c) If to the Company, addressed to it at:
TPE, Inc.
5100 West Reno
Oklahoma City, OK 73127
Attention: Maura Berney
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
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18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, Newco, the Company and Stockholders who hold or who will
hold at least 50% of the TCI Stock issued or to be issued upon consummation of
the Merger. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving TCI Stock in connection with the Merger and each future holder of such
TCI Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
TPE ACQUISITION CORPORATION
By:
Vice President
TPE, INC.
By:
Name: Maura Berney
Title: President
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Stockholders:
Maura Berney
Pete Voogt
Mari Anne Simpson
Chris Simpson
Jane B. Rodgers
Douglas E. Rodgers
PERFECTION PROPERTIES, INC.
By:
Name:
Title:
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SCHEDULE 6.4
None.
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SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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SCHEDULE 6.12
None.
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SCHEDULE 6.15
None.
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EXHIBIT 10.8
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
UFS ACQUISITION CORPORATION
(a subsidiary of Transportation Components, Inc.)
UNIVERSAL FLEET SUPPLY, INC.
and
the STOCKHOLDERS named herein
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TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, TCI AND NEWCO...........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........10
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................11
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................12
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
5.16 REAL PROPERTY...................................................14
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....15
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5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................17
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................18
5.24 ABSENCE OF CHANGES..............................................19
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................20
5.26 VALIDITY OF OBLIGATIONS.........................................20
5.27 RELATIONS WITH GOVERNMENTS......................................21
5.28 DISCLOSURE......................................................21
5.29 NO INTERESTS IN OTHER BUSINESSES................................21
5.30 AUTHORITY; OWNERSHIP............................................21
5.31 PREEMPTIVE RIGHTS...............................................22
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................22
6. REPRESENTATIONS OF TCI AND NEWCO......................................22
6.1 DUE ORGANIZATION................................................22
6.2 AUTHORIZATION...................................................22
6.3 CAPITAL STOCK OF TCI AND NEWCO..................................23
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........23
6.5 SUBSIDIARIES....................................................23
6.6 FINANCIAL STATEMENTS............................................23
6.7 LIABILITIES AND OBLIGATIONS.....................................23
6.8 CONFORMITY WITH LAW; LITIGATION.................................23
6.9 NO VIOLATIONS...................................................24
6.10 VALIDITY OF OBLIGATIONS.........................................24
6.11 TCI STOCK.......................................................25
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................25
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................25
6.14 TAXES...........................................................25
6.15 ABSENCE OF CHANGES..............................................26
6.16 DISCLOSURE......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................27
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................28
7.3 PROHIBITED ACTIVITIES...........................................28
7.4 NO SHOP.........................................................30
7.5 NOTICE TO BARGAINING AGENTS.....................................30
7.6 AGREEMENTS......................................................30
7.7 NOTIFICATION OF CERTAIN MATTERS.................................30
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7.8 AMENDMENT OF SCHEDULES..........................................31
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............32
7.10 FINAL FINANCIAL STATEMENTS......................................32
7.11 FURTHER ASSURANCES..............................................32
7.12 AUTHORIZED CAPITAL..............................................33
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................33
7.14 STOCKHOLDERS OF TCI.............................................33
7.15 IPO.............................................................33
7.16 INDEMNIFICATION AGREEMENT.......................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......33
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......34
8.2 SATISFACTION....................................................34
8.3 NO LITIGATION...................................................34
8.4 OPINION OF COUNSEL..............................................34
8.5 REGISTRATION STATEMENT..........................................34
8.6 CONSENTS AND APPROVALS..........................................35
8.7 GOOD STANDING CERTIFICATES......................................35
8.8 NO MATERIAL ADVERSE CHANGE......................................35
8.9 CLOSING OF IPO..................................................35
8.10 SECRETARY'S CERTIFICATE.........................................35
8.11 EMPLOYMENT AGREEMENTS...........................................35
8.12 TAX MATTERS.....................................................35
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO..................36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
9.2 NO LITIGATION...................................................36
9.3 SECRETARY'S CERTIFICATE.........................................36
9.4 NO MATERIAL ADVERSE EFFECT......................................36
9.5 STOCKHOLDERS' RELEASE...........................................37
9.6 SATISFACTION....................................................37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................37
9.8 OPINION OF COUNSEL..............................................37
9.9 CONSENTS AND APPROVALS..........................................37
9.10 GOOD STANDING CERTIFICATES......................................37
9.11 REGISTRATION STATEMENT..........................................37
9.12 EMPLOYMENT AGREEMENTS...........................................37
9.13 CLOSING OF IPO..................................................38
9.14 FIRPTA CERTIFICATE..............................................38
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9.15 ENVIRONMENTAL REVIEWS...........................................38
9.16 DUE DILIGENCE REVIEW............................................38
9.17 INDEMNIFICATION AGREEMENT.......................................38
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................38
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......38
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................39
10.3 PREPARATION AND FILING OF TAX RETURNS...........................39
10.4 DIRECTORS.......................................................40
11. INDEMNIFICATION.......................................................40
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................40
11.2 INDEMNIFICATION BY TCI..........................................41
11.3 THIRD PERSON CLAIMS.............................................41
11.4 EXCLUSIVE REMEDY................................................43
11.5 LIMITATIONS ON INDEMNIFICATION..................................43
12. TERMINATION OF AGREEMENT..............................................44
12.1 TERMINATION.....................................................44
12.2 LIABILITIES IN EVENT OF TERMINATION.............................44
13. NONCOMPETITION........................................................45
13.1 PROHIBITED ACTIVITIES...........................................45
13.2 DAMAGES.........................................................46
13.3 REASONABLE RESTRAINT............................................46
13.4 SEVERABILITY; REFORMATION.......................................46
13.5 INDEPENDENT COVENANT............................................46
13.6 MATERIALITY.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 STOCKHOLDERS....................................................46
14.2 TCI AND NEWCO...................................................47
14.3 DAMAGES.........................................................48
14.4 SURVIVAL........................................................48
15. TRANSFER RESTRICTIONS.................................................48
15.1 TRANSFER RESTRICTIONS...........................................48
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 COMPLIANCE WITH LAW.............................................48
16.2 ECONOMIC RISK; SOPHISTICATION...................................49
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17. REGISTRATION RIGHTS...................................................49
17.1 PIGGYBACK REGISTRATION RIGHTS...................................49
17.2 DEMAND REGISTRATION RIGHTS......................................50
17.3 REGISTRATION PROCEDURES.........................................51
17.4 INDEMNIFICATION.................................................52
17.5 UNDERWRITING AGREEMENT..........................................53
17.6 RULE 144 REPORTING..............................................53
18. GENERAL...............................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................54
18.5 BROKERS AND AGENTS..............................................54
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................56
18.11 TIME............................................................56
18.12 REFORMATION AND SEVERABILITY....................................57
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), UFS Acquisition Corporation, a Delaware corporation
("Newco"), Universal Fleet Supply, Inc., a California corporation (the
"Company"), and the Stockholders identified on the signature pages hereto (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 9,
1998 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of TCI, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(Newco and the Company together are hereinafter collectively referred to
as "Constituent Corporations") deem it advisable and in the best interests
of the Constituent Corporations and their respective stockholders that
Newco merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of the
Company, the stockholders and the Board of Directors of Newco and TCI,
each of the Other Founding Companies and each of the subsidiaries of TCI
that are parties to the Other Agreements have approved and adopted the TCI
Plan of Organization as an integrated plan pursuant to which the
Stockholders and the stockholders of each of the Other Founding Companies
will transfer the capital stock of each of the Founding Companies (as
defined herein) to TCI and the stockholders of each of the Other Founding
Companies will acquire the stock of TCI (but not cash or other property)
as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this
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Agreement (which is subject to the terms and conditions herein set forth),
as part of the TCI Plan of Organization in order to transfer the capital
stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by TCI prior to the Funding and
Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
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"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Drive Line, Inc., a Florida corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(k) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
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"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of California.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
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"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration
Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to TCI at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. The Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that T. Michael
Young or another officer of TCI shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger David Gooch, Hugh McConnell and Paul Pryzant shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
TCI AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company, TCI and
Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will consist of 100,000,000 shares of TCI Stock,
of which the number of issued and outstanding shares will be set forth in the
Registration Statement, 5,000,000 shares of preferred stock, $.01 par value, of
which no shares will be issued and outstanding, and 2,000,000 shares of
Restricted Voting
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Common Stock, $.01 par value (the "Restricted Common Stock"), all of which will
be issued and outstanding except as otherwise set forth in the Registration
Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against such Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) TCI Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(i) the aggregate number of shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holders thereof,
automatically shall be converted into and deemed to represent the right to
receive (1) the aggregate number of shares of TCI Stock set forth on Annex I
hereto and (2) subject to the adjustments described in Annex I hereto, the
aggregate amount of cash set forth on Annex I hereto (the number of shares of
TCI Stock and, subject to the adjustments described on Annex I hereto, the
amount of cash allocable to the holders of the Company Stock being set forth on
Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of TCI Stock or other
consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of TCI, automatically be converted into one fully
paid and non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock of the
Surviving Corporation immediately after the Effective Time of the Merger, all of
which shall be owned by TCI.
All TCI Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding TCI
Stock by reason of the provisions of the Certificate of Incorporation of TCI or
as otherwise provided by the Delaware GCL. All TCI Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such TCI Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, TCI shall have no
class of capital stock issued and outstanding other than the TCI Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash to be
payable by certified check or wire transfer as so requested by the Stockholders
at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders'
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expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to TCI for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants that all of the
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22, and the representations
and warranties set forth in Section 5.30 hereof shall survive perpetually. For
purposes of this Section
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5, the term "Company" shall mean and refer to the Company and all of its
Subsidiaries, if any, except where the context indicates otherwise.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of the
Company, are all attached to Schedule 5.1. The Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. Recent resolutions
adopted by the Board of Directors of the Company and resolutions adopted by the
Stockholders to approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in
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respect thereof; and (iii) neither the voting stock structure of the Company nor
the relative ownership of shares among any of its respective Stockholders has
been altered or changed in contemplation of the Merger and/or the TCI Plan of
Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis and
throughout the periods involved ("GAAP") (except as disclosed therein or in the
schedules hereto, and except that any unaudited statements included therein may
omit footnote disclosures), and present fairly, in all material respects, the
financial position and results of operations of the Company as of the dates and
for the periods covered thereby.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which
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its properties may be bound. To the knowledge of the Stockholders, except as set
forth on Schedule 5.10, since the Balance Sheet Date the Company has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The Company has also
delivered to TCI on Schedule 5.10, in the case of those contingent liabilities
known to Stockholders and related to pending or threatened litigation, or other
liabilities which are not fixed, a good faith and reasonable estimate (to the
extent the Company can reasonably make such an estimate) of the maximum amount
which the Company reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the Company's Financial
Statements; in the case of any such liability for which no estimate has been
provided, the estimate for purposes of this Agreement shall be deemed to be
zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company by, any such Licenses or other rights.
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5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company, TCI or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all material personal property used by the Company in its business is
either owned by the Company or leased by the Company pursuant to a lease
included on Schedule 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted
except to the extent such wear and tear would have a Material Adverse Effect and
(iii) to the knowledge of the Stockholders, all leases and agreements included
on Schedule 5.14
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are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form of Annex VI hereto at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affiliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in the
form of Annex VI hereto will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good title to any real property
owned by it that is not shown on
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Schedule 5.16 as property intended to be sold or distributed prior to the
Closing Date, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
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Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years.
The Company believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations except to the extent that any failure to
comply would not have a Material Adverse Effect on the Company.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
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5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the
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knowledge of the Stockholders, there is no basis for any such claim, action,
suit or proceeding. The Company has conducted and is now conducting its business
in compliance with the requirements, standards, criteria and conditions set
forth in applicable federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations, including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach of or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
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hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any material right or benefit regarding the Material
Documents. Except as set forth on Schedule 5.23, none of the Material Documents
prohibits the use or publication by the Company, TCI or Newco of the name of any
other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services to any other
customer or potential customer of the Company, TCI, Newco or any Other Founding
Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
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(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly
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authorized by all necessary corporate action and is a legal, valid and binding
obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither TCI or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to TCI or the prospective IPO, except for statements and
representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the
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shares of the Company Stock identified on Annex II as being owned by such
Stockholder, and, except as set forth on Schedule 5.30, such Company Stock is
owned free and clear of all liens, security interests, pledges, voting
agreements, voting trusts, contractual restrictions on transfer, encumbrances
and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI and Newco acknowledge that the representations in Sections 5.30, 5.31
and 5.32 are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI AND NEWCO
TCI and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. TCI and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. TCI and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of TCI (the "TCI Charter Documents") have been or will
be filed as exhibits to the Registration Statement, and copies thereof and
copies of the Certificate of Incorporation and Bylaws of Newco will be provided
to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of TCI and Newco
executing this Agreement have the authority to enter into and bind TCI and Newco
to the terms of this Agreement and (ii) TCI and Newco have the full legal right,
power and authority to enter into this Agreement and consummate the Merger. All
corporate acts and other proceedings required to have been taken by TCI and
Newco to authorize the execution, delivery and performance of this Agreement and
the consummation of the Merger have been duly and properly taken.
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6.3 CAPITAL STOCK OF TCI AND NEWCO. The authorized capital stock of TCI
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
TCI. All of the issued and outstanding shares of the capital stock of TCI and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI and Newco in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of TCI
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI or Newco to issue any of their respective authorized but unissued capital
stock; and (ii) neither TCI nor Newco has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of TCI will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. TCI has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of TCI.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither TCI nor any Subsidiary of TCI presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and neither TCI nor Newco, directly or
indirectly, is a participant in any joint venture, partnership or other
non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities, contingent or otherwise, except as set
forth in or contemplated by this Agreement and the Other Agreements and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other
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governmental department, commission, board, bureau, agency or instrumentality
having jurisdiction over any of them which would have a Material Adverse Effect,
(b) there are no material claims, actions, suits or proceedings, pending or, to
the knowledge of TCI or Newco, threatened against or affecting, TCI or any
Subsidiary of TCI, at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over any of them, and (c) no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received by TCI or Newco. TCI and its Subsidiaries have conducted and are
conducting their respective businesses in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations and are not in violation of any of
the foregoing which would have a Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI, Newco, or, to the knowledge of TCI and Newco, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which TCI or any Subsidiary of TCI is a party, or by which TCI or any
Subsidiary of TCI, or any of their respective properties, are bound
(collectively, the "TCI Documents"); and (a) the rights and benefits of TCI and
any Subsidiary of TCI under the TCI Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution and delivery of this
Agreement by TCI and Newco and the performance of their obligations hereunder do
not, and the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of TCI or any Subsidiary of TCI under, any provision of (i) the
Certificate of Incorporation or Bylaws of TCI or the comparable governing
instruments of any Subsidiary of TCI, (ii) any note, bond, mortgage, indenture
or deed of trust or any license, lease, contract, commitment, agreement or
arrangement to which TCI and any Subsidiary of TCI is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to TCI or any
Subsidiary of TCI or their respective properties or assets. The execution of
this Agreement and the Other Agreements and the performance of the obligations
hereunder and thereunder and the consummation of the transactions contemplated
by the TCI Plan of Organization will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the TCI
Documents or the TCI Charter Documents. Except as contemplated hereby or
described in the Registration Statement or on Schedule 6.9 hereto, none of the
TCI Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated by the TCI Plan of Organization in order to remain in full force
and effect and consummation of the transactions contemplated thereby will not
give rise to any right to termination, cancellation or acceleration or loss of
any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and Newco and the performance of the transactions contemplated herein
have been duly and validly
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authorized by the respective Boards of Directors of TCI and Newco and this
Agreement has been duly and validly authorized by all necessary corporate action
and is a legal, valid and binding obligation of TCI and Newco.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. Neither TCI nor Newco has entered or
will enter into any agreement with any of the Other Founding Companies or any of
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES.TCI and each Subsidiary thereof have timely filed all requisite
federal, state and other Returns or extension requests for all fiscal periods
ended prior to the date hereof for which such Returns are due; and there are no
examinations in progress or claims against TCI or any Subsidiary thereof for
federal, state and other Taxes (including penalties and interest) for any such
period and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Taxes which TCI or any Subsidiary of TCI has been required to
collect or withhold have been duly and timely collected and withheld and have
been set aside in accounts for such purposes, or have been duly and timely paid
to the proper governmental authority. All Tax, including interest and penalties
(whether or not shown on any tax return) owed by TCI, any member of an
affiliated or consolidated group which includes or included TCI, or with respect
to any payment made or deemed
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made by TCI herein has been paid. Neither TCI nor any Subsidiary thereof has
entered into any tax sharing agreement or similar arrangement. Neither TCI nor
any Subsidiary thereof is an investment company as defined in Section 351(e)(1)
of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI or
Newco;
(iii) any change in the authorized capital of TCI or Newco or their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
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6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of TCI access to all of the Company's
sites, properties, books and records and will furnish TCI with such additional
financial and operating data and other information as to the business and
properties of the Company as TCI may from time to time reasonably request. The
Company will cooperate with TCI and its representatives, auditors and counsel in
the preparation of any documents or other materials which may be required in
connection with any documents or materials required by this Agreement. TCI,
Newco, the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of TCI and Newco as the
Company may from time to time reasonably request. TCI and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the
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negotiation and performance of this Agreement to be treated as confidential in
accordance with the provisions of Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
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(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
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(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TCI on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to TCI. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any material respect any material covenant, condition or agreement to be
complied with or satisfied by such person hereunder. TCI and Newco shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be
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likely to cause any representation or warranty of TCI or Newco contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of TCI or Newco to comply with or satisfy in any material
respect any material covenant, condition or agreement to be complied with or
satisfied by it hereunder. The delivery of any notice pursuant to this Section
7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by TCI or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, TCI shall give the Company notice promptly after it
has knowledge thereof. If TCI and a majority of the Founding Companies (other
than the Founding Company seeking to amend or supplement a Schedule) consent to
such amendment or supplement, which consent shall have been deemed given by TCI
or any Founding Company if no response is received within 24 hours following
receipt of notice of such amendment or supplement (or sooner if required by the
circumstances under which such consent is requested), but the Company does not
give its consent, the Company may terminate this Agreement pursuant to Section
12.1(iv) hereof. In the event that the Company seeks to amend or supplement a
Schedule pursuant to this Section 7.8, and TCI and a majority of the Other
Founding Companies do not consent to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that TCI or Newco seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding
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Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
No party to this Agreement shall be liable to any other party if this Agreement
shall be terminated pursuant to the provisions of this Section 7.8. No amendment
of or supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
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7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
7.16 INDEMNIFICATION AGREEMENT. At the closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall deliver to TCI an environmental
indemnification agreement in such form as may be approved by TCI in its
reasonable discretion.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8,
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8.9 and 8.12, as of the Funding and Consummation Date, if any such conditions
have not been satisfied, the Company or the Stockholders (acting in unison)
shall have the right to terminate this Agreement, or in the alternative, waive
any condition not so satisfied. Any act or action of the Stockholders in
consummating the Closing or delivering certificates representing Company Stock
as of the Funding and Consummation Date shall constitute a waiver of any
conditions not so satisfied. However, no such waiver shall be deemed to affect
the survival of the representations and warranties of TCI and Newco contained in
Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by TCI and Newco on or before the Closing Date and
the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of TCI shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform TCI in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm
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commitment basis, subject to the conditions set forth in the underwriting
agreement, on terms such that the aggregate value of the cash and the number of
shares of TCI Stock to be received by the Stockholders is not less than the
Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI and Newco each shall have delivered to
the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TCI or Newco is authorized to do business, showing that each of
TCI and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for TCI and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI or Newco which has had or is reasonably likely to
have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI and of Newco, certifying the truth and correctness of attached copies of
the TCI's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of TCI and Newco
approving TCI's and Newco's entering into this Agreement and the consummation of
the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the
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Stockholders will not recognize gain to the extent the Stockholders exchange
stock of the Company for TCI Stock (but not cash or other property) pursuant to
the TCI Plan of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO
The obligations of TCI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TCI and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
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9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by TCI, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
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9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
9.16 DUE DILIGENCE REVIEW. TCI shall have had an adequate opportunity to
conduct a due diligence review of the Company, and shall be reasonably satisfied
with the results of its review. Without limiting the foregoing, TCI shall have
received from the Company the schedules contemplated by this Agreement, and
shall have had an opportunity to review such schedules, and shall be reasonably
satisfied with the nature and status of all matters disclosed therein. TCI shall
also have received from the Company copies of the documents requested (to the
extent such documents exist and are within the control of the Company) in its
due diligence request delivered to the Company, shall have had an opportunity to
review such documents, shall have received any further documents and information
reasonably requested by TCI, and shall be reasonably satisfied with the nature
and status of all matters relating to the Company.
9.17 INDEMNIFICATION AGREEMENT. At the Closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall have delivered to TCI an
environmental indemnification agreement in such form as may be approved by TCI
in its reasonable discretion.
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be subrogated to any
rights of the Stockholders accruing as a result of any such payments by the
Stockholders.
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10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(iv) Each of the Company, Newco, TCI and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under
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the Code, and treat the transaction as a tax-free contribution under Section
351(a) of the Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, TCI and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, Newco, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation at all times, from
and after the date of this Agreement until the Expiration Date (provided that
for purposes of Section 11.1(iii) below, the Expiration Date shall be the date
on which the applicable statute of limitations expires), from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholders or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholders or
the Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholders, and provided to TCI or its counsel
by the Company or the Stockholders (but in the case of the Stockholders, only if
such statement was provided in writing) which is contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of TCI, Newco, the Company or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Company or the Stockholders provided, in writing, corrected information to TCI
for inclusion in the final prospectus, and such information was not so included
or the final prospectus was not properly delivered, and provided further, that
no Stockholder shall be liable for any indemnification obligation pursuant to
this Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other Stockholder.
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TCI and Newco acknowledge and agree that other than the representations
and warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI and Newco further acknowledge and agree that, should the Funding and
Consummation Date occur, their sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to TCI's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that TCI or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to TCI, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to TCI or Newco or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made
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against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any proceeding
without the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment, and the Indemnifying Party shall
have no further liability or obligation to the Indemnified Party under Sections
11.1 or 11.2 with respect to such claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no
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circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. TCI, Newco, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 or 11.2
shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the TCI Stock delivered to Stockholders (calculated as
provided in this Section 11.5) or (b) $100,000 (the "Indemnification
Threshold"). Except with respect to the right to receive the merger
consideration as set forth on Annex I, the Stockholders shall not assert any
claim for indemnification hereunder against TCI or Newco until such time as, and
solely to the extent that, the aggregate of all claims which the Stockholders
may have against TCI or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
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12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default by the Stockholders) in the observance or in
the due and timely performance of any of the covenants or agreements contained
herein, and the curing of such default shall not have been made on or before the
Funding and Consummation Date, or by the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by TCI, if the conditions set
forth in Section 9 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
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13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
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13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel)
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agree to the confidentiality provisions of this Section 14.1, unless (i) such
Confidential Information becomes known to the public generally through no fault
of the Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any Confidential Information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to TCI and provide TCI
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, TCI shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting TCI from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate Confidential Information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any Confidential Information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all Confidential Information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 TCI AND NEWCO. TCI and Newco recognize and acknowledge that they had
in the past and currently have access to certain Confidential Information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. TCI and Newco
agree that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such Confidential
Information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such Confidential
Information is or becomes known to the public generally through no fault of TCI
or Newco, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), TCI and Newco shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of TCI as a publicly held entity after
the IPO. In the event of a breach or threatened breach by TCI or Newco of the
provisions of this Section 14.2, the Company and the Stockholders shall be
entitled to an injunction restraining TCI and Newco from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting the
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Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of TCI Stock received by the Stockholders in the Merger. The certificates
evidencing the TCI Stock delivered to the Stockholders pursuant to Section 3 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as TCI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders
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pursuant to this Agreement is being acquired solely for their own respective
accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. The Stockholders covenant, warrant and represent that none of the
shares of TCI Stock issued to such Stockholders will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC. All the TCI Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the TCI
Stock. The Stockholders party hereto have had an adequate opportunity to ask
questions and receive answers from the officers of TCI concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TCI, the plans for the operations of the business of TCI, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the Stockholders pursuant to this Agreement (including any stock
issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by TCI as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of
such TCI Stock) which any such Stockholder requests, provided that TCI shall
have the right to
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reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to TCI or
its independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization under
Section 351 of the Code. In addition, if TCI is advised in writing in good faith
by any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than TCI is greater than the number
of such shares which can be offered without adversely affecting the offering,
TCI may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by TCI after the IPO, such reduction shall be
made first by reducing the number of shares to be sold by persons other than
TCI, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep the registration statement relating to
such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or
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the making of any required disclosure in connection therewith would have an
adverse effect on TCI or interfere with a transaction in which TCI is then
engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
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e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is
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contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.4 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
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(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, TCI and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and TCI and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and TCI,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for
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fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or TCI, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying solely on
the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to reimburse
an aggregate of up to $75,000 of expenses or fees incurred by the Stockholders
and the stockholders of the Other Founding Companies, as a group, promptly after
the Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, or Newco, addressed to them at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
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(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
(c) If to the Company, addressed to it at:
Universal Fleet Supply, Inc.
43645 South Grimmer Blvd.
Freemont, California 94538
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
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18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, Newco, the Company and Stockholders who hold or who will
hold at least 50% of the TCI Stock issued or to be issued upon consummation of
the Merger. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving TCI Stock in connection with the Merger and each future holder of such
TCI Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
UFS ACQUISITION CORPORATION
By:
Vice President
UNIVERSAL FLEET SUPPLY, INC.
By:
Name: Terry Short
Title: President
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Stockholders:
Terry Short
Ron Short
Jim Lockie
Robert Klemchuk
Tom Short
Sheri Klemchuk
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SCHEDULE 6.4
None.
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SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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SCHEDULE 6.12
None.
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SCHEDULE 6.15
None.
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EXHIBIT 10.9
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
DLI ACQUISITION CORPORATION
(a subsidiary of Transportation Components, Inc.)
DRIVE LINE, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, TCI AND NEWCO...........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........10
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................11
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................12
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
5.16 REAL PROPERTY...................................................14
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....15
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5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................17
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................18
5.24 ABSENCE OF CHANGES..............................................19
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................20
5.26 VALIDITY OF OBLIGATIONS.........................................21
5.27 RELATIONS WITH GOVERNMENTS......................................21
5.28 DISCLOSURE......................................................21
5.29 NO INTERESTS IN OTHER BUSINESSES................................21
5.30 AUTHORITY; OWNERSHIP............................................22
5.31 PREEMPTIVE RIGHTS...............................................22
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................22
6. REPRESENTATIONS OF TCI AND NEWCO......................................22
6.1 DUE ORGANIZATION................................................22
6.2 AUTHORIZATION...................................................23
6.3 CAPITAL STOCK OF TCI AND NEWCO..................................23
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........23
6.5 SUBSIDIARIES....................................................23
6.6 FINANCIAL STATEMENTS............................................23
6.7 LIABILITIES AND OBLIGATIONS.....................................23
6.8 CONFORMITY WITH LAW; LITIGATION.................................24
6.9 NO VIOLATIONS...................................................24
6.10 VALIDITY OF OBLIGATIONS.........................................25
6.11 TCI STOCK.......................................................25
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................25
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................25
6.14 TAXES...........................................................25
6.15 ABSENCE OF CHANGES..............................................26
6.16 DISCLOSURE......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................27
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................28
7.3 PROHIBITED ACTIVITIES...........................................29
7.4 NO SHOP.........................................................30
7.5 NOTICE TO BARGAINING AGENTS.....................................30
7.6 AGREEMENTS......................................................30
7.7 NOTIFICATION OF CERTAIN MATTERS.................................31
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7.8 AMENDMENT OF SCHEDULES..........................................31
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............32
7.10 FINAL FINANCIAL STATEMENTS......................................32
7.11 FURTHER ASSURANCES..............................................33
7.12 AUTHORIZED CAPITAL..............................................33
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................33
7.14 STOCKHOLDERS OF TCI.............................................33
7.15 IPO.............................................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......34
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......34
8.2 SATISFACTION....................................................34
8.3 NO LITIGATION...................................................35
8.4 OPINION OF COUNSEL..............................................35
8.5 REGISTRATION STATEMENT..........................................35
8.6 CONSENTS AND APPROVALS..........................................35
8.7 GOOD STANDING CERTIFICATES......................................35
8.8 NO MATERIAL ADVERSE CHANGE......................................35
8.9 CLOSING OF IPO..................................................35
8.10 SECRETARY'S CERTIFICATE.........................................35
8.11 EMPLOYMENT AGREEMENTS...........................................36
8.12 TAX MATTERS.....................................................36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO..................36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
9.2 NO LITIGATION...................................................36
9.3 SECRETARY'S CERTIFICATE.........................................37
9.4 NO MATERIAL ADVERSE EFFECT......................................37
9.5 STOCKHOLDERS' RELEASE...........................................37
9.6 SATISFACTION....................................................37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................37
9.8 OPINION OF COUNSEL..............................................37
9.9 CONSENTS AND APPROVALS..........................................37
9.10 GOOD STANDING CERTIFICATES......................................38
9.11 REGISTRATION STATEMENT..........................................38
9.12 EMPLOYMENT AGREEMENTS...........................................38
9.13 CLOSING OF IPO..................................................38
9.14 FIRPTA CERTIFICATE..............................................38
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9.15 ENVIRONMENTAL REVIEWS...........................................38
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................38
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......38
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................39
10.3 PREPARATION AND FILING OF TAX RETURNS...........................39
10.4 DIRECTORS.......................................................40
11. INDEMNIFICATION.......................................................40
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................40
11.2 INDEMNIFICATION BY TCI..........................................41
11.3 THIRD PERSON CLAIMS.............................................42
11.4 EXCLUSIVE REMEDY................................................43
11.5 LIMITATIONS ON INDEMNIFICATION..................................43
12. TERMINATION OF AGREEMENT..............................................44
12.1 TERMINATION.....................................................44
12.2 LIABILITIES IN EVENT OF TERMINATION.............................44
13. NONCOMPETITION........................................................45
13.1 PROHIBITED ACTIVITIES...........................................45
13.2 DAMAGES.........................................................46
13.3 REASONABLE RESTRAINT............................................46
13.4 SEVERABILITY; REFORMATION.......................................46
13.5 INDEPENDENT COVENANT............................................46
13.6 MATERIALITY.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 STOCKHOLDERS....................................................46
14.2 TCI AND NEWCO...................................................47
14.3 DAMAGES.........................................................48
14.4 SURVIVAL........................................................48
15. TRANSFER RESTRICTIONS.................................................48
15.1 TRANSFER RESTRICTIONS...........................................48
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 COMPLIANCE WITH LAW.............................................48
16.2 ECONOMIC RISK; SOPHISTICATION...................................49
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17. REGISTRATION RIGHTS...................................................49
17.1 PIGGYBACK REGISTRATION RIGHTS...................................49
17.2 DEMAND REGISTRATION RIGHTS......................................50
17.3 REGISTRATION PROCEDURES.........................................51
17.4 INDEMNIFICATION.................................................52
17.5 UNDERWRITING AGREEMENT..........................................53
17.6 RULE 144 REPORTING..............................................53
18. GENERAL...............................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................54
18.5 BROKERS AND AGENTS..............................................54
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................56
18.11 TIME............................................................56
18.12 REFORMATION AND SEVERABILITY....................................57
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), DLI Acquisition Corporation, a Delaware corporation
("Newco"), Drive Line, Inc., a Florida corporation (the "Company"), and the
Stockholders identified on the signature pages hereto (the "Stockholders"). The
Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, Newco is a corporation duly organized and existing under
the laws of the State of Delaware, having been incorporated on April 9,
1998 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of TCI, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of Newco and the Company
(Newco and the Company together are hereinafter collectively referred to
as "Constituent Corporations") deem it advisable and in the best interests
of the Constituent Corporations and their respective stockholders that
Newco merge with and into the Company pursuant to this Agreement and the
applicable provisions of the laws of the States of Delaware and the State
of Incorporation (as defined below);
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of the
Company, the stockholders and the Board of Directors of Newco and TCI,
each of the Other Founding Companies and each of the subsidiaries of TCI
that are parties to the Other Agreements have approved and adopted the TCI
Plan of Organization as an integrated plan pursuant to which the
Stockholders and the stockholders of each of the Other Founding Companies
will transfer the capital stock of each of the Founding Companies (as
defined herein) to TCI and the stockholders of each of the Other Founding
Companies will acquire the stock of TCI (but not cash or other property)
as a tax-free transfer of property under Section 351 of the Code;
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of the
Company has approved this
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Agreement (which is subject to the terms and conditions herein set forth),
as part of the TCI Plan of Organization in order to transfer the capital
stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by TCI prior to the Funding and
Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
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"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Hardy's Truck Parts, Inc., a Tennessee corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
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"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of Newco with and into the Company pursuant to
this Agreement and the applicable provisions of the laws of the State of
Delaware and the laws of the State of Incorporation.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of Newco.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Florida.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
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"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to TCI at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
Newco shall be merged with and into the Company in accordance with the Articles
of Merger, the separate existence of Newco shall cease, and the Company shall be
the surviving party in the Merger. The Company is sometimes hereinafter referred
to as the Surviving Corporation. The Merger will be effected in a single
transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of Newco then in effect shall become the By-laws of
the Surviving Corporation; and subsequent to the Effective Time of the Merger,
such By-laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended (and such Bylaws shall be amended from time to time,
if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of the Company
immediately prior to the Effective Time of the Merger, provided that T. Michael
Young or another officer of TCI shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of the Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of the Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger David Gooch, Hugh McConnell and Paul Pryzant shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
TCI AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of the Company, TCI and
Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will consist of 100,000,000 shares of TCI Stock,
of which the number of issued and outstanding shares will be set forth in the
Registration Statement, 5,000,000 shares of preferred stock, $.01 par value, of
which no shares will be issued and outstanding, and 2,000,000 shares of
Restricted Voting
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Common Stock, $.01 par value (the "Restricted Common Stock"), all of which will
be issued and outstanding except as otherwise set forth in the Registration
Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of Newco consists of 1,000 shares of Newco Stock, of which one hundred (100)
shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the Company shall continue unaffected and unimpaired by the Merger and the
corporate franchises, existence and rights of Newco shall be merged with and
into the Company, and the Company, as the Surviving Corporation, shall be fully
vested therewith. At the Effective Time of the Merger, the separate existence of
Newco shall cease and, in accordance with the terms of this Agreement, the
Surviving Corporation shall possess all the rights, privileges, immunities and
franchises, of a public, as well as of a private, nature, and all property,
real, personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all taxes, including those due and owing and those
accrued, and all other choses in action, and all and every other interest of or
belonging to or due to the Company and Newco shall be transferred to, and vested
in, the Surviving Corporation without further act or deed; and all property,
rights and privileges, powers and franchises and all and every other interest
shall be thereafter as effectually the property of the Surviving Corporation as
they were of the Company and Newco; and the title to any real estate, or
interest therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in the Company and Newco, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the Company and Newco and any claim existing, or
action or proceeding pending, by or against the Company or Newco may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in their place. Neither the rights of creditors nor any liens
upon the property of the Company or Newco shall be impaired by the Merger, and
all debts, liabilities and duties of the Company and Newco shall attach to the
Surviving Corporation, and may be enforced against such Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of the Company ("Company Stock") and (ii) Newco Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) TCI Stock and cash and (y) common stock of the
Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(i) the aggregate number of shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holders thereof,
automatically shall be converted into and deemed to represent the right to
receive (1) the aggregate number of shares of TCI Stock set forth on Annex I
hereto and (2) subject to the adjustments described in Annex I hereto, the
aggregate amount of cash set forth on Annex I hereto (the number of shares of
TCI Stock and, subject to the adjustments described on Annex I hereto, the
amount of cash allocable to the holders of the Company Stock being set forth on
Annex I);
(ii) all shares of Company Stock that are held by the Company as
treasury stock shall be canceled and retired and no shares of TCI Stock or other
consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of TCI, automatically be converted into one fully
paid and non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock of the
Surviving Corporation immediately after the Effective Time of the Merger, all of
which shall be owned by TCI.
All TCI Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding TCI
Stock by reason of the provisions of the Certificate of Incorporation of TCI or
as otherwise provided by the Delaware GCL. All TCI Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such TCI Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, TCI shall have no
class of capital stock issued and outstanding other than the TCI Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of the Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash to be
payable by certified check or wire transfer as so requested by the Stockholders
at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders'
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expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to TCI for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants that all of the
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22, and the representations
and warranties set forth in Section 5.30 hereof shall survive perpetually. For
purposes of this Section
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5, the term "Company" shall mean and refer to the Company and all of its
Subsidiaries, if any, except where the context indicates otherwise.
5.1 DUE ORGANIZATION. The Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. The Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which the
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of the
Company, are all attached to Schedule 5.1. The Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of the Company executing this
Agreement have the authority to enter into and bind the Company to the terms of
this Agreement and (ii) the Company has the full legal right, power and
authority to enter into this Agreement and the Merger. Recent resolutions
adopted by the Board of Directors of the Company and resolutions adopted by the
Stockholders to approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of the
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of the Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by the Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in
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respect thereof; and (iii) neither the voting stock structure of the Company nor
the relative ownership of shares among any of its respective Stockholders has
been altered or changed in contemplation of the Merger and/or the TCI Plan of
Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis and
throughout the periods involved ("GAAP") (except as disclosed therein or in the
schedules hereto, and except that any unaudited statements included therein may
omit footnote disclosures), and present fairly, in all material respects, the
financial position and results of operations of the Company as of the dates and
for the periods covered thereby.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which
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its properties may be bound. To the knowledge of the Stockholders, except as set
forth on Schedule 5.10, since the Balance Sheet Date the Company has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The Company has also
delivered to TCI on Schedule 5.10, in the case of those contingent liabilities
known to Stockholders and related to pending or threatened litigation, or other
liabilities which are not fixed, a good faith and reasonable estimate (to the
extent the Company can reasonably make such an estimate) of the maximum amount
which the Company reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the Company's Financial
Statements; in the case of any such liability for which no estimate has been
provided, the estimate for purposes of this Agreement shall be deemed to be
zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company by, any such Licenses or other rights.
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5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company, TCI or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all material personal property used by the Company in its business is
either owned by the Company or leased by the Company pursuant to a lease
included on Schedule 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted
except to the extent such wear and tear would have a Material Adverse Effect and
(iii) to the knowledge of the Stockholders, all leases and agreements included
on Schedule 5.14
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are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form of Annex VI hereto at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affiliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in the
form of Annex VI hereto will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good title to any real property
owned by it that is not shown on
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Schedule 5.16 as property intended to be sold or distributed prior to the
Closing Date, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
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Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations except to the extent that any failure to
comply would not have a Material Adverse Effect on the Company.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
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5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the
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knowledge of the Stockholders, there is no basis for any such claim, action,
suit or proceeding. The Company has conducted and is now conducting its business
in compliance with the requirements, standards, criteria and conditions set
forth in applicable federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations, including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
The Stockholders made a valid election under the provisions of Subchapter
S of the Code and the Company has not, within the past five years, been taxed
under the provisions of Subchapter C of the Code. The Stockholders shall pay,
and they hereby indemnify TCI, the Company and Newco against, all income taxes
payable for all periods ending on or before the Funding and Consummation Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not
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result in any material violation or breach of or constitute a default under, any
of the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect, and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any material right or benefit regarding the Material
Documents. Except as set forth on Schedule 5.23, none of the Material Documents
prohibits the use or publication by the Company, TCI or Newco of the name of any
other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services to any other
customer or potential customer of the Company, TCI, Newco or any Other Founding
Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
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(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
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Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither TCI or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to TCI or the prospective IPO, except for statements and
representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar
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interest in any business that offers or sells services or products of any nature
whatsoever to the Company or to any customers of the Company in connection with
or as a direct or indirect result of the Company's provision of services or
products to its customers.
5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.30, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI and Newco acknowledge that the representations in Sections 5.30, 5.31
and 5.32 are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI AND NEWCO
TCI and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. TCI and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. TCI and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of TCI (the "TCI Charter Documents") have been or will
be filed as exhibits to the Registration Statement, and copies thereof and
copies of the Certificate of Incorporation and Bylaws of Newco will be provided
to the Stockholders promptly upon request.
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6.2 AUTHORIZATION. (i) The respective representatives of TCI and Newco
executing this Agreement have the authority to enter into and bind TCI and Newco
to the terms of this Agreement and (ii) TCI and Newco have the full legal right,
power and authority to enter into this Agreement and consummate the Merger. All
corporate acts and other proceedings required to have been taken by TCI and
Newco to authorize the execution, delivery and performance of this Agreement and
the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF TCI AND NEWCO. The authorized capital stock of TCI
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
TCI. All of the issued and outstanding shares of the capital stock of TCI and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI and Newco in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of TCI
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI or Newco to issue any of their respective authorized but unissued capital
stock; and (ii) neither TCI nor Newco has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of TCI will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. TCI has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of TCI.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither TCI nor any Subsidiary of TCI presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and neither TCI nor Newco, directly or
indirectly, is a participant in any joint venture, partnership or other
non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities,
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contingent or otherwise, except as set forth in or contemplated by this
Agreement and the Other Agreements and except for fees incurred in connection
with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
which would have a Material Adverse Effect, (b) there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of TCI or Newco,
threatened against or affecting, TCI or any Subsidiary of TCI, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them, and (c) no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by TCI or Newco.
TCI and its Subsidiaries have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which would have a
Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI, Newco, or, to the knowledge of TCI and Newco, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which TCI or any Subsidiary of TCI is a party, or by which TCI or any
Subsidiary of TCI, or any of their respective properties, are bound
(collectively, the "TCI Documents"); and (a) the rights and benefits of TCI and
any Subsidiary of TCI under the TCI Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution and delivery of this
Agreement by TCI and Newco and the performance of their obligations hereunder do
not, and the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of TCI or any Subsidiary of TCI under, any provision of (i) the
Certificate of Incorporation or Bylaws of TCI or the comparable governing
instruments of any Subsidiary of TCI, (ii) any note, bond, mortgage, indenture
or deed of trust or any license, lease, contract, commitment, agreement or
arrangement to which TCI and any Subsidiary of TCI is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to TCI or any
Subsidiary of TCI or their respective properties or assets. The execution of
this Agreement and the Other Agreements and the performance of the obligations
hereunder and thereunder and the consummation of the transactions contemplated
by the TCI Plan of Organization will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the TCI
Documents or the TCI Charter Documents. Except as contemplated hereby or
described in the Registration Statement or on Schedule 6.9 hereto, none of the
TCI Documents requires notice to, or the consent or approval of,
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any governmental agency or other third party with respect to any of the
transactions contemplated by the TCI Plan of Organization in order to remain in
full force and effect and consummation of the transactions contemplated thereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
TCI and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of TCI
and Newco.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. Neither TCI nor Newco has entered or
will enter into any agreement with any of the Other Founding Companies or any of
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES.TCI and each Subsidiary thereof have timely filed all requisite
federal, state and other Returns or extension requests for all fiscal periods
ended prior to the date hereof for which such Returns are due; and there are no
examinations in progress or claims against TCI or any
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Subsidiary thereof for federal, state and other Taxes (including penalties and
interest) for any such period and no notice of any claim for Taxes, whether
pending or threatened, has been received. All Taxes which TCI or any Subsidiary
of TCI has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by TCI, any member of an affiliated or consolidated group which includes or
included TCI, or with respect to any payment made or deemed made by TCI herein
has been paid. Neither TCI nor any Subsidiary thereof has entered into any tax
sharing agreement or similar arrangement. Neither TCI nor any Subsidiary thereof
is an investment company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI or
Newco;
(iii) any change in the authorized capital of TCI or Newco or their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
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(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of TCI access to all of the Company's
sites, properties, books and records and will furnish TCI with such additional
financial and operating data and other information as to the business and
properties of the Company as TCI may from time to time reasonably request. The
Company will cooperate with TCI and its representatives, auditors and counsel in
the preparation of any documents or other materials which may be required in
connection with any documents or materials required by this Agreement. TCI,
Newco, the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
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(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of TCI and Newco as the
Company may from time to time reasonably request. TCI and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
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(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
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(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TCI on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms
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thereof, which terms have been disclosed to TCI. Such termination agreements are
listed on Schedule 7.6 and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any material respect any material covenant, condition or agreement to be
complied with or satisfied by such person hereunder. TCI and Newco shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of TCI or Newco contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
failure of TCI or Newco to comply with or satisfy in any material respect any
material covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by TCI or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, TCI shall
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give the Company notice promptly after it has knowledge thereof. If TCI and a
majority of the Founding Companies (other than the Founding Company seeking to
amend or supplement a Schedule) consent to such amendment or supplement, which
consent shall have been deemed given by TCI or any Founding Company if no
response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(iv) hereof. In the
event that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.8, and TCI and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that TCI or Newco seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i) hereof. No party to this Agreement shall
be liable to any other party if this Agreement shall be terminated pursuant to
the provisions of this Section 7.8. No amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial
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condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date. Such financial statements shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein). Except as noted in such financial statements, all of such financial
statements will present fairly the results of operations of the Company for the
periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as
of the Funding and Consummation Date, if any such conditions have not been
satisfied, the Company or the Stockholders (acting in unison) shall have the
right to terminate this Agreement, or in the alternative, waive any condition
not so satisfied. Any act or action of the Stockholders in consummating the
Closing or delivering certificates representing Company Stock as of the Funding
and Consummation Date shall constitute a waiver of any conditions not so
satisfied. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of TCI and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by TCI and Newco on or before the Closing Date and
the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of TCI shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform TCI in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
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8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TCI Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI and Newco each shall have delivered to
the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TCI or Newco is authorized to do business, showing that each of
TCI and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for TCI and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI or Newco which has had or is reasonably likely to
have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI and of Newco, certifying the truth and correctness of attached copies of
the TCI's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of TCI and Newco
approving
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TCI's and Newco's entering into this Agreement and the consummation of the
transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for TCI Stock (but not cash or other property) pursuant to the TCI Plan
of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO
The obligations of TCI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TCI and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of TCI
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as a result of which the management of TCI (acting in good faith) deems it
inadvisable to proceed with the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
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9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by TCI, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be
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subrogated to any rights of the Stockholders accruing as a result of any such
payments by the Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
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(iv) Each of the Company, Newco, TCI and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, TCI and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, Newco, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation at all times, from
and after the date of this Agreement until the Expiration Date (provided that
for purposes of Section 11.1(iii) below, the Expiration Date shall be the date
on which the applicable statute of limitations expires), from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholders or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholders or
the Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholders, and provided to TCI or its counsel
by the Company or the Stockholders (but in the case of the Stockholders, only if
such statement was provided in writing) which is contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of TCI, Newco, the Company or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Company or the Stockholders provided, in writing, corrected information to TCI
for inclusion in the final prospectus, and such information was not so included
or the final prospectus was not properly delivered, and provided further, that
no Stockholder shall be liable for any indemnification obligation pursuant to
this Section 11.1 to the
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extent attributable to a breach of any representation, warranty or agreement
made herein individually by any other Stockholder.
TCI and Newco acknowledge and agree that other than the representations
and warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI and Newco further acknowledge and agree that, should the Funding and
Consummation Date occur, their sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to TCI's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that TCI or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to TCI, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to TCI or Newco or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading.
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11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment, and the Indemnifying Party shall
have no further liability or obligation to the Indemnified Party under Sections
11.1 or 11.2 with respect to such claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may
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undertake such defense through counsel of its choice, at the cost and expense of
the Indemnifying Party, and the Indemnified Party may settle such matter, and
the Indemnifying Party shall reimburse the Indemnified Party for the amount paid
in such settlement and any other liabilities or expenses incurred by the
Indemnified Party in connection therewith, provided, however, that under no
circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. TCI, Newco, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 or 11.2
shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the TCI Stock delivered to Stockholders (calculated as
provided in this Section 11.5) or (b) $100,000 (the "Indemnification
Threshold"). Except with respect to the right to receive the merger
consideration as set forth on Annex I, the Stockholders shall not assert any
claim for indemnification hereunder against TCI or Newco until such time as, and
solely to the extent that, the aggregate of all claims which the Stockholders
may have against TCI or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an
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indemnification obligation through payment of a combination of stock and cash in
proportion equal to the proportion of stock and cash received by such
Stockholder in connection with the Merger, valued as described immediately
above, but shall also have the right to satisfy any such obligation in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default by the Stockholders) in the observance or in
the due and timely performance of any of the covenants or agreements contained
herein, and the curing of such default shall not have been made on or before the
Funding and Consummation Date, or by the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by TCI, if the conditions set
forth in Section 9 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
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13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
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13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel)
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agree to the confidentiality provisions of this Section 14.1, unless (i) such
Confidential Information becomes known to the public generally through no fault
of the Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any Confidential Information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to TCI and provide TCI
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, TCI shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting TCI from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate Confidential Information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any Confidential Information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all Confidential Information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 TCI AND NEWCO. TCI and Newco recognize and acknowledge that they had
in the past and currently have access to certain Confidential Information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. TCI and Newco
agree that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such Confidential
Information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such Confidential
Information is or becomes known to the public generally through no fault of TCI
or Newco, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), TCI and Newco shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of TCI as a publicly held entity after
the IPO. In the event of a breach or threatened breach by TCI or Newco of the
provisions of this Section 14.2, the Company and the Stockholders shall be
entitled to an injunction restraining TCI and Newco from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting the
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Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of TCI Stock received by the Stockholders in the Merger. The certificates
evidencing the TCI Stock delivered to the Stockholders pursuant to Section 3 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as TCI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders
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pursuant to this Agreement is being acquired solely for their own respective
accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. The Stockholders covenant, warrant and represent that none of the
shares of TCI Stock issued to such Stockholders will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC. All the TCI Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the TCI
Stock. The Stockholders party hereto have had an adequate opportunity to ask
questions and receive answers from the officers of TCI concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TCI, the plans for the operations of the business of TCI, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the Stockholders pursuant to this Agreement (including any stock
issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by TCI as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of
such TCI Stock) which any such Stockholder requests, provided that TCI shall
have the right to
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reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to TCI or
its independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization under
Section 351 of the Code. In addition, if TCI is advised in writing in good faith
by any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than TCI is greater than the number
of such shares which can be offered without adversely affecting the offering,
TCI may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by TCI after the IPO, such reduction shall be
made first by reducing the number of shares to be sold by persons other than
TCI, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep the registration statement relating to
such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or
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the making of any required disclosure in connection therewith would have an
adverse effect on TCI or interfere with a transaction in which TCI is then
engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
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e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is
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contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.4 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
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(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, TCI and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and TCI and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and TCI,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for
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fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or TCI, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying solely on
the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to reimburse
an aggregate of up to $75,000 of expenses or fees incurred by the Stockholders
and the stockholders of the Other Founding Companies, as a group, promptly after
the Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, or Newco, addressed to them at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
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<PAGE>
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
(c) If to the Company, addressed to it at:
Drive Line, Inc.
5290 Hiatus Road
Sunrise, Florida 33351
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
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<PAGE>
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, Newco, the Company and Stockholders who hold or who will
hold at least 50% of the TCI Stock issued or to be issued upon consummation of
the Merger. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving TCI Stock in connection with the Merger and each future holder of such
TCI Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
DLI ACQUISITION CORPORATION
By:
Vice President
DRIVE LINE, INC.
By:
Name: James R. Davis
Title: President
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STOCKHOLDERS:
James R. Davis as Trustee of the James R. Davis
Revocable Living Trust dated September 27, 1994
Joseph P. Akra as Trustee of the Joseph P. Akra
Revocable Living Trust dated September 27, 1994
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SCHEDULE 6.4
None.
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SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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SCHEDULE 6.12
None.
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SCHEDULE 6.15
None.
-66-
EXHIBIT 10.10
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
GWI ACQUISITION CORPORATION
TOI ACQUISITION CORPORATION
OTP ACQUISITION CORPORATION
(each a subsidiary of Transportation Components, Inc.)
GEAR AND WHEEL, INC.
TRY ONE, INC.
OCALA TRUCK PARTS, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, TCI AND NEWCO...........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........11
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................12
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................12
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
5.16 REAL PROPERTY...................................................14
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....15
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5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................17
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................19
5.24 ABSENCE OF CHANGES..............................................19
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................21
5.26 VALIDITY OF OBLIGATIONS.........................................21
5.27 RELATIONS WITH GOVERNMENTS......................................21
5.28 DISCLOSURE......................................................21
5.29 NO INTERESTS IN OTHER BUSINESSES................................22
5.30 AUTHORITY; OWNERSHIP............................................22
5.31 PREEMPTIVE RIGHTS...............................................22
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................22
6. REPRESENTATIONS OF TCI AND NEWCO......................................22
6.1 DUE ORGANIZATION................................................23
6.2 AUTHORIZATION...................................................23
6.3 CAPITAL STOCK OF TCI AND NEWCO..................................23
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........23
6.5 SUBSIDIARIES....................................................23
6.6 FINANCIAL STATEMENTS............................................24
6.7 LIABILITIES AND OBLIGATIONS.....................................24
6.8 CONFORMITY WITH LAW; LITIGATION.................................24
6.9 NO VIOLATIONS...................................................24
6.10 VALIDITY OF OBLIGATIONS.........................................25
6.11 TCI STOCK.......................................................25
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................25
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................26
6.14 TAXES...........................................................26
6.15 ABSENCE OF CHANGES..............................................26
6.16 DISCLOSURE......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................27
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................28
7.3 PROHIBITED ACTIVITIES...........................................29
7.4 NO SHOP.........................................................30
7.5 NOTICE TO BARGAINING AGENTS.....................................30
7.6 AGREEMENTS......................................................31
7.7 NOTIFICATION OF CERTAIN MATTERS.................................31
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7.8 AMENDMENT OF SCHEDULES..........................................31
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............32
7.10 FINAL FINANCIAL STATEMENTS......................................33
7.11 FURTHER ASSURANCES..............................................33
7.12 AUTHORIZED CAPITAL..............................................33
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................33
7.14 STOCKHOLDERS OF TCI.............................................34
7.15 IPO.............................................................34
7.16 INDEMNIFICATION AGREEMENT.......................................34
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......34
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......34
8.2 SATISFACTION....................................................34
8.3 NO LITIGATION...................................................35
8.4 OPINION OF COUNSEL..............................................35
8.5 REGISTRATION STATEMENT..........................................35
8.6 CONSENTS AND APPROVALS..........................................35
8.7 GOOD STANDING CERTIFICATES......................................35
8.8 NO MATERIAL ADVERSE CHANGE......................................35
8.9 CLOSING OF IPO..................................................36
8.10 SECRETARY'S CERTIFICATE.........................................36
8.11 EMPLOYMENT AGREEMENTS...........................................36
8.12 TAX MATTERS.....................................................36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO..................36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
9.2 NO LITIGATION...................................................37
9.3 SECRETARY'S CERTIFICATE.........................................37
9.4 NO MATERIAL ADVERSE EFFECT......................................37
9.5 STOCKHOLDERS' RELEASE...........................................37
9.6 SATISFACTION....................................................37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................37
9.8 OPINION OF COUNSEL..............................................38
9.9 CONSENTS AND APPROVALS..........................................38
9.10 GOOD STANDING CERTIFICATES......................................38
9.11 REGISTRATION STATEMENT..........................................38
9.12 EMPLOYMENT AGREEMENTS...........................................38
9.13 CLOSING OF IPO..................................................38
9.14 FIRPTA CERTIFICATE..............................................38
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9.15 ENVIRONMENTAL REVIEWS...........................................38
9.16 INDEMNIFICATION AGREEMENT.......................................38
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................39
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......39
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................39
10.3 PREPARATION AND FILING OF TAX RETURNS...........................39
10.4 DIRECTORS.......................................................40
11. INDEMNIFICATION.......................................................40
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................40
11.2 INDEMNIFICATION BY TCI..........................................41
11.3 THIRD PERSON CLAIMS.............................................42
11.4 EXCLUSIVE REMEDY................................................43
11.5 LIMITATIONS ON INDEMNIFICATION..................................43
12. TERMINATION OF AGREEMENT..............................................44
12.1 TERMINATION.....................................................44
12.2 LIABILITIES IN EVENT OF TERMINATION.............................45
13. NONCOMPETITION........................................................45
13.1 PROHIBITED ACTIVITIES...........................................45
13.2 DAMAGES.........................................................46
13.3 REASONABLE RESTRAINT............................................46
13.4 SEVERABILITY; REFORMATION.......................................46
13.5 INDEPENDENT COVENANT............................................46
13.6 MATERIALITY.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 STOCKHOLDERS....................................................47
14.2 TCI AND NEWCO...................................................47
14.3 DAMAGES.........................................................48
14.4 SURVIVAL........................................................48
15. TRANSFER RESTRICTIONS.................................................48
15.1 TRANSFER RESTRICTIONS...........................................48
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................49
16.1 COMPLIANCE WITH LAW.............................................49
16.2 ECONOMIC RISK; SOPHISTICATION...................................49
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17. REGISTRATION RIGHTS...................................................49
17.1 PIGGYBACK REGISTRATION RIGHTS...................................49
17.2 DEMAND REGISTRATION RIGHTS......................................50
17.3 REGISTRATION PROCEDURES.........................................51
17.4 INDEMNIFICATION.................................................52
17.5 UNDERWRITING AGREEMENT..........................................53
17.6 RULE 144 REPORTING..............................................53
18. GENERAL...............................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................55
18.5 BROKERS AND AGENTS..............................................55
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................57
18.11 TIME............................................................57
18.12 REFORMATION AND SEVERABILITY....................................57
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), GWI Acquisition Corporation, TOI Acquisition Corporation
and OTP Acquisition Corporation, each of which is a Delaware corporation (herein
collectively referred to as "Newco" except as the contest otherwise indicates),
Gear and Wheel, Inc., Try One, Inc. and Ocala Truck Parts, Inc., each of which
is a Florida corporation (herein collectively referred to as the "Company"
except as the context otherwise indicates), and the Stockholders identified on
the signature pages hereto (the "Stockholders"). The Stockholders are all the
stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on April
9, 1998 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of TCI, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and the
each Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective stockholders that each
Newco merge with and into the Company identified herein pursuant to this
Agreement and the applicable provisions of the laws of the States of
Delaware and the State of Incorporation (as defined below);
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of each
Company, the stockholders and the Board of Directors of each Newco and
TCI, each of the Other Founding Companies and each of the subsidiaries of
TCI that are parties to the Other Agreements have approved and adopted the
TCI Plan of Organization as an integrated plan pursuant to which the
Stockholders and the stockholders of each of the Other Founding Companies
will transfer the capital stock of each of the Founding Companies (as
defined herein) to TCI and the stockholders of each of the Other Founding
Companies will acquire the stock of TCI (but not cash or other property)
as a tax-free transfer of property under Section 351 of the Code;
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<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the TCI Plan of Organization in
order to transfer the capital stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means each Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by TCI prior to the Funding and
Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
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<PAGE>
"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Drive Line, Inc., a Florida corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
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<PAGE>
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each Newco with and into the Company
identified herein pursuant to this Agreement and the applicable provisions of
the laws of the State of Delaware and the laws of the State of Incorporation;
GWI Acquisition Corporation shall merge with and into Gear and Wheel, Inc.; TOI
Acquisition Corporation shall merge with and into Try One, Inc.; and OTP
Acquisition Corporation shall merge with and into Ocala Truck Parts, Inc.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of the
relevant Newco.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
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<PAGE>
"State of Incorporation" means the State of Florida.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to TCI at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into the respective Company in accordance
with the Articles of Merger, the separate existence of Newco shall cease, and
the respective Company shall be the surviving party
-5-
<PAGE>
in the Merger and such Company is sometimes hereinafter referred to as the
Surviving Corporation. The Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of the relevant Newco then in effect shall become
the By-laws of the Surviving Corporation; and subsequent to the Effective Time
of the Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be amended
from time to time, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of respective Company
immediately prior to the Effective Time of the Merger, provided that T. Michael
Young or another officer of TCI shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of each Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger David Gooch, Hugh McConnell and Paul Pryzant shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
TCI AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of each Company, TCI
and each Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will
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consist of 100,000,000 shares of TCI Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, 5,000,000
shares of preferred stock, $.01 par value, of which no shares will be issued and
outstanding, and 2,000,000 shares of Restricted Voting Common Stock, $.01 par
value (the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the respective Company shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of the relevant Newco shall
be merged with and into the Company as set forth herein, and such Company, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Merger, the separate existence of each Newco shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
taxes, including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to such
Company and such Newco shall be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of such Company and such Newco; and the title to any real estate, or interest
therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in such Company and such Newco, shall not revert or be in
any way impaired by reason of the Merger. Except as otherwise provided herein,
the Surviving Corporation shall thenceforth be responsible and liable for all
the liabilities and obligations of such Company and such Newco and any claim
existing, or action or proceeding pending, by or against such Company or such
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of any Company or any Newco shall be impaired by
the Merger, and all debts, liabilities and duties of each Company and each Newco
shall attach to the Surviving Corporation, and may be enforced against such
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of each Company ("Company Stock") and (ii) Newco
Stock, issued and outstanding
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immediately prior to the Effective Time of the Merger, respectively, into shares
of (x) TCI Stock and cash and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) the aggregate number of shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holders thereof,
automatically shall be converted into and deemed to represent the right to
receive (1) the aggregate number of shares of TCI Stock set forth on Annex I
hereto and (2) subject to the adjustments described in Annex I hereto, the
aggregate amount of cash set forth on Annex I hereto (the number of shares of
TCI Stock and, subject to the adjustments described on Annex I hereto, the
amount of cash allocable to the holders of the Company Stock being set forth on
Annex I);
(ii) all shares of Company Stock that are held by each Company as
treasury stock shall be canceled and retired and no shares of TCI Stock or other
consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of TCI, automatically be converted into one fully
paid and non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock of the
Surviving Corporation immediately after the Effective Time of the Merger, all of
which shall be owned by TCI.
All TCI Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding TCI
Stock by reason of the provisions of the Certificate of Incorporation of TCI or
as otherwise provided by the Delaware GCL. All TCI Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such TCI Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, TCI shall have no
class of capital stock issued and outstanding other than the TCI Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of each Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash
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to be payable by certified check or wire transfer as so requested by the
Stockholders at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to TCI for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants that all of the
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of
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twelve months (the last day of such period being the "Expiration Date"), except
that the representations and warranties set forth in Section 5.22 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, and the representations and warranties
set forth in Section 5.30 hereof shall survive perpetually. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of its
Subsidiaries, if any, and shall mean all three Companies, taken as a whole,
unless the context indicates otherwise.
5.1 DUE ORGANIZATION. Each Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. Each Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which each
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of each
Company, are all attached to Schedule 5.1. Each Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of each Company executing this
Agreement have the authority to enter into and bind such Company to the terms of
this Agreement and (ii) each Company has the full legal right, power and
authority to enter into this Agreement and the Merger. Recent resolutions
adopted by the Board of Directors of each Company and resolutions adopted by the
Stockholders to approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of each
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of each Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of each Company have been
duly authorized and validly issued, are fully paid and nonassessable, are owned
of record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by each Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
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5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the TCI Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis and
throughout the periods involved ("GAAP") (except as disclosed therein or in the
schedules hereto, and except that any unaudited statements included therein may
omit footnote disclosures), and present fairly, in all material respects, the
financial position and results of operations of the Company as of the dates and
for the periods covered thereby.
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5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to TCI on Schedule 5.10, in the case
of those contingent liabilities known to Stockholders and related to pending or
threatened litigation, or other liabilities which are not fixed, a good faith
and reasonable estimate (to the extent the Company can reasonably make such an
estimate) of the maximum amount which the Company reasonably expects will be
payable and the amount, if any, accrued or reserved for each such potential
liability on the Company's Financial Statements; in the case of any such
liability for which no estimate has been provided, the estimate for purposes of
this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in
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violation of any of the foregoing except where such non-compliance or violation
would not have a Material Adverse Effect on the Company. Except as specifically
provided in Schedule 5.12, the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any such Licenses or other
rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company, TCI or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned,
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by Stockholders, relatives of Stockholders, or Affiliates of the Company. Except
as set forth on Schedule 5.14, (i) all material personal property used by the
Company in its business is either owned by the Company or leased by the Company
pursuant to a lease included on Schedule 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted except to the extent such wear and tear would have a Material
Adverse Effect and (iii) to the knowledge of the Stockholders, all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to the enforcement of creditors' rights generally and by
general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form
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of Annex VI hereto at or prior to the Closing Date. Except as set forth on
Schedule 5.16, the lease relating to any such real property leased by the
Company from any of the Stockholders or any Affiliate of any of the Stockholders
will be terminated as of the Closing Date and a new lease in the form of Annex
VI hereto will be entered into as of the Closing Date on the terms set forth on
Schedule 5.16. The Company has good title to any real property owned by it that
is not shown on Schedule 5.16 as property intended to be sold or distributed
prior to the Closing Date, subject to no mortgage, pledge, lien, conditional
sales agreement, encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i)
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the Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years.
The Company believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and
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local statutes, ordinances and regulations except to the extent that any failure
to comply would not have a Material Adverse Effect on the Company.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any
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order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over it; and except to the extent set forth on Schedule 5.10 or
5.13, there are no material claims, actions, suits or proceedings, pending or,
to the knowledge of the Stockholders, threatened against or affecting, the
Company, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over it and no notice of any claim, action,
suit or proceeding, whether pending or threatened, has been received by the
Company, and, to the knowledge of the Stockholders, there is no basis for any
such claim, action, suit or proceeding. The Company has conducted and is now
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in applicable federal, state and local statutes,
ordinances, orders, approvals, variances, rules and regulations, including all
such orders and other governmental approvals set forth on Schedules 5.12 and
5.13, except where any such noncompliance, individually or in the aggregate,
would not have a Material Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
The Stockholders of Try One, Inc. and Ocala Truck Parts, Inc. made a valid
election under the provisions of Subchapter S of the Code, and neither Try One,
Inc. nor Ocala Truck Parts, Inc. has, within the past five years, been taxed
under the provisions of Subchapter C of the Code. The Stockholders of Try One,
Inc. shall pay, and they hereby indemnify TCI, Try One, Inc. and TOI Acquisition
Corporation against, all income taxes payable for all periods ending on or
before the Funding and Consummation Date. The Stockholders of Ocala Truck Parts,
Inc. shall pay, and they
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hereby indemnify TCI, Ocala Truck Parts, Inc. and OTP Acquisition Corporation
against, all income taxes payable for all periods ending on or before the
Funding and Consummation Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach of or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any material right or benefit regarding the Material
Documents. Except as set forth on Schedule 5.23, none of the Material Documents
prohibits the use or publication by the Company, TCI or Newco of the name of any
other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services to any other
customer or potential customer of the Company, TCI, Newco or any Other Founding
Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors,
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Stockholders, employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in accordance with past
practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii)any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii)any contract entered into or commitment incurred involving any
liability or commitment to make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
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5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all;
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(ii) that neither TCI or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or to occur at all; and (iii) that the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to TCI or the prospective IPO, except for
statements and representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.30, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI and each Newco acknowledge that the representations in Sections 5.30,
5.31 and 5.32 are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI AND NEWCO
TCI and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
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6.1 DUE ORGANIZATION. TCI and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. TCI and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of TCI (the "TCI Charter Documents") have been or will
be filed as exhibits to the Registration Statement, and copies thereof and
copies of the Certificate of Incorporation and Bylaws of Newco will be provided
to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of TCI and Newco
executing this Agreement have the authority to enter into and bind TCI and Newco
to the terms of this Agreement and (ii) TCI and Newco have the full legal right,
power and authority to enter into this Agreement and consummate the Merger. All
corporate acts and other proceedings required to have been taken by TCI and
Newco to authorize the execution, delivery and performance of this Agreement and
the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF TCI AND NEWCO. The authorized capital stock of TCI
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
TCI. All of the issued and outstanding shares of the capital stock of TCI and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI and Newco in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of TCI
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI or Newco to issue any of their respective authorized but unissued capital
stock; and (ii) neither TCI nor Newco has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of TCI will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. TCI has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of TCI.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither TCI nor any Subsidiary of TCI presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity
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interest in any corporation, association or business entity, and neither TCI nor
Newco, directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities, contingent or otherwise, except as set
forth in or contemplated by this Agreement and the Other Agreements and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
which would have a Material Adverse Effect, (b) there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of TCI or Newco,
threatened against or affecting, TCI or any Subsidiary of TCI, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them, and (c) no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by TCI or Newco.
TCI and its Subsidiaries have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which would have a
Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI, Newco, or, to the knowledge of TCI and Newco, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which TCI or any Subsidiary of TCI is a party, or by which TCI or any
Subsidiary of TCI, or any of their respective properties, are bound
(collectively, the "TCI Documents"); and (a) the rights and benefits of TCI and
any Subsidiary of TCI under the TCI Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution and delivery of this
Agreement by TCI and Newco and the performance of their obligations hereunder do
not, and the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of TCI or any Subsidiary of TCI under, any provision of (i) the
Certificate
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of Incorporation or Bylaws of TCI or the comparable governing instruments of any
Subsidiary of TCI, (ii) any note, bond, mortgage, indenture or deed of trust or
any license, lease, contract, commitment, agreement or arrangement to which TCI
and any Subsidiary of TCI is a party or by which any of their respective
properties or assets are bound or (iii) any judgment, order, decree or law,
ordinance, rule or regulation, applicable to TCI or any Subsidiary of TCI or
their respective properties or assets. The execution of this Agreement and the
Other Agreements and the performance of the obligations hereunder and thereunder
and the consummation of the transactions contemplated by the TCI Plan of
Organization will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the TCI Documents or the TCI
Charter Documents. Except as contemplated hereby or described in the
Registration Statement or on Schedule 6.9 hereto, none of the TCI Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated by the
TCI Plan of Organization in order to remain in full force and effect and
consummation of the transactions contemplated thereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
TCI and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of TCI
and Newco.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. Neither TCI nor Newco has entered or
will enter into any agreement with any of the Other Founding Companies or any of
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
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6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES. TCI and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against TCI or any Subsidiary thereof
for federal, state and other Taxes (including penalties and interest) for any
such period and no notice of any claim for Taxes, whether pending or threatened,
has been received. All Taxes which TCI or any Subsidiary of TCI has been
required to collect or withhold have been duly and timely collected and withheld
and have been set aside in accounts for such purposes, or have been duly and
timely paid to the proper governmental authority. All Tax, including interest
and penalties (whether or not shown on any tax return) owed by TCI, any member
of an affiliated or consolidated group which includes or included TCI, or with
respect to any payment made or deemed made by TCI herein has been paid. Neither
TCI nor any Subsidiary thereof has entered into any tax sharing agreement or
similar arrangement. Neither TCI nor any Subsidiary thereof is an investment
company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI or
Newco;
(iii) any change in the authorized capital of TCI or Newco or their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
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(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized
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representatives of TCI access to all of the Company's sites, properties, books
and records and will furnish TCI with such additional financial and operating
data and other information as to the business and properties of the Company as
TCI may from time to time reasonably request. The Company will cooperate with
TCI and its representatives, auditors and counsel in the preparation of any
documents or other materials which may be required in connection with any
documents or materials required by this Agreement. TCI, Newco, the Stockholders
and the Company will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of TCI and Newco as the
Company may from time to time reasonably request. TCI and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
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(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other
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like liens arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3) liens set
forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable
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collective bargaining agreements, and shall provide TCI on Schedule 7.5 with
proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to TCI. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any material respect any material covenant, condition or agreement to be
complied with or satisfied by such person hereunder. TCI and Newco shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of TCI or Newco contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
failure of TCI or Newco to comply with or satisfy in any material respect any
material covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies
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other than the Company consent to such amendment or supplement; and provided
further, that no amendment or supplement to a Schedule prepared by TCI or Newco
that constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless a majority of the Founding Companies consent
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
7.8. In the event that one of the Other Founding Companies seeks to amend or
supplement a Schedule pursuant to Section 7.8 of one of the Other Agreements,
and such amendment or supplement constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on such Other Founding Company, TCI
shall give the Company notice promptly after it has knowledge thereof. If TCI
and a majority of the Founding Companies (other than the Founding Company
seeking to amend or supplement a Schedule) consent to such amendment or
supplement, which consent shall have been deemed given by TCI or any Founding
Company if no response is received within 24 hours following receipt of notice
of such amendment or supplement (or sooner if required by the circumstances
under which such consent is requested), but the Company does not give its
consent, the Company may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and TCI and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that TCI or Newco seeks to amend or supplement a Schedule pursuant
to this Section 7.8 and a majority of the Founding Companies do not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will
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not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
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7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
7.16 INDEMNIFICATION AGREEMENT. At the closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall deliver to TCI an environmental
indemnification agreement in such form as may be approved by TCI in its
reasonable discretion.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as
of the Funding and Consummation Date, if any such conditions have not been
satisfied, the Company or the Stockholders (acting in unison) shall have the
right to terminate this Agreement, or in the alternative, waive any condition
not so satisfied. Any act or action of the Stockholders in consummating the
Closing or delivering certificates representing Company Stock as of the Funding
and Consummation Date shall constitute a waiver of any conditions not so
satisfied. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of TCI and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by TCI and Newco on or before the Closing Date and
the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of TCI shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably
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satisfactory to the Company and its counsel. The Stockholders and the Company
shall be satisfied that the Registration Statement and the prospectus forming a
part thereof, including any amendments thereof or supplements thereto, shall not
contain any untrue statement of a material fact, or omit to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that the condition contained in this sentence
shall (for purposes of this Section 8.2) be deemed satisfied if the Company or
Stockholders shall have failed to inform TCI in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TCI Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI and Newco each shall have delivered to
the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TCI or Newco is authorized to do business, showing that each of
TCI and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for TCI and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI or Newco which has had or is reasonably likely to
have a Material Adverse Effect.
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8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI and of Newco, certifying the truth and correctness of attached copies of
the TCI's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of TCI and Newco
approving TCI's and Newco's entering into this Agreement and the consummation of
the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for TCI Stock (but not cash or other property) pursuant to the TCI Plan
of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO
The obligations of TCI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TCI and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders
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and the Company on or before the Closing Date or the Funding and Consummation
Date, as the case may be, shall have been duly performed or complied with in all
material respects; and the Stockholders shall have delivered to TCI certificates
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
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9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by TCI, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
9.16 INDEMNIFICATION AGREEMENT. At the Closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall have delivered to TCI an
environmental indemnification agreement in such form as may be approved by TCI
in its reasonable discretion.
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10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be subrogated to any
rights of the Stockholders accruing as a result of any such payments by the
Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a
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liability for Taxes or a right to refund of Taxes or in conducting any audit or
other proceeding in respect of Taxes. Such cooperation and information shall
include providing copies of all relevant portions of relevant Returns, together
with relevant accompanying schedules and relevant work papers, relevant
documents relating to rulings or other determinations by Taxing authorities and
relevant records concerning the ownership and Tax basis of property, which such
party may possess. Each party shall make its employees and independent certified
public accountants reasonably available on a mutually convenient basis at its
cost to provide explanation of any documents or information so provided. Subject
to the preceding sentence, each party required to file Returns pursuant to this
Agreement shall bear all costs of filing such Returns.
(iv) Each of the Company, Newco, TCI and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, TCI and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, Newco, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation at all times, from
and after the date of this Agreement until the Expiration Date (provided that
for purposes of Section 11.1(iii) below, the Expiration Date shall be the date
on which the applicable statute of limitations expires), from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholders or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholders or
the Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholders, and provided to TCI or its counsel
by the Company or the Stockholders (but in the case of the Stockholders, only if
such statement was provided in writing) which is contained in the
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Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Stockholders required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of TCI, Newco, the Company or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the Company or the Stockholders provided, in writing,
corrected information to TCI for inclusion in the final prospectus, and such
information was not so included or the final prospectus was not properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
TCI and Newco acknowledge and agree that other than the representations
and warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI and Newco further acknowledge and agree that, should the Funding and
Consummation Date occur, their sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to TCI's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that TCI or
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Newco has claims against the Stockholders by reason of such liabilities); or
(iv) any liability under the 1933 Act, the 1934 Act or other Federal or state
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to TCI,
Newco or any of the Other Founding Companies contained in any preliminary
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or arising out of or based upon
any omission or alleged omission to state therein a material fact relating to
TCI or Newco or any of the Other Founding Companies required to be stated
therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by
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said Third Person. Upon agreement as to such settlement between said Third
Person and the Indemnifying Party, the Indemnifying Party shall, in exchange for
a complete release from the Indemnified Party, promptly pay to the Indemnified
Party the amount agreed to in such settlement and the Indemnified Party shall,
from that moment on, bear full responsibility for any additional costs of
defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment, and the Indemnifying Party shall
have no further liability or obligation to the Indemnified Party under Sections
11.1 or 11.2 with respect to such claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. TCI, Newco, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 or 11.2
shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the TCI Stock delivered to Stockholders (calculated as
provided in this Section 11.5) or (b) $100,000 (the "Indemnification
Threshold"). Except with respect to the right to receive the merger
consideration as set forth on Annex I, the Stockholders shall not assert any
claim for indemnification hereunder against TCI or Newco until such time as, and
solely to the extent that, the aggregate of all claims which the Stockholders
may have against TCI or Newco shall exceed the Indemnification Threshold.
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No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default by the Stockholders) in the observance or in
the due and timely performance of any of the covenants or agreements contained
herein, and the curing of such default shall not have been made on or before the
Funding and Consummation Date, or by the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by TCI, if the conditions set
forth in Section 9 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
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provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
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(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
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14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such Confidential Information becomes known to the
public generally through no fault of the Stockholders, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any Confidential Information pursuant to this
clause (ii), the Stockholders shall, if possible, give prior written notice
thereof to TCI and provide TCI with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by any of the Stockholders
of the provisions of this Section 14.1, TCI shall be entitled to an injunction
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting TCI
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate Confidential
Information with respect to the Company. Each Stockholder further agrees that in
the event the transactions contemplated herein are not consummated (i) neither
the Company nor any Stockholder can thereafter use any Confidential Information
of the Other Founding Companies for any purpose and (ii) upon written request of
any Other Founding Company to the Company, the Company and Stockholders will
return all Confidential Information pertaining to such Other Founding Company to
such Other Founding Company.
14.2 TCI AND NEWCO. TCI and Newco recognize and acknowledge that they had
in the past and currently have access to certain Confidential Information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. TCI and Newco
agree that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such Confidential
Information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such Confidential
Information is or becomes known to the public generally through no fault of TCI
or Newco, (ii) disclosure is required by law or the order of any governmental
authority under color of law,
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provided, that prior to disclosing any information pursuant to this clause (ii),
TCI and Newco shall, if possible, give prior written notice thereof to the
Company and the Stockholders and provide the Company and the Stockholders with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party, and (d) to the public to the
extent necessary or advisable in connection with the filing of the Registration
Statement and the IPO and the securities laws applicable thereto and to the
operation of TCI as a publicly held entity after the IPO. In the event of a
breach or threatened breach by TCI or Newco of the provisions of this Section
14.2, the Company and the Stockholders shall be entitled to an injunction
restraining TCI and Newco from disclosing, in whole or in part, such
Confidential Information. Nothing herein shall be construed as prohibiting the
Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of TCI Stock received by the Stockholders in the Merger. The certificates
evidencing the TCI Stock delivered to the Stockholders pursuant to Section 3 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as TCI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF
FUNDING AND CONSUMMATION DATE]. UPON THE WRITTEN REQUEST OF THE
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HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER
AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of TCI Stock issued to
such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the TCI Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the TCI
Stock. The Stockholders party hereto have had an adequate opportunity to ask
questions and receive answers from the officers of TCI concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TCI, the plans for the operations of the business of TCI, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account
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under the 1933 Act for a public offering, other than (i) any shelf or other
registration of shares to be used as consideration for acquisitions of
additional businesses by TCI (including any registration of resales of such
shares by the holders thereof) and (ii) registrations relating to employee stock
options or other benefit plans, TCI shall give each of the Stockholders prompt
written notice of its intent to do so. Upon the written request of any of the
Stockholders given within 30 days after receipt of such notice, TCI shall cause
to be included in such registration all of the TCI Stock issued to the
Stockholders pursuant to this Agreement (including any stock issued as (or
issuable upon the conversion or exchange of any convertible security, warrant,
right or other security which is issued by TCI as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of such TCI
Stock) which any such Stockholder requests, provided that TCI shall have the
right to reduce the number of shares included in such registration to the extent
that inclusion of such shares could, in the written opinion of tax counsel to
TCI or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free organization
under Section 351 of the Code. In addition, if TCI is advised in writing in good
faith by any managing underwriter of an underwritten offering of the securities
being offered pursuant to any registration statement under this Section 17.1
that the number of shares to be sold by persons other than TCI is greater than
the number of such shares which can be offered without adversely affecting the
offering, TCI may reduce pro rata the number of shares offered for the accounts
of such persons (based upon the number of shares proposed to be sold by each
such person) to a number deemed satisfactory by such managing underwriter,
provided, that, for each such offering made by TCI after the IPO, such reduction
shall be made first by reducing the number of shares to be sold by persons other
than TCI, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one
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Demand Registration for all Founding Stockholders and will keep the registration
statement relating to such Demand Registration current and effective for not
less than 120 days (or such shorter period as is required to sell all of the
shares registered thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or the making of any required disclosure in connection
therewith would have an adverse effect on TCI or interfere with a transaction in
which TCI is then engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated
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therewith), and such other documents as such Stockholder may reasonably request
in order to facilitate the disposition of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
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(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such Stockholder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of a Stockholder under this Section
17.4 shall be limited to an amount equal to the net proceeds actually received
by such Stockholder from the sale of the relevant shares covered by the
registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
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(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, TCI and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and TCI and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and TCI,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
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18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or TCI, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying solely on
the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to reimburse
an aggregate of up to $75,000 of expenses or fees incurred by the Stockholders
and the stockholders of the Other Founding Companies, as a group, promptly after
the Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, or Newco, addressed to them at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
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with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston Texas 77002
(c) If to Gear and Wheel, Inc., addressed to it at:
1900 W. New Hampshire Street
Orlando, Florida 32804
(d) If to Try One, Inc. or Ocala Truck Parts, Inc., addressed
to it at:
1221 Bryn Mawr
Orlando, Florida 32804
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
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18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, Newco, the Company and Stockholders who hold or who will
hold at least 50% of the TCI Stock issued or to be issued upon consummation of
the Merger. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving TCI Stock in connection with the Merger and each future holder of such
TCI Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
GWI ACQUISITION CORPORATION
By:
Vice President
TOI ACQUISITION CORPORATION
By:
Vice President
OTP ACQUISITION CORPORATION
By:
Vice President
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GEAR AND WHEEL, INC.
By:
Name: Wray Petry
Title: President
TRY ONE, INC.
By:
Name: Wray Petry
Title: President
OCALA TRUCK PARTS, INC.
By:
Name: Wray Petry
Title: President
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Stockholders of Gear and Wheel, Inc.:
Everett W. Petry as Trustee of the Everett
W. Petry Family Trust dated 4/14/98.
Betty C. Petry as Trustee of the Betty C.
Petry Family Trust dated 4/14/98.
James R. Davis as Trustee of The James R.
Davis Revocable Living Trust dated 9/27/94
JoAnne G. Davis as Trustee of The JoAnne G.
Davis Revocable Living Trust dated 9/27/94
Marc Karon
Martin Vranich
Stockholders of Try One, Inc.:
Betty Petry
Wray Petry
Stockholders of Ocala Truck Parts, Inc.:
Betty Petry
Wray Petry
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SCHEDULE 6.4
None.
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SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
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SCHEDULE 6.12
None.
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SCHEDULE 6.15
None.
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EXHIBIT 10.11
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
CTC ACQUISITION CORPORATION
LLL ACQUISITION CORPORATION
MLS ACQUISITION CORPORATION
(each a subsidiary of Transportation Components, Inc.)
TRANSPORTATION COMPONENTS COMPANY
L.L.L., INC.
MSL, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF
DIRECTORS AND OFFICERS OF SURVIVING CORPORATION..................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL
STOCK OF THE COMPANY, TCI AND NEWCO..............................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........11
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................12
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................12
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
5.16 REAL PROPERTY...................................................14
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....15
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5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................18
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................19
5.24 ABSENCE OF CHANGES..............................................19
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................21
5.26 VALIDITY OF OBLIGATIONS.........................................21
5.27 RELATIONS WITH GOVERNMENTS......................................21
5.28 DISCLOSURE......................................................21
5.29 NO INTERESTS IN OTHER BUSINESSES................................22
5.30 AUTHORITY; OWNERSHIP............................................22
5.31 PREEMPTIVE RIGHTS...............................................22
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................22
6. REPRESENTATIONS OF TCI AND NEWCO......................................22
6.1 DUE ORGANIZATION................................................23
6.2 AUTHORIZATION...................................................23
6.3 CAPITAL STOCK OF TCI AND NEWCO..................................23
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........23
6.5 SUBSIDIARIES....................................................23
6.6 FINANCIAL STATEMENTS............................................24
6.7 LIABILITIES AND OBLIGATIONS.....................................24
6.8 CONFORMITY WITH LAW; LITIGATION.................................24
6.9 NO VIOLATIONS...................................................24
6.10 VALIDITY OF OBLIGATIONS.........................................25
6.11 TCI STOCK.......................................................25
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................25
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................26
6.14 TAXES...........................................................26
6.15 ABSENCE OF CHANGES..............................................26
6.16 DISCLOSURE......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................27
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................28
7.3 PROHIBITED ACTIVITIES...........................................29
7.4 NO SHOP.........................................................30
7.5 NOTICE TO BARGAINING AGENTS.....................................30
7.6 AGREEMENTS......................................................31
7.7 NOTIFICATION OF CERTAIN MATTERS.................................31
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7.8 AMENDMENT OF SCHEDULES..........................................31
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............32
7.10 FINAL FINANCIAL STATEMENTS......................................33
7.11 FURTHER ASSURANCES..............................................33
7.12 AUTHORIZED CAPITAL..............................................33
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST
IMPROVEMENTS ACT OF 1976 (THE "HART-SCOTT-RODINO ACT")..........33
7.14 STOCKHOLDERS OF TCI.............................................34
7.15 IPO.............................................................34
7.16 INDEMNIFICATION AGREEMENT.......................................34
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......34
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......34
8.2 SATISFACTION....................................................34
8.3 NO LITIGATION...................................................35
8.4 OPINION OF COUNSEL..............................................35
8.5 REGISTRATION STATEMENT..........................................35
8.6 CONSENTS AND APPROVALS..........................................35
8.7 GOOD STANDING CERTIFICATES......................................35
8.8 NO MATERIAL ADVERSE CHANGE......................................35
8.9 CLOSING OF IPO..................................................36
8.10 SECRETARY'S CERTIFICATE.........................................36
8.11 EMPLOYMENT AGREEMENTS...........................................36
8.12 TAX MATTERS.....................................................36
8.13 CERTAIN CONCURRENT ACTIONS......................................36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO..................36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......37
9.2 NO LITIGATION...................................................37
9.3 SECRETARY'S CERTIFICATE.........................................37
9.4 NO MATERIAL ADVERSE EFFECT......................................37
9.5 STOCKHOLDERS' RELEASE...........................................37
9.6 SATISFACTION....................................................37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................38
9.8 OPINION OF COUNSEL..............................................38
9.9 CONSENTS AND APPROVALS..........................................38
9.10 GOOD STANDING CERTIFICATES......................................38
9.11 REGISTRATION STATEMENT..........................................38
9.12 EMPLOYMENT AGREEMENTS...........................................38
9.13 CLOSING OF IPO..................................................38
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9.14 FIRPTA CERTIFICATE..............................................38
9.15 ENVIRONMENTAL REVIEWS...........................................38
9.16 CERTAIN CONCURRENT ACTIONS......................................39
9.17 INDEMNIFICATION AGREEMENT.......................................39
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................39
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......39
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................39
10.3 PREPARATION AND FILING OF TAX RETURNS...........................39
10.4 DIRECTORS.......................................................40
11. INDEMNIFICATION.......................................................40
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................40
11.2 INDEMNIFICATION BY TCI..........................................42
11.3 THIRD PERSON CLAIMS.............................................42
11.4 EXCLUSIVE REMEDY................................................43
11.5 LIMITATIONS ON INDEMNIFICATION..................................44
12. TERMINATION OF AGREEMENT..............................................44
12.1 TERMINATION.....................................................44
12.2 LIABILITIES IN EVENT OF TERMINATION.............................45
13. NONCOMPETITION........................................................45
13.1 PROHIBITED ACTIVITIES...........................................45
13.2 DAMAGES.........................................................46
13.3 REASONABLE RESTRAINT............................................46
13.4 SEVERABILITY; REFORMATION.......................................46
13.5 INDEPENDENT COVENANT............................................47
13.6 MATERIALITY.....................................................47
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................47
14.1 STOCKHOLDERS....................................................47
14.2 TCI AND NEWCO...................................................48
14.3 DAMAGES.........................................................48
14.4 SURVIVAL........................................................48
15. TRANSFER RESTRICTIONS.................................................48
15.1 TRANSFER RESTRICTIONS...........................................48
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................49
16.1 COMPLIANCE WITH LAW.............................................49
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16.2 ECONOMIC RISK; SOPHISTICATION...................................49
17. REGISTRATION RIGHTS...................................................50
17.1 PIGGYBACK REGISTRATION RIGHTS...................................50
17.2 DEMAND REGISTRATION RIGHTS......................................51
17.3 REGISTRATION PROCEDURES.........................................52
17.4 INDEMNIFICATION.................................................53
17.5 UNDERWRITING AGREEMENT..........................................54
17.6 RULE 144 REPORTING..............................................54
18. GENERAL...............................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................55
18.3 ENTIRE AGREEMENT................................................55
18.4 COUNTERPARTS....................................................55
18.5 BROKERS AND AGENTS..............................................55
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................56
18.8 GOVERNING LAW...................................................57
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................57
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................57
18.11 TIME............................................................57
18.12 REFORMATION AND SEVERABILITY....................................57
18.13 REMEDIES CUMULATIVE.............................................58
18.14 CAPTIONS........................................................58
18.15 AMENDMENTS AND WAIVERS..........................................58
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), CTC Acquisition Corporation, LLL Acquisition Corporation
and MLS Acquisition Corporation, each of which is a Delaware corporation (herein
collectively referred to as "Newco" except as the contest otherwise
indicates),Transportation Components Company, L.L.L. Inc., and MSL, Inc., each
of which is a Minnesota corporation (herein collectively referred to as the
"Company" except as the context otherwise indicates), and the Stockholders
identified on the signature pages hereto (the "Stockholders"). The Stockholders
are all the stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on April
9, 1998 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of TCI, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and the
each Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective stockholders that each
Newco merge with and into the Company identified herein pursuant to this
Agreement and the applicable provisions of the laws of the States of
Delaware and the State of Incorporation (as defined below);
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of each
Company, the stockholders and the Board of Directors of each Newco and
TCI, each of the Other Founding Companies and each of the subsidiaries of
TCI that are parties to the Other Agreements have approved and adopted the
TCI Plan of Organization as an integrated plan pursuant to which the
Stockholders and the stockholders of each of the Other Founding Companies
will transfer the capital stock of each of the Founding Companies (as
defined herein) to TCI and the stockholders of each of the Other Founding
Companies will acquire the stock of TCI (but not cash or other property)
as a tax-free transfer of property under Section 351 of the Code;
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WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the TCI Plan of Organization in
order to transfer the capital stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means each Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by TCI prior to the Funding and
Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
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"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Drive Line, Inc., a Florida corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
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"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each Newco with and into the Company
identified herein pursuant to this Agreement and the applicable provisions of
the laws of the State of Delaware and the laws of the State of Incorporation;
CTC Acquisition Corporation shall merge with and into Transportation Components
Company; LLL Acquisition Corporation shall merge with and into L.L.L., Inc.; and
MLS Acquisition Corporation shall merge with and into MSL, Inc.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of the
relevant Newco.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
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"State of Incorporation" means the State of Minnesota.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to TCI at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into the respective Company in accordance
with the Articles of Merger, the separate existence of Newco shall cease, and
the respective Company shall be the surviving party
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in the Merger and such Company is sometimes hereinafter referred to as the
Surviving Corporation. The Merger will be effected in a single transaction.
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of the relevant Newco then in effect shall become
the By-laws of the Surviving Corporation; and subsequent to the Effective Time
of the Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be amended
from time to time, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of respective Company
immediately prior to the Effective Time of the Merger, provided that T. Michael
Young or another officer of TCI shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of each Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger David Gooch, Hugh McConnell and Paul Pryzant shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
TCI AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of each Company, TCI
and each Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will
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consist of 100,000,000 shares of TCI Stock, of which the number of issued and
outstanding shares will be set forth in the Registration Statement, 5,000,000
shares of preferred stock, $.01 par value, of which no shares will be issued and
outstanding, and 2,000,000 shares of Restricted Voting Common Stock, $.01 par
value (the "Restricted Common Stock"), all of which will be issued and
outstanding except as otherwise set forth in the Registration Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the respective Company shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of the relevant Newco shall
be merged with and into the Company as set forth herein, and such Company, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Merger, the separate existence of each Newco shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
taxes, including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to such
Company and such Newco shall be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of such Company and such Newco; and the title to any real estate, or interest
therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in such Company and such Newco, shall not revert or be in
any way impaired by reason of the Merger. Except as otherwise provided herein,
the Surviving Corporation shall thenceforth be responsible and liable for all
the liabilities and obligations of such Company and such Newco and any claim
existing, or action or proceeding pending, by or against such Company or such
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of any Company or any Newco shall be impaired by
the Merger, and all debts, liabilities and duties of each Company and each Newco
shall attach to the Surviving Corporation, and may be enforced against such
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of each Company ("Company Stock") and (ii) Newco
Stock, issued and outstanding
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immediately prior to the Effective Time of the Merger, respectively, into shares
of (x) TCI Stock and cash and (y) common stock of the Surviving Corporation,
respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) the aggregate number of shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holders thereof,
automatically shall be converted into and deemed to represent the right to
receive (1) the aggregate number of shares of TCI Stock set forth on Annex I
hereto and (2) subject to the adjustments described in Annex I hereto, the
aggregate amount of cash set forth on Annex I hereto (the number of shares of
TCI Stock and, subject to the adjustments described on Annex I hereto, the
amount of cash allocable to the holders of the Company Stock being set forth on
Annex I);
(ii) all shares of Company Stock that are held by each Company as
treasury stock shall be canceled and retired and no shares of TCI Stock or other
consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of TCI, automatically be converted into one fully
paid and non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock of the
Surviving Corporation immediately after the Effective Time of the Merger, all of
which shall be owned by TCI.
All TCI Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding TCI
Stock by reason of the provisions of the Certificate of Incorporation of TCI or
as otherwise provided by the Delaware GCL. All TCI Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such TCI Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, TCI shall have no
class of capital stock issued and outstanding other than the TCI Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of each Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash
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to be payable by certified check or wire transfer as so requested by the
Stockholders at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders' expense, affixed and canceled. The
Stockholders agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such Company Stock or with respect to the stock powers accompanying
any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to TCI for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants that all of the
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of
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twelve months (the last day of such period being the "Expiration Date"), except
that the representations and warranties set forth in Section 5.22 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 5.22, and the representations and warranties
set forth in Section 5.30 hereof shall survive perpetually. For purposes of this
Section 5, the term "Company" shall mean and refer to the Company and all of its
Subsidiaries, if any, and shall mean all three Companies, taken as a whole,
unless the context indicates otherwise.
5.1 DUE ORGANIZATION. Each Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. Each Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which each
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of each
Company, are all attached to Schedule 5.1. Each Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of each Company executing this
Agreement have the authority to enter into and bind such Company to the terms of
this Agreement and (ii) each Company has the full legal right, power and
authority to enter into this Agreement and the Merger. Recent resolutions
adopted by the Board of Directors of each Company and resolutions adopted by the
Stockholders to approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of each
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of each Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of each Company have been
duly authorized and validly issued, are fully paid and nonassessable, are owned
of record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by each Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
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5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in respect thereof; and (iii) neither
the voting stock structure of the Company nor the relative ownership of shares
among any of its respective Stockholders has been altered or changed in
contemplation of the Merger and/or the TCI Plan of Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries except for Power Brake of Wisconsin, Inc., a Wisconsin corporation
("Power Brake Wisconsin"), and Power Brake Midwest, Inc., a North Dakota
corporation ("Power Brake Midwest"), each of which is controlled by the Company.
Except as set forth in Schedule 5.6, the Company does not presently own, of
record or beneficially, or control, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity nor is the Company, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis and
throughout the periods involved ("GAAP") (except as disclosed therein or in the
schedules hereto, and except that any unaudited statements included therein may
omit footnote disclosures),
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and present fairly, in all material respects, the financial position and results
of operations of the Company as of the dates and for the periods covered
thereby.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which its properties may be bound. To the
knowledge of the Stockholders, except as set forth on Schedule 5.10, since the
Balance Sheet Date the Company has not incurred any material liabilities of any
kind, character or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business. The Company has also delivered to TCI on Schedule 5.10, in the case
of those contingent liabilities known to Stockholders and related to pending or
threatened litigation, or other liabilities which are not fixed, a good faith
and reasonable estimate (to the extent the Company can reasonably make such an
estimate) of the maximum amount which the Company reasonably expects will be
payable and the amount, if any, accrued or reserved for each such potential
liability on the Company's Financial Statements; in the case of any such
liability for which no estimate has been provided, the estimate for purposes of
this Agreement shall be deemed to be zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
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intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company by, any such Licenses or other rights.
5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company, TCI or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired
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since the Balance Sheet Date and (z) all material leases and agreements in
respect of personal property, including, in the case of each of (x), (y) and
(z), (1) true, complete and correct copies of all such leases and (2) an
indication as to which assets are currently owned, or were formerly owned, by
Stockholders, relatives of Stockholders, or Affiliates of the Company. Except as
set forth on Schedule 5.14, (i) all material personal property used by the
Company in its business is either owned by the Company or leased by the Company
pursuant to a lease included on Schedule 5.14, (ii) all of the personal property
listed on Schedule 5.14 is in good working order and condition, ordinary wear
and tear excepted except to the extent such wear and tear would have a Material
Adverse Effect and (iii) to the knowledge of the Stockholders, all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms except as the enforceability thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to the enforcement of creditors' rights generally and by
general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the
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conduct of its business. Except as set forth on Schedule 5.16, any such real
property owned by the Company will be sold or distributed by the Company on the
terms set forth on Schedule 5.16 and leased back by the Company on the terms set
forth on Schedule 5.16 pursuant to a lease in the form of Annex VI hereto at or
prior to the Closing Date. Except as set forth on Schedule 5.16, the lease
relating to any such real property leased by the Company from any of the
Stockholders or any Affiliate of any of the Stockholders will be terminated as
of the Closing Date and a new lease in the form of Annex VI hereto will be
entered into as of the Closing Date on the terms set forth on Schedule 5.16. The
Company has good title to any real property owned by it that is not shown on
Schedule 5.16 as property intended to be sold or distributed prior to the
Closing Date, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all
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officers, directors and key employees of the Company, listing all employment
agreements with such officers, directors and key employees and the rate of
compensation (and the portions thereof attributable to salary, bonus and other
compensation, respectively) of each of such persons as of (i) the Balance Sheet
Date and (ii) the date hereof. The Company has provided to TCI true, complete
and correct copies of any employment agreements for persons listed on Schedule
5.18. Since the Balance Sheet Date, there have been no material increases in the
compensation payable or any special bonuses to any officer, director, key
employee or other employee, except ordinary salary increases implemented and
bonuses paid on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years.
The Company believes its relationship with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
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All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations except to the extent that any failure to
comply would not have a Material Adverse Effect on the Company.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
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5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the knowledge of the Stockholders,
there is no basis for any such claim, action, suit or proceeding. The Company
has conducted and is now conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in applicable
federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations, including all such orders and other governmental
approvals set forth on Schedules 5.12 and 5.13, except where any such
noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
The Stockholders of MSL, Inc. made a valid election under the provisions
of Subchapter S of the Code, and MSL, Inc. has not, within the past five years,
been taxed under the provisions of Subchapter C of the Code. The Stockholders of
MSL, Inc. shall pay, and they hereby indemnify
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TCI, MSL, Inc. and MLS Acquisition Corporation against, all income taxes payable
for all periods ending on or before the Funding and Consummation Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of the obligations hereunder
and the consummation of the transactions contemplated hereby will not result in
any material violation or breach of or constitute a default under, any of the
terms or provisions of the Material Documents or the Charter Documents. Except
as set forth on Schedule 5.23, none of the Material Documents requires notice
to, or the consent or approval of, any governmental agency or other third party
with respect to any of the transactions contemplated hereby in order to remain
in full force and effect, and consummation of the transactions contemplated
hereby will not give rise to any right to termination, cancellation or
acceleration or loss of any material right or benefit regarding the Material
Documents. Except as set forth on Schedule 5.23, none of the Material Documents
prohibits the use or publication by the Company, TCI or Newco of the name of any
other party to such Material Document, and none of the Material Documents
prohibits or restricts the Company from freely providing services to any other
customer or potential customer of the Company, TCI, Newco or any Other Founding
Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors,
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Stockholders, employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in accordance with past
practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
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5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all;
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(ii) that neither TCI or any of its officers, directors, agents or
representatives nor any Underwriter shall have any liability to the Company, the
Stockholders or any other person affiliated or associated with the Company for
any failure of the Registration Statement to become effective, the IPO to occur
at a particular price or to occur at all; and (iii) that the decision of
Stockholders to enter into this Agreement, or to vote in favor of or consent to
the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to TCI or the prospective IPO, except for
statements and representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar interest in any business that offers or sells
services or products of any nature whatsoever to the Company or to any customers
of the Company in connection with or as a direct or indirect result of the
Company's provision of services or products to its customers.
5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.30, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI and each Newco acknowledge that the representations in Sections 5.30,
5.31 and 5.32 are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI AND NEWCO
TCI and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
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6.1 DUE ORGANIZATION. TCI and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. TCI and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of TCI (the "TCI Charter Documents") have been or will
be filed as exhibits to the Registration Statement, and copies thereof and
copies of the Certificate of Incorporation and Bylaws of Newco will be provided
to the Stockholders promptly upon request.
6.2 AUTHORIZATION. (i) The respective representatives of TCI and Newco
executing this Agreement have the authority to enter into and bind TCI and Newco
to the terms of this Agreement and (ii) TCI and Newco have the full legal right,
power and authority to enter into this Agreement and consummate the Merger. All
corporate acts and other proceedings required to have been taken by TCI and
Newco to authorize the execution, delivery and performance of this Agreement and
the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF TCI AND NEWCO. The authorized capital stock of TCI
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
TCI. All of the issued and outstanding shares of the capital stock of TCI and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI and Newco in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of TCI
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI or Newco to issue any of their respective authorized but unissued capital
stock; and (ii) neither TCI nor Newco has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of TCI will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. TCI has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of TCI.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither TCI nor any Subsidiary of TCI presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity
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interest in any corporation, association or business entity, and neither TCI nor
Newco, directly or indirectly, is a participant in any joint venture,
partnership or other non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities, contingent or otherwise, except as set
forth in or contemplated by this Agreement and the Other Agreements and except
for fees incurred in connection with the transactions contemplated hereby and
thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
which would have a Material Adverse Effect, (b) there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of TCI or Newco,
threatened against or affecting, TCI or any Subsidiary of TCI, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them, and (c) no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by TCI or Newco.
TCI and its Subsidiaries have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which would have a
Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI, Newco, or, to the knowledge of TCI and Newco, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which TCI or any Subsidiary of TCI is a party, or by which TCI or any
Subsidiary of TCI, or any of their respective properties, are bound
(collectively, the "TCI Documents"); and (a) the rights and benefits of TCI and
any Subsidiary of TCI under the TCI Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution and delivery of this
Agreement by TCI and Newco and the performance of their obligations hereunder do
not, and the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of TCI or any Subsidiary of TCI under, any provision of (i) the
Certificate
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of Incorporation or Bylaws of TCI or the comparable governing instruments of any
Subsidiary of TCI, (ii) any note, bond, mortgage, indenture or deed of trust or
any license, lease, contract, commitment, agreement or arrangement to which TCI
and any Subsidiary of TCI is a party or by which any of their respective
properties or assets are bound or (iii) any judgment, order, decree or law,
ordinance, rule or regulation, applicable to TCI or any Subsidiary of TCI or
their respective properties or assets. The execution of this Agreement and the
Other Agreements and the performance of the obligations hereunder and thereunder
and the consummation of the transactions contemplated by the TCI Plan of
Organization will not result in any material violation or breach or constitute a
default under, any of the terms or provisions of the TCI Documents or the TCI
Charter Documents. Except as contemplated hereby or described in the
Registration Statement or on Schedule 6.9 hereto, none of the TCI Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated by the
TCI Plan of Organization in order to remain in full force and effect and
consummation of the transactions contemplated thereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
TCI and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of TCI
and Newco.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. Neither TCI nor Newco has entered or
will enter into any agreement with any of the Other Founding Companies or any of
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
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6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES. TCI and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against TCI or any Subsidiary thereof
for federal, state and other Taxes (including penalties and interest) for any
such period and no notice of any claim for Taxes, whether pending or threatened,
has been received. All Taxes which TCI or any Subsidiary of TCI has been
required to collect or withhold have been duly and timely collected and withheld
and have been set aside in accounts for such purposes, or have been duly and
timely paid to the proper governmental authority. All Tax, including interest
and penalties (whether or not shown on any tax return) owed by TCI, any member
of an affiliated or consolidated group which includes or included TCI, or with
respect to any payment made or deemed made by TCI herein has been paid. Neither
TCI nor any Subsidiary thereof has entered into any tax sharing agreement or
similar arrangement. Neither TCI nor any Subsidiary thereof is an investment
company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI or
Newco;
(iii) any change in the authorized capital of TCI or Newco or their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
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(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized
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representatives of TCI access to all of the Company's sites, properties, books
and records and will furnish TCI with such additional financial and operating
data and other information as to the business and properties of the Company as
TCI may from time to time reasonably request. The Company will cooperate with
TCI and its representatives, auditors and counsel in the preparation of any
documents or other materials which may be required in connection with any
documents or materials required by this Agreement. TCI, Newco, the Stockholders
and the Company will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of TCI and Newco as the
Company may from time to time reasonably request. TCI and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
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(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other
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like liens arising in the ordinary course of business (the liens set forth in
clause (2) being referred to herein as "Statutory Liens"), or (3) liens set
forth on Schedule 5.10 and/or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable
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collective bargaining agreements, and shall provide TCI on Schedule 7.5 with
proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms thereof, which terms have been
disclosed to TCI. Such termination agreements are listed on Schedule 7.6 and
copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any material respect any material covenant, condition or agreement to be
complied with or satisfied by such person hereunder. TCI and Newco shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of TCI or Newco contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
failure of TCI or Newco to comply with or satisfy in any material respect any
material covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies
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other than the Company consent to such amendment or supplement; and provided
further, that no amendment or supplement to a Schedule prepared by TCI or Newco
that constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless a majority of the Founding Companies consent
to such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 8.1 and 9.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
7.8. In the event that one of the Other Founding Companies seeks to amend or
supplement a Schedule pursuant to Section 7.8 of one of the Other Agreements,
and such amendment or supplement constitutes or reflects an event or occurrence
that would have a Material Adverse Effect on such Other Founding Company, TCI
shall give the Company notice promptly after it has knowledge thereof. If TCI
and a majority of the Founding Companies (other than the Founding Company
seeking to amend or supplement a Schedule) consent to such amendment or
supplement, which consent shall have been deemed given by TCI or any Founding
Company if no response is received within 24 hours following receipt of notice
of such amendment or supplement (or sooner if required by the circumstances
under which such consent is requested), but the Company does not give its
consent, the Company may terminate this Agreement pursuant to Section 12.1(iv)
hereof. In the event that the Company seeks to amend or supplement a Schedule
pursuant to this Section 7.8, and TCI and a majority of the Other Founding
Companies do not consent to such amendment or supplement, this Agreement shall
be deemed terminated by mutual consent as set forth in Section 12.1(i) hereof.
In the event that TCI or Newco seeks to amend or supplement a Schedule pursuant
to this Section 7.8 and a majority of the Founding Companies do not consent to
such amendment or supplement, this Agreement shall be deemed terminated by
mutual consent as set forth in Section 12.1(i) hereof. No party to this
Agreement shall be liable to any other party if this Agreement shall be
terminated pursuant to the provisions of this Section 7.8. No amendment of or
supplement to a Schedule shall be made later than 24 hours prior to the
anticipated effectiveness of the Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will
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not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial condition of the Company or the results of its
operations from the financial statements as of the Balance Sheet Date. Such
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated (except as noted therein). Except as noted in such financial
statements, all of such financial statements will present fairly the results of
operations of the Company for the periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
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7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
7.16 INDEMNIFICATION AGREEMENT. At the closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall deliver to TCI an environmental
indemnification agreement in such form as may be approved by TCI in its
reasonable discretion.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as
of the Funding and Consummation Date, if any such conditions have not been
satisfied, the Company or the Stockholders (acting in unison) shall have the
right to terminate this Agreement, or in the alternative, waive any condition
not so satisfied. Any act or action of the Stockholders in consummating the
Closing or delivering certificates representing Company Stock as of the Funding
and Consummation Date shall constitute a waiver of any conditions not so
satisfied. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of TCI and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by TCI and Newco on or before the Closing Date and
the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of TCI shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably
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satisfactory to the Company and its counsel. The Stockholders and the Company
shall be satisfied that the Registration Statement and the prospectus forming a
part thereof, including any amendments thereof or supplements thereto, shall not
contain any untrue statement of a material fact, or omit to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that the condition contained in this sentence
shall (for purposes of this Section 8.2) be deemed satisfied if the Company or
Stockholders shall have failed to inform TCI in writing prior to the
effectiveness of the Registration Statement of the existence of an untrue
statement of a material fact or the omission of such a statement of a material
fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the Company as a result of which
the management of the Company deems it inadvisable to proceed with the
transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TCI Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI and Newco each shall have delivered to
the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TCI or Newco is authorized to do business, showing that each of
TCI and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for TCI and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI or Newco which has had or is reasonably likely to
have a Material Adverse Effect.
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8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI and of Newco, certifying the truth and correctness of attached copies of
the TCI's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of TCI and Newco
approving TCI's and Newco's entering into this Agreement and the consummation of
the transactions contemplated hereby.
8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for TCI Stock (but not cash or other property) pursuant to the TCI Plan
of Organization.
8.13 CERTAIN CONCURRENT ACTIONS. Concurrently with the transactions
contemplated hereby, TCI shall deliver (i) 9,000 shares of TCI Stock to Peter D.
Lund in exchange for all of the outstanding shares of Power Brake Midwest not
owned by the Company, and (ii) 35,700 shares of TCI Stock to Henry Lund in
exchange for all of the outstanding shares of Power Brake Wisconsin not owned by
the Company. Such shares of TCI Stock shall be subject to all of the provisions
of this Agreement pertaining to the shares of TCI Stock issuable in connection
with the Merger.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO
The obligations of TCI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TCI and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
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9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
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9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the appropriate governmental authority in the Company's
state of incorporation and, unless waived by TCI, in each state in which the
Company is authorized to do business, showing the Company is in good standing
and authorized to do business and that all state franchise and/or income tax
returns and taxes for the Company for all periods prior to the Closing have been
filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
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9.16 CERTAIN CONCURRENT ACTIONS. Concurrently with the transactions
contemplated hereby, (i) Peter D. Lund shall deliver to TCI all of the
outstanding shares of Power Brake Midwest not owned by the Company in exchange
for 9,000 shares of TCI Stock, and (ii) Henry Lund shall deliver to TCI all of
the outstanding shares of Power Brake Wisconsin not owned by the Company in
exchange for 35,700 shares of TCI Stock. Such shares of TCI Stock shall be
subject to all of the provisions of this Agreement pertaining to the shares of
TCI Stock issuable in connection with the Merger.
9.17 INDEMNIFICATION AGREEMENT. At the Closing, the Stockholders (or such
Stockholders as may be approved by TCI) shall have delivered to TCI an
environmental indemnification agreement in such form as may be approved by TCI
in its reasonable discretion.
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be subrogated to any
rights of the Stockholders accruing as a result of any such payments by the
Stockholders.
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to
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review all such Tax Returns prior to such filings. Unless the Company is a C
corporation, the Stockholders shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the Company Financial Statements) shown by
such Returns to be due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(iv) Each of the Company, Newco, TCI and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under the Code, and treat the transaction as a tax-free
contribution under Section 351(a) of the Code subject to gain, if any,
recognized on the receipt of cash or other property under Section 351(b) of the
Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, TCI and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, Newco, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation
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at all times, from and after the date of this Agreement until the Expiration
Date (provided that for purposes of Section 11.1(iii) below, the Expiration Date
shall be the date on which the applicable statute of limitations expires), from
and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by TCI, Newco, the Company or the Surviving Corporation as a result of
or arising from (i) any breach of the representations and warranties of the
Stockholders or the Company set forth herein or on the schedules or certificates
delivered in connection herewith, (ii) any breach of any agreement on the part
of the Stockholders or the Company under this Agreement, or (iii) any liability
under the 1933 Act, the 1934 Act or other Federal or state law or regulation, at
common law or otherwise, arising out of or based upon any untrue statement of a
material fact relating to the Company or the Stockholders, and provided to TCI
or its counsel by the Company or the Stockholders (but in the case of the
Stockholders, only if such statement was provided in writing) which is contained
in the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
Company or the Stockholders required to be stated therein or necessary to make
the statements therein not misleading, provided, however, that such indemnity
shall not inure to the benefit of TCI, Newco, the Company or the Surviving
Corporation to the extent that such untrue statement (or alleged untrue
statement) was made in, or omission (or alleged omission) occurred in, any
preliminary prospectus and the Company or the Stockholders provided, in writing,
corrected information to TCI for inclusion in the final prospectus, and such
information was not so included or the final prospectus was not properly
delivered, and provided further, that no Stockholder shall be liable for any
indemnification obligation pursuant to this Section 11.1 to the extent
attributable to a breach of any representation, warranty or agreement made
herein individually by any other Stockholder.
TCI and Newco acknowledge and agree that other than the representations
and warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI and Newco further acknowledge and agree that, should the Funding and
Consummation Date occur, their sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
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11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to TCI's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that TCI or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to TCI, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to TCI or Newco or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made against any party
obligated to provide indemnification pursuant to Section 11.1 or 11.2 hereof
(hereinafter the "Indemnifying Party"), give the Indemnifying Party written
notice of such claim or the commencement of such action or proceeding. Such
notice shall state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. The Indemnifying Party shall have the right to
defend and settle, at its own expense and by its own counsel, any such matter so
long as the Indemnifying Party pursues the same in good faith and diligently,
provided that the Indemnifying Party shall not settle any proceeding without the
written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the
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right to participate in such matter through counsel of its own choosing and the
Indemnifying Party will reimburse the Indemnified Party for the reasonable
expenses of its counsel. After the Indemnifying Party has notified the
Indemnified Party of its intention to undertake to defend or settle any such
asserted liability, and for so long as the Indemnifying Party diligently pursues
such defense, the Indemnifying Party shall not be liable for any additional
legal expenses incurred by the Indemnified Party in connection with any defense
or settlement of such asserted liability, except (i) as set forth in the
preceding sentence and (ii) to the extent such participation is requested by the
Indemnifying Party, in which event the Indemnified Party shall be reimbursed by
the Indemnifying Party for reasonable additional legal expenses and
out-of-pocket expenses. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person. Upon agreement as to
such settlement between said Third Person and the Indemnifying Party, the
Indemnifying Party shall, in exchange for a complete release from the
Indemnified Party, promptly pay to the Indemnified Party the amount agreed to in
such settlement and the Indemnified Party shall, from that moment on, bear full
responsibility for any additional costs of defense which it subsequently incurs
with respect to such claim and all additional costs of settlement or judgment,
and the Indemnifying Party shall have no further liability or obligation to the
Indemnified Party under Sections 11.1 or 11.2 with respect to such claim. If the
Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for insurance proceeds in determining
the amount of any indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
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11.5 LIMITATIONS ON INDEMNIFICATION. TCI, Newco, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 or 11.2
shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the TCI Stock delivered to Stockholders (calculated as
provided in this Section 11.5) or (b) $100,000 (the "Indemnification
Threshold"). Except with respect to the right to receive the merger
consideration as set forth on Annex I, the Stockholders shall not assert any
claim for indemnification hereunder against TCI or Newco until such time as, and
solely to the extent that, the aggregate of all claims which the Stockholders
may have against TCI or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
12. TERMINATION OF AGREEMENT
12.1 TERMINATION. This Agreement may be terminated at any time prior to
the Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default
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by the Stockholders) in the observance or in the due and timely performance of
any of the covenants or agreements contained herein, and the curing of such
default shall not have been made on or before the Funding and Consummation Date,
or by the Company, if the conditions set forth in Section 8 hereof have not been
satisfied or waived as of the Closing Date or the Funding and Consummation Date,
as applicable, or by TCI, if the conditions set forth in Section 9 hereof have
not been satisfied or waived as of the Closing Date or the Funding and
Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
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(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
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13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel) agree to the confidentiality provisions of
this Section 14.1, unless (i) such Confidential Information becomes known to the
public generally through no fault of the Stockholders, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any Confidential Information pursuant to this
clause (ii), the Stockholders shall, if possible, give prior written notice
thereof to TCI and provide TCI with the opportunity to contest such disclosure,
or (iii) the disclosing party reasonably believes that such disclosure is
required in connection with the defense of a lawsuit against the disclosing
party. In the event of a breach or threatened breach by any of the Stockholders
of the provisions of this Section 14.1, TCI shall be entitled to an injunction
restraining such Stockholders from disclosing, in whole or in part, such
confidential information. Nothing herein shall be construed as prohibiting TCI
from pursuing any other available remedy for such breach or threatened breach,
including the recovery of damages. In the event the transactions contemplated by
this Agreement are not consummated, Stockholders shall have none of the
above-mentioned restrictions on their ability to disseminate Confidential
Information with respect to the Company. Each Stockholder further agrees that in
the event the transactions contemplated herein are not consummated (i) neither
the Company nor any Stockholder can thereafter use any Confidential Information
of the Other Founding Companies for any purpose and (ii) upon written request of
any Other Founding Company to the Company, the Company and
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Stockholders will return all Confidential Information pertaining to such Other
Founding Company to such Other Founding Company.
14.2 TCI AND NEWCO. TCI and Newco recognize and acknowledge that they had
in the past and currently have access to certain Confidential Information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. TCI and Newco
agree that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such Confidential
Information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such Confidential
Information is or becomes known to the public generally through no fault of TCI
or Newco, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), TCI and Newco shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of TCI as a publicly held entity after
the IPO. In the event of a breach or threatened breach by TCI or Newco of the
provisions of this Section 14.2, the Company and the Stockholders shall be
entitled to an injunction restraining TCI and Newco from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting the Company and the Stockholders from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or
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partners of which so agree), for a period of two years from the Funding and
Consummation Date, except pursuant to Section 17 hereof, none of the
Stockholders shall sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint, or otherwise dispose of any shares of TCI Stock received by
the Stockholders in the Merger. The certificates evidencing the TCI Stock
delivered to the Stockholders pursuant to Section 3 of this Agreement will bear
a legend substantially in the form set forth below and containing such other
information as TCI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders pursuant to this
Agreement is being acquired solely for their own respective accounts, for
investment purposes only, and with no present intention of distributing, selling
or otherwise disposing of it in connection with a distribution. The Stockholders
covenant, warrant and represent that none of the shares of TCI Stock issued to
such Stockholders will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all of
the applicable provisions of the 1933 Act and the rules and regulations of the
SEC. All the TCI Stock shall bear the following legend in addition to the legend
required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and
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business matters that they are capable of evaluating the merits and risks of the
proposed investment in the TCI Stock. The Stockholders party hereto have had an
adequate opportunity to ask questions and receive answers from the officers of
TCI concerning any and all matters relating to the transactions described herein
including, without limitation, the background and experience of the current and
proposed officers and directors of TCI, the plans for the operations of the
business of TCI, the business, operations and financial condition of the
Founding Companies other than the Company, and any plans for additional
acquisitions and the like. The Stockholders have asked any and all questions in
the nature described in the preceding sentence and all questions have been
answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the Stockholders pursuant to this Agreement (including any stock
issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by TCI as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of
such TCI Stock) which any such Stockholder requests, provided that TCI shall
have the right to reduce the number of shares included in such registration to
the extent that inclusion of such shares could, in the written opinion of tax
counsel to TCI or its independent auditors, jeopardize the status of the
transactions contemplated hereby and by the Registration Statement as a tax-free
organization under Section 351 of the Code. In addition, if TCI is advised in
writing in good faith by any managing underwriter of an underwritten offering of
the securities being offered pursuant to any registration statement under this
Section 17.1 that the number of shares to be sold by persons other than TCI is
greater than the number of such shares which can be offered without adversely
affecting the offering, TCI may reduce pro rata the number of shares offered for
the accounts of such persons (based upon the number of shares proposed to be
sold by each such person) to a number deemed satisfactory by such managing
underwriter, provided, that, for each such offering made by TCI after the IPO,
such reduction shall be made first by reducing the number of shares to be sold
by persons other than TCI, the Stockholders and the stockholders of the Other
Founding Companies (collectively, the Stockholders and the stockholders of the
other Founding Companies being referred to herein as the "Founding
Stockholders"), and thereafter, if a further reduction is required, by reducing
the number of shares to be sold by the Founding Stockholders.
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17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep the registration statement relating to
such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or the making of any required disclosure in connection
therewith would have an adverse effect on TCI or interfere with a transaction in
which TCI is then engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
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17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
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<PAGE>
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in information so furnished in writing by
such Stockholder specifically for use in preparing the registration statement.
Notwithstanding the foregoing, the liability of a Stockholder under this Section
17.4 shall be limited to an amount equal to the net proceeds actually received
by such Stockholder from the sale of the relevant shares covered by the
registration statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without
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its consent (but such consent shall not be unreasonably withheld). An
indemnifying party who is not entitled or elects not to assume the defense of a
claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party, a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, TCI and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times
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and places as shall be reasonably agreed to, such additional instruments as the
other may reasonably request for the purpose of carrying out this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and TCI and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and TCI,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commission of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect
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to such Transfer Taxes. In addition, each Stockholder acknowledges that he, and
not the Company or TCI, will pay all taxes due upon receipt of the consideration
payable pursuant to Section 3 hereof. The Stockholders acknowledge that the
risks of the transactions contemplated hereby include tax risks, with respect to
which the Stockholders are relying solely on the opinion contemplated by Section
8.12 hereof. TCI hereby agrees to reimburse an aggregate of up to $75,000 of
expenses or fees incurred by the Stockholders and the stockholders of the Other
Founding Companies, as a group, promptly after the Funding and Consummation
Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, or Newco, addressed to them at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston Texas 77002
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<PAGE>
(c) If to Transportation Components Company, addressed to it at:
2650 University Avenue
St. Paul, Minnesota 55114
(d) If to L.L.L., Inc., addressed to it at:
2408 Territorial Road
St. Paul, Minnesota 55114
(e) If to MSL, Inc., addressed to it at:
3275 Dodd Road
Eagan, Minnesota 55121
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case
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<PAGE>
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, Newco, the Company and Stockholders who hold or who will
hold at least 50% of the TCI Stock issued or to be issued upon consummation of
the Merger. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving TCI Stock in connection with the Merger and each future holder of such
TCI Stock.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
CTC ACQUISITION CORPORATION
By:
Vice President
LLL ACQUISITION CORPORATION
By:
Vice President
MLS ACQUISITION CORPORATION
By:
Vice President
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TRANSPORTATION COMPONENTS COMPANY
By:
Name: Peter D. Lund
Title: President
L.L.L., INC.
By:
Name: Peter D. Lund
Title: President
MSL, INC.
By:
Name: Peter D. Lund
Title: President
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Stockholders of Transportation Components Company:
Peter D. Lund
Stockholders of Power Brake of Wisconsin, Inc.:
Transportation Components Company by
Peter D. Lund, President
Henry Lund
Stockholders of Power Brake Midwest, Inc.:
Transportation Components Company by
Peter D. Lund, President
Peter D. Lund
Stockholders of L.L.L., Inc.:
Peter D. Lund
Stockholders of MSL Inc.:
Mitchell Loewen
Peter D. Lund
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SCHEDULE 6.4
None.
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SCHEDULE 6.5
None.
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SCHEDULE 6.7
None.
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SCHEDULE 6.8
None.
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SCHEDULE 6.9
None.
-66-
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SCHEDULE 6.12
None.
-67-
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SCHEDULE 6.15
None.
-68-
EXHIBIT 10.12
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
APM ACQUISITION CORPORATION
AIII ACQUISITION CORPORATION
(each a subsidiary of Transportation Components, Inc.)
AMPARTS, INC.
AMPARTS INTERNATIONAL, INC.
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. THE MERGER.............................................................5
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER........................5
1.2 EFFECTIVE TIME OF THE MERGER.....................................5
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND
OFFICERS OF SURVIVING CORPORATION................................6
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY, TCI AND NEWCO...........................................6
1.5 EFFECT OF MERGER.................................................7
2. CONVERSION OF STOCK....................................................7
2.1 MANNER OF CONVERSION.............................................7
3. DELIVERY OF MERGER CONSIDERATION.......................................8
4. CLOSING................................................................9
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.....................9
5.1 DUE ORGANIZATION................................................10
5.2 AUTHORIZATION...................................................10
5.3 CAPITAL STOCK OF THE COMPANY....................................10
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........10
5.5 NO BONUS SHARES.................................................11
5.6 SUBSIDIARIES....................................................11
5.7 PREDECESSOR STATUS; ETC.........................................11
5.8 SPIN-OFF BY THE COMPANY.........................................11
5.9 FINANCIAL STATEMENTS............................................11
5.10 LIABILITIES AND OBLIGATIONS.....................................11
5.11 ACCOUNTS AND NOTES RECEIVABLE...................................12
5.12 PERMITS AND INTANGIBLES.........................................12
5.13 ENVIRONMENTAL MATTERS...........................................13
5.14 PERSONAL PROPERTY...............................................13
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS.......14
5.16 REAL PROPERTY...................................................14
5.17 INSURANCE.......................................................15
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS....15
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5.19 EMPLOYEE PLANS..................................................16
5.20 COMPLIANCE WITH ERISA...........................................17
5.21 CONFORMITY WITH LAW; LITIGATION.................................17
5.22 TAXES...........................................................18
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC.......................18
5.24 ABSENCE OF CHANGES..............................................19
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY............................20
5.26 VALIDITY OF OBLIGATIONS.........................................21
5.27 RELATIONS WITH GOVERNMENTS......................................21
5.28 DISCLOSURE......................................................21
5.29 NO INTERESTS IN OTHER BUSINESSES................................21
5.30 AUTHORITY; OWNERSHIP............................................22
5.31 PREEMPTIVE RIGHTS...............................................22
5.32 NO INTENTION TO DISPOSE OF TCI STOCK............................22
6. REPRESENTATIONS OF TCI AND NEWCO......................................22
6.1 DUE ORGANIZATION................................................22
6.2 AUTHORIZATION...................................................23
6.3 CAPITAL STOCK OF TCI AND NEWCO..................................23
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING..........23
6.5 SUBSIDIARIES....................................................23
6.6 FINANCIAL STATEMENTS............................................23
6.7 LIABILITIES AND OBLIGATIONS.....................................23
6.8 CONFORMITY WITH LAW; LITIGATION.................................24
6.9 NO VIOLATIONS...................................................24
6.10 VALIDITY OF OBLIGATIONS.........................................25
6.11 TCI STOCK.......................................................25
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS............................25
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS....................25
6.14 TAXES...........................................................25
6.15 ABSENCE OF CHANGES..............................................26
6.16 DISCLOSURE......................................................27
7. COVENANTS PRIOR TO CLOSING............................................27
7.1 ACCESS AND COOPERATION; DUE DILIGENCE...........................27
7.2 CONDUCT OF BUSINESS PENDING CLOSING.............................28
7.3 PROHIBITED ACTIVITIES...........................................29
7.4 NO SHOP.........................................................30
7.5 NOTICE TO BARGAINING AGENTS.....................................30
7.6 AGREEMENTS......................................................30
7.7 NOTIFICATION OF CERTAIN MATTERS.................................31
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7.8 AMENDMENT OF SCHEDULES..........................................31
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT............32
7.10 FINAL FINANCIAL STATEMENTS......................................32
7.11 FURTHER ASSURANCES..............................................33
7.12 AUTHORIZED CAPITAL..............................................33
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS
ACT OF 1976 (THE "HART-SCOTT-RODINO ACT").......................33
7.14 STOCKHOLDERS OF TCI.............................................33
7.15 IPO.............................................................33
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY.......34
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......34
8.2 SATISFACTION....................................................34
8.3 NO LITIGATION...................................................34
8.4 OPINION OF COUNSEL..............................................35
8.5 REGISTRATION STATEMENT..........................................35
8.6 CONSENTS AND APPROVALS..........................................35
8.7 GOOD STANDING CERTIFICATES......................................35
8.8 NO MATERIAL ADVERSE CHANGE......................................35
8.9 CLOSING OF IPO..................................................35
8.10 SECRETARY'S CERTIFICATE.........................................35
8.11 EMPLOYMENT AGREEMENTS...........................................36
8.12 TAX MATTERS.....................................................36
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO..................36
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS......36
9.2 NO LITIGATION...................................................36
9.3 SECRETARY'S CERTIFICATE.........................................37
9.4 NO MATERIAL ADVERSE EFFECT......................................37
9.5 STOCKHOLDERS' RELEASE...........................................37
9.6 SATISFACTION....................................................37
9.7 TERMINATION OF RELATED PARTY AGREEMENTS.........................37
9.8 OPINION OF COUNSEL..............................................37
9.9 CONSENTS AND APPROVALS..........................................37
9.10 GOOD STANDING CERTIFICATES......................................37
9.11 REGISTRATION STATEMENT..........................................38
9.12 EMPLOYMENT AGREEMENTS...........................................38
9.13 CLOSING OF IPO..................................................38
9.14 FIRPTA CERTIFICATE..............................................38
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9.15 ENVIRONMENTAL REVIEWS...........................................38
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING...................38
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS.......38
10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT....................39
10.3 PREPARATION AND FILING OF TAX RETURNS...........................39
10.4 DIRECTORS.......................................................40
11. INDEMNIFICATION.......................................................40
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS.....................40
11.2 INDEMNIFICATION BY TCI..........................................41
11.3 THIRD PERSON CLAIMS.............................................41
11.4 EXCLUSIVE REMEDY................................................43
11.5 LIMITATIONS ON INDEMNIFICATION..................................43
12. TERMINATION OF AGREEMENT..............................................44
12.1 TERMINATION.....................................................44
12.2 LIABILITIES IN EVENT OF TERMINATION.............................44
13. NONCOMPETITION........................................................45
13.1 PROHIBITED ACTIVITIES...........................................45
13.2 DAMAGES.........................................................46
13.3 REASONABLE RESTRAINT............................................46
13.4 SEVERABILITY; REFORMATION.......................................46
13.5 INDEPENDENT COVENANT............................................46
13.6 MATERIALITY.....................................................46
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................46
14.1 STOCKHOLDERS....................................................46
14.2 TCI AND NEWCO...................................................47
14.3 DAMAGES.........................................................48
14.4 SURVIVAL........................................................48
15. TRANSFER RESTRICTIONS.................................................48
15.1 TRANSFER RESTRICTIONS...........................................48
16. FEDERAL SECURITIES ACT REPRESENTATIONS................................48
16.1 COMPLIANCE WITH LAW.............................................48
16.2 ECONOMIC RISK; SOPHISTICATION...................................49
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17. REGISTRATION RIGHTS...................................................49
17.1 PIGGYBACK REGISTRATION RIGHTS...................................49
17.2 DEMAND REGISTRATION RIGHTS......................................50
17.3 REGISTRATION PROCEDURES.........................................51
17.4 INDEMNIFICATION.................................................52
17.5 UNDERWRITING AGREEMENT..........................................53
17.6 RULE 144 REPORTING..............................................53
18. GENERAL...............................................................54
18.1 COOPERATION.....................................................54
18.2 SUCCESSORS AND ASSIGNS..........................................54
18.3 ENTIRE AGREEMENT................................................54
18.4 COUNTERPARTS....................................................54
18.5 BROKERS AND AGENTS..............................................54
18.6 EXPENSES........................................................55
18.7 NOTICES.........................................................55
18.8 GOVERNING LAW...................................................56
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................56
18.10 EXERCISE OF RIGHTS AND REMEDIES.................................56
18.11 TIME............................................................56
18.12 REFORMATION AND SEVERABILITY....................................56
18.13 REMEDIES CUMULATIVE.............................................57
18.14 CAPTIONS........................................................57
18.15 AMENDMENTS AND WAIVERS..........................................57
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ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stockholders and Stock Ownership of the Company
Annex III - Form of Opinion of Bracewell & Patterson, L.L.P.
Annex IV - Form of Opinion of Counsel to the Company and Stockholders
Annex V - Form of Founder's Employment Agreement
Annex VI - Form of Lease Agreement
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SCHEDULES
5.1 Due Organization
5.2 Authorization
5.3 Capital Stock of the Company
5.4 Transactions in Capital Stock, Organization Accounting
5.5 No Bonus Shares
5.6 Subsidiaries
5.7 Predecessor Status; etc
5.8 Spin-off by the Company
5.9 Financial Statements
5.10 Liabilities and Obligations
5.11 Accounts and Notes Receivable
5.12 Permits and Intangibles
5.13 Environmental Matters
5.14 Personal Property
5.15 Significant Customers; Material Contracts and Commitments
5.16 Real Property
5.18 Compensation; Employment Agreements; Organized Labor Matters
5.19 Employee Plans
5.20 Compliance with ERISA
5.21 Conformity with Law; Litigation
5.22 Taxes
5.23 No Violations, Consents, etc.
5.24 Absence of Changes
5.25 Deposit Accounts; Powers of Attorney
5.29 No Interests in Other Businesses
5.30 Authority; Ownership
6.4 Transactions in Capital Stock, Organization Accounting
6.5 Subsidiaries
6.7 Liabilities and Obligations
6.8 Conformity with Law; Litigation
6.9 No Violations
6.12 Other Agreements; No Side Agreements
6.15 Absence of Changes
7.2 Conduct of Business Pending Closing
7.3 Prohibited Activities
7.5 Notice to Bargaining Agents
7.6 Agreements
9.7 Termination of Related Party Agreements
9.12 Employment Agreements
10.1 Guaranties
13.1 Activities Excluded from Noncompete
18.5 Brokers and Agents
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), APM Acquisition Corporation, and AIII Acquisition
Corporation, each of which is a Delaware corporation (herein collectively
referred to as "Newco" except as the contest otherwise indicates), Amparts, Inc.
and Amparts International, Inc., each of which is a Texas corporation (herein
collectively referred to as the "Company" except as the context otherwise
indicates), and the Stockholders identified on the signature pages hereto (the
"Stockholders"). The Stockholders are all the stockholders of the Company.
RECITALS
WHEREAS, each Newco is a corporation duly organized and existing
under the laws of the State of Delaware, having been incorporated on April
9, 1998 solely for the purpose of completing the transactions set forth
herein, and is a wholly-owned subsidiary of TCI, a corporation organized
and existing under the laws of the State of Delaware;
WHEREAS, the respective Boards of Directors of each Newco and the
each Company (which together are hereinafter collectively referred to as
"Constituent Corporations") deem it advisable and in the best interests of
the Constituent Corporations and their respective stockholders that each
Newco merge with and into the Company identified herein pursuant to this
Agreement and the applicable provisions of the laws of the States of
Delaware and the State of Incorporation (as defined below);
WHEREAS, TCI is entering into other separate agreements
substantially similar to this Agreement (the "Other Agreements"), each of
which is entitled "Agreement and Plan of Organization", with each of the
Other Founding Companies (as defined herein) and their respective
stockholders in order to acquire additional transportation components
retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, the Stockholders and the Boards of Directors of each
Company, the stockholders and the Board of Directors of each Newco and
TCI, each of the Other Founding Companies and each of the subsidiaries of
TCI that are parties to the Other Agreements have approved and adopted the
TCI Plan of Organization as an integrated plan pursuant to which the
Stockholders and the stockholders of each of the Other Founding Companies
will transfer the capital stock of each of the Founding Companies (as
defined herein) to TCI and the stockholders of each of the Other Founding
Companies will acquire the stock of TCI (but not cash or other property)
as a tax-free transfer of property under Section 351 of the Code;
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WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the Board of Directors of each
Company has approved this Agreement (which is subject to the terms and
conditions herein set forth), as part of the TCI Plan of Organization in
order to transfer the capital stock of the Company to TCI;
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Acquired Party" means the Company, any Subsidiary of the Company and any
member of a Relevant Group.
"Acquisition Companies" means each Newco and each of the other Delaware
companies created for purposes of effecting the acquisitions of some or all of
the Other Founding Companies and wholly-owned by TCI prior to the Funding and
Consummation Date.
"Affiliate" means, with respect to any Person, any Person that directly,
or indirectly through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person.
"Articles of Merger" shall mean those Articles or Certificates of Merger
with respect to the Merger in such forms as may be required by the laws of the
State of Delaware and the State of Incorporation.
"Balance Sheet Date" shall mean December 31, 1997.
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the date of
this Agreement.
"Closing" has the meaning set forth in Section 4.
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Confidential Information" has the meaning set forth in Section 14.1.
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"Constituent Corporations" has the meaning set forth in the second recital
of this Agreement.
"Draft Registration Statement" means the proof of the Registration
Statement generated by Chas P. Young on April 14, 1998, copies of which were
delivered to the Founding Companies and their respective counsel on April 15,
1998, and any corrections thereto and supplemental information delivered by TCI
to the Company for delivery to the Stockholders prior to the time this Agreement
is delivered to TCI.
"Effective Time of the Merger" shall mean the time as of which the Merger
becomes effective, which shall occur on the Funding and Consummation Date.
"Environmental Laws" has the meaning set forth in Section 5.13.
"Expiration Date" has the meaning set forth in Section 5.
"Founding Companies" means, collectively:
(a) Amparts International, Inc., a Texas corporation;
(b) Amparts, Inc., a Texas corporation;
(c) Proveedor Mayorista al Refaccionario, S.A. de C. V., a Mexican
corporation;
(d) Charles W. Carter Co. - Los Angeles, a California corporation;
(e) The Cook Brothers Companies, Inc., a New York corporation;
(f) Plaza Automotive, Inc., a Missouri corporation;
(g) Drive Line, Inc., a Florida corporation;
(h) Gear and Wheel, Inc., a Florida corporation;
(i) Try One, Inc., a Florida corporation;
(j) Ocala Truck Parts, Inc., a Florida corporation;
(k) Perfection Equipment Company, an Oklahoma corporation;
(l) TPE, Inc., an Oklahoma corporation;
(m) Transportation Components Company, a Minnesota corporation;
(n) Power Brake of Wisconsin, Inc., a Wisconsin corporation;
(o) Power Brake Midwest, Inc., a North Dakota corporation;
(p) MSL, Inc., a Minnesota corporation;
(q) L.L.L., Inc., a Minnesota corporation; and
(r) Universal Fleet Supply, Inc., a California corporation.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Knowledge of the Stockholders" means the actual knowledge of the
Stockholders.
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"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of each Newco with and into the Company
identified herein pursuant to this Agreement and the applicable provisions of
the laws of the State of Delaware and the laws of the State of Incorporation;
APM Acquisition Corporation shall merge with and into Amparts, Inc.; and AIII
Corporation shall merge with and into Amparts International, Inc.
"Newco" has the meaning set forth in the first paragraph of this
Agreement.
"Newco Stock" means the common stock, par value $.01 per share, of the
relevant Newco.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Relevant Group" means the Company and any Affiliated, combined,
consolidated, unitary or similar group of which the Company is or was a member
for Tax reporting purposes.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto (as the same may from time
to time be amended), which shall reference the relevant sections of this
Agreement, on which parties hereto disclose information as part of their
respective representations, warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"State of Incorporation" means the State of Texas.
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"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiary" means, as to any Person, any corporation or entity, 50% or
more of the shares of voting stock (or in the case of an entity which is not a
corporation, 50% or more of the equity interests that provide the power to
manage or direct the management of such entity) of which is at the time any
determination is being made, owned, directly or indirectly, by such Person and
its wholly owned Subsidiaries.
"Surviving Corporation" shall mean the Company as the surviving party in
the Merger.
"Tax" or "Taxes" means all federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, withholding, employment, excise, property, deed, stamp, alternative
or add on minimum, or other taxes, assessments, duties, fees, levies or other
governmental charges, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. THE MERGER
1.1 DELIVERY AND FILING OF ARTICLES OF MERGER. The Constituent
Corporations will cause the Articles of Merger to be signed, verified and
delivered to TCI at the Closing to be held for filing with the Secretary of
State of the State of Delaware and the Secretary of State (or other appropriate
authority) of the State of Incorporation on or effective as of the Funding and
Consummation Date.
1.2 EFFECTIVE TIME OF THE MERGER. At the Effective Time of the Merger,
each Newco shall be merged with and into the respective Company in accordance
with the Articles of Merger, the separate existence of Newco shall cease, and
the respective Company shall be the surviving party in the Merger and such
Company is sometimes hereinafter referred to as the Surviving Corporation.
The Merger will be effected in a single transaction.
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1.3 CERTIFICATE OF INCORPORATION, BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
OF SURVIVING CORPORATION. At the Effective Time of the Merger:
(i) the Certificate of Incorporation of the Company then in effect
shall be the Certificate of Incorporation of the Surviving Corporation until
changed as provided by law;
(ii) the By-laws of the relevant Newco then in effect shall become
the By-laws of the Surviving Corporation; and subsequent to the Effective Time
of the Merger, such By-laws shall be the By-laws of the Surviving Corporation
until they shall thereafter be duly amended (and such By-laws shall be amended
from time to time, if necessary, to comply with applicable state law);
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are on the Board of Directors of respective Company
immediately prior to the Effective Time of the Merger, provided that T. Michael
Young or another officer of TCI shall become an additional director of the
Surviving Corporation effective as of the Effective Time of the Merger, and the
number of directors constituting the entire Board of Directors of each Company
shall be increased, if necessary, to accommodate the addition of such additional
director; the Board of Directors of the Surviving Corporation shall hold office
subject to the provisions of the laws of the State of Incorporation and of the
Certificate of Incorporation and By-laws of the Surviving Corporation; and
(iv) the officers of each Company immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving Corporation
in the same capacity or capacities, and effective upon the Effective Time of the
Merger David Gooch, Hugh McConnell and Paul Pryzant shall each become an
additional Vice President and Assistant Secretary of the Surviving Corporation,
such officers to serve, subject to the provisions of the Certificate of
Incorporation and By-laws of the Surviving Corporation, until their respective
successors are duly elected and qualified.
1.4 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY,
TCI AND NEWCO. The respective designations and numbers of outstanding shares and
voting rights of each class of outstanding capital stock of each Company, TCI
and each Newco as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of each Company, and the record and beneficial ownership of such
outstanding capital stock, is as set forth on Annex II hereto;
(ii) immediately prior to the Closing Date and the Funding and
Consummation Date, except for changes permitted by Section 7.12 hereof, the
authorized capital stock of TCI will consist of 100,000,000 shares of TCI Stock,
of which the number of issued and outstanding shares will be set forth in the
Registration Statement, 5,000,000 shares of preferred stock, $.01 par value, of
which no shares will be issued and outstanding, and 2,000,000 shares of
Restricted Voting
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Common Stock, $.01 par value (the "Restricted Common Stock"), all of which will
be issued and outstanding except as otherwise set forth in the Registration
Statement; and
(iii) as of the date of this Agreement, the authorized capital stock
of each Newco consists of 1,000 shares of Newco Stock, of which one hundred
(100) shares are issued and outstanding.
1.5 EFFECT OF MERGER. At the Effective Time of the Merger, the effect of
each Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the law of the
State of Incorporation. Except as herein specifically set forth, the identity,
existence, purposes, powers, franchises, privileges, rights and immunities of
the respective Company shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of the relevant Newco shall
be merged with and into the Company as set forth herein, and such Company, as
the Surviving Corporation, shall be fully vested therewith. At the Effective
Time of the Merger, the separate existence of each Newco shall cease and, in
accordance with the terms of this Agreement, the Surviving Corporation shall
possess all the rights, privileges, immunities and franchises, of a public, as
well as of a private, nature, and all property, real, personal and mixed, and
all debts due on whatever account, including subscriptions to shares, and all
taxes, including those due and owing and those accrued, and all other choses in
action, and all and every other interest of or belonging to or due to such
Company and such Newco shall be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of such Company and such Newco; and the title to any real estate, or interest
therein, whether by deed or otherwise, under the laws of the State of
Incorporation vested in such Company and such Newco, shall not revert or be in
any way impaired by reason of the Merger. Except as otherwise provided herein,
the Surviving Corporation shall thenceforth be responsible and liable for all
the liabilities and obligations of such Company and such Newco and any claim
existing, or action or proceeding pending, by or against such Company or such
Newco may be prosecuted as if the Merger had not taken place, or the Surviving
Corporation may be substituted in their place. Neither the rights of creditors
nor any liens upon the property of any Company or any Newco shall be impaired by
the Merger, and all debts, liabilities and duties of each Company and each Newco
shall attach to the Surviving Corporation, and may be enforced against such
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by such Surviving Corporation.
2. CONVERSION OF STOCK
2.1 MANNER OF CONVERSION. The manner of converting the shares of (i)
outstanding capital stock of each Company ("Company Stock") and (ii) Newco
Stock, issued and outstanding immediately prior to the Effective Time of the
Merger, respectively, into shares of (x) TCI Stock and cash and (y) common stock
of the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
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(i) the aggregate number of shares of Company Stock issued and
outstanding immediately prior to the Effective Time of the Merger, by virtue of
the Merger and without any action on the part of the holders thereof,
automatically shall be converted into and deemed to represent the right to
receive (1) the aggregate number of shares of TCI Stock set forth on Annex I
hereto and (2) subject to the adjustments described in Annex I hereto, the
aggregate amount of cash set forth on Annex I hereto (the number of shares of
TCI Stock and, subject to the adjustments described on Annex I hereto, the
amount of cash allocable to the holders of the Company Stock being set forth on
Annex I);
(ii) all shares of Company Stock that are held by each Company as
treasury stock shall be canceled and retired and no shares of TCI Stock or other
consideration shall be delivered or paid in exchange therefor; and
(iii) each share of Newco Stock issued and outstanding immediately
prior to the Effective Time of the Merger, shall, by virtue of the Merger and
without any action on the part of TCI, automatically be converted into one fully
paid and non-assessable share of common stock of the Surviving Corporation which
shall constitute all of the issued and outstanding shares of common stock of the
Surviving Corporation immediately after the Effective Time of the Merger, all of
which shall be owned by TCI.
All TCI Stock received by the Stockholders pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Sections 15
and 16 hereof, have the same rights as all the other shares of outstanding TCI
Stock by reason of the provisions of the Certificate of Incorporation of TCI or
as otherwise provided by the Delaware GCL. All TCI Stock received by the
Stockholders shall be issued and delivered to the Stockholders free and clear of
any liens, claims or encumbrances of any kind or nature. All voting rights of
such TCI Stock received by the Stockholders shall be fully exercisable by the
Stockholders and the Stockholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, TCI shall have no
class of capital stock issued and outstanding other than the TCI Stock and the
Restricted Voting Common Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Funding and Consummation Date the Stockholders, who are the
holders of all of the outstanding capital stock of each Company, shall, upon
surrender of certificates representing such shares, receive the respective
numbers of shares of TCI Stock and, subject to the adjustments described on
Annex I hereto, the amounts of cash described on Annex I hereto, said cash to be
payable by certified check or wire transfer as so requested by the Stockholders
at least two business days prior to closing.
3.2 The Stockholders shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Stockholders, or
accompanied by blank stock powers, and with all necessary transfer tax and other
revenue stamps, acquired at the Stockholders'
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expense, affixed and canceled. The Stockholders agree promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying any Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the execution of the Articles of
Merger which shall be delivered to TCI for filing with the appropriate
authorities effective on the Funding and Consummation Date) and (ii) effect the
conversion and delivery of shares referred to in Section 3 hereof; provided,
that such actions shall not include the actual completion of the Merger or the
conversion and delivery of the shares and funds referred to in Section 3 hereof,
each of which actions shall only be taken upon the Funding and Consummation Date
as herein provided. In the event that there is no Funding and Consummation Date
and this Agreement automatically terminates as provided in this Section 4, the
Articles of Merger shall not be filed and shall be returned to the Stockholders.
The taking of the actions described in clauses (i) and (ii) above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) the Articles of Merger shall be filed with the appropriate state
authorities so that they shall be, as early as practicable on the Funding and
Consummation Date, effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares and the delivery of funds in the amount and in the manner
provided in Section 3 hereof and (z) the closing with respect to the IPO shall
occur and be completed. The date on which the actions described in the preceding
clauses (x), (y) and (z) occurs shall be referred to as the "Funding and
Consummation Date." During the period from the Closing Date to the Funding and
Consummation Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall also in any event
automatically terminate if the Funding and Consummation Date has not occurred
within 15 business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders severally represents and warrants that all of the
representations and warranties in this Section 5 are true at the date of this
Agreement and, subject to Section 7.8 hereof, shall be true at the time of
Closing and the Funding and Consummation Date, and agrees that such
representations and warranties shall survive the Funding and Consummation Date
for a period of twelve months (the last day of such period being the "Expiration
Date"), except that the representations and warranties set forth in Section 5.22
hereof shall survive until such time as the limitations period has run for all
tax periods ended on or prior to the Funding and Consummation Date, which shall
be deemed to be the Expiration Date for Section 5.22, and the representations
and warranties set forth in Section 5.30 hereof shall survive perpetually. For
purposes of this Section
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5, the term "Company" shall mean and refer to the Company and all of its
Subsidiaries, if any, and shall mean all three Companies, taken as a whole,
unless the context indicates otherwise.
5.1 DUE ORGANIZATION. Each Company is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Incorporation, and has the requisite power and authority to carry on its
business as it is now being conducted. Each Company is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise),
of the Company and its subsidiaries taken as a whole (as used herein with
respect to the Company, or with respect to any other Person, a "Material Adverse
Effect"). Schedule 5.1 sets forth a list of all jurisdictions in which each
Company is authorized or qualified to do business. True, complete and correct
copies of (i) the Certificate of Incorporation and By-laws, each as amended, of
the Company (the "Charter Documents"), and (ii) the stock records of each
Company, are all attached to Schedule 5.1. Each Company has delivered complete
and correct copies of all minutes of meetings, written consents and other
evidence, if any, of deliberations of or actions taken by the Company's Board of
Directors and stockholders during the last five years.
5.2 AUTHORIZATION. (i) The representatives of each Company executing this
Agreement have the authority to enter into and bind such Company to the terms of
this Agreement and (ii) each Company has the full legal right, power and
authority to enter into this Agreement and the Merger. Recent resolutions
adopted by the Board of Directors of each Company and resolutions adopted by the
Stockholders to approve this Agreement and the transactions contemplated hereby
in all respects, and copies of all such resolutions, certified by the Secretary
or an Assistant Secretary of the Company as being in full force and effect on
the date hereof, are attached hereto as Schedule 5.2.
5.3 CAPITAL STOCK OF THE COMPANY. The authorized capital stock of each
Company is as set forth on Annex II, and all of the issued and outstanding
shares of the capital stock of each Company are owned by the Stockholders in the
amounts set forth in Annex II. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of the capital stock of each Company have been
duly authorized and validly issued, are fully paid and nonassessable, are owned
of record and beneficially by the Stockholders and further, such shares were
offered, issued, sold and delivered by each Company in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of any preemptive rights
of any past or present stockholder.
5.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except as set
forth on Schedule 5.4, the Company has not acquired any Company Stock since
January 1, 1995. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock; (ii) the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of its equity securities or any interests therein or to
pay any dividend or make any distribution in
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respect thereof; and (iii) neither the voting stock structure of the Company nor
the relative ownership of shares among any of its respective Stockholders has
been altered or changed in contemplation of the Merger and/or the TCI Plan of
Organization.
5.5 NO BONUS SHARES. Except as set forth on Schedule 5.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses in
contemplation of the Merger or the TCI Plan of Organization.
5.6 SUBSIDIARIES. Except as set forth on Schedule 5.6, the Company has no
Subsidiaries. Except as set forth in Schedule 5.6, the Company does not
presently own, of record or beneficially, or control, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is the Company,
directly or indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 PREDECESSOR STATUS; ETC. Set forth on Schedule 5.7 is a listing of all
names of all predecessor companies of the Company, including the names of any
entities acquired by the Company (by stock purchase, merger or otherwise) or
owned by the Company or from whom the Company previously acquired all or
substantially all of any such entity's assets (or all or substantially all of
the assets used by any such entity in a line of business), in any case, from the
earliest date upon which any Stockholder acquired his or her stock in any
Company. Except as disclosed on Schedule 5.7, the Company has not been, within
such period of time, a subsidiary or division of another corporation or a part
of an acquisition which was later rescinded.
5.8 SPIN-OFF BY THE COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
Company or any Affiliate since January 1, 1995.
5.9 FINANCIAL STATEMENTS. Schedule 5.9 sets forth complete and correct
copies of the Company's financial statements as of the dates and for the periods
indicated therein (the "Financial Statements"). The Financial Statements have
been prepared from the books and records of the Company in conformity with
generally accepted accounting principles applied on a consistent basis and
throughout the periods involved ("GAAP") (except as disclosed therein or in the
schedules hereto, and except that any unaudited statements included therein may
omit footnote disclosures), and present fairly, in all material respects, the
financial position and results of operations of the Company as of the dates and
for the periods covered thereby.
5.10 LIABILITIES AND OBLIGATIONS. Schedule 5.10 sets forth an accurate
list as of the Balance Sheet Date of (i) all material liabilities of the Company
of a nature that they are required in accordance with GAAP to be reflected on a
balance sheet and which are not reflected on the balance sheet of the Company at
the Balance Sheet Date or otherwise reflected in the Company Financial
Statements at the Balance Sheet Date and which are not disclosed on any of the
other Schedules to this Agreement, and (ii) all loan agreements, indemnity or
guaranty agreements, bonds, mortgages, pledges and material security agreements
to which the Company is a party or by which
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its properties may be bound. To the knowledge of the Stockholders, except as set
forth on Schedule 5.10, since the Balance Sheet Date the Company has not
incurred any material liabilities of any kind, character or description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. The Company has also
delivered to TCI on Schedule 5.10, in the case of those contingent liabilities
known to Stockholders and related to pending or threatened litigation, or other
liabilities which are not fixed, a good faith and reasonable estimate (to the
extent the Company can reasonably make such an estimate) of the maximum amount
which the Company reasonably expects will be payable and the amount, if any,
accrued or reserved for each such potential liability on the Company's Financial
Statements; in the case of any such liability for which no estimate has been
provided, the estimate for purposes of this Agreement shall be deemed to be
zero.
5.11 ACCOUNTS AND NOTES RECEIVABLE. Schedule 5.11 sets forth an accurate
list of the accounts and notes receivable of the Company, as of the Balance
Sheet Date, including any such amounts which are not reflected in the balance
sheet as of the Balance Sheet Date, and including receivables from and advances
to employees and the Stockholders, which are identified as such. Except to the
extent reflected on Schedule 5.11, such accounts, notes and other receivables
are collectible in the amounts shown on Schedule 5.11, net of reserves reflected
in the balance sheet as of the Balance Sheet Date.
5.12 PERMITS AND INTANGIBLES. The Company holds all licenses, franchises,
permits and other governmental authorizations ("Licenses") the absence of any of
which could have a Material Adverse Effect on the Company's business, and the
Company has delivered to TCI an accurate list and summary description (which is
set forth on Schedule 5.12) of all such Licenses, and of any trademarks, trade
names, patents, patent applications and copyrights owned or held by the Company
or by any of its employees if used or held for use by the Company in the conduct
of its business (including interests in software or other technology systems,
programs and intellectual property) (it being understood and agreed that a list
of environmental permits and other environmental approvals is set forth on
Schedule 5.13). At or prior to the Closing, the Company will use commercially
reasonable efforts to ensure that all such trademarks, trade names, patents,
patent applications, copyrights and other intellectual property will be assigned
or licensed to the Company for no additional consideration. To the knowledge of
the Stockholders, the Licenses and other rights listed on Schedules 5.12 and
5.13 are valid, and the Company has not received any notice that any Person
intends to cancel, terminate or not renew any such License or other right. The
Company has conducted and is conducting its business in compliance with the
requirements, standards, criteria and conditions set forth in the Licenses and
other rights listed on Schedules 5.12 and 5.13 and is not in violation of any of
the foregoing except where such non-compliance or violation would not have a
Material Adverse Effect on the Company. Except as specifically provided in
Schedule 5.12, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company by, any such Licenses or other rights.
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5.13 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 5.13, and
except where any failure to comply, either singly or in the aggregate, has not
had and will not have a Material Adverse Effect on the Company or its business,
(i) the Company has complied with and is in compliance with all Federal, state,
local and foreign statutes (civil and criminal), laws, ordinances, regulations,
rules, permits, judgments, orders and decrees applicable to it or any of its
properties, assets, operations and businesses relating to environmental
protection (collectively "Environmental Laws") including, without limitation,
Environmental Laws relating to air, water, land and the generation, storage,
use, handling, transportation, treatment or disposal of Hazardous Wastes,
Hazardous Materials and Hazardous Substances (as such terms are defined in any
applicable Environmental Law), as well as petroleum and petroleum products
(collectively "Hazardous Materials"), (ii) the Company has obtained and adhered
to all necessary permits and other approvals necessary to treat, transport,
store, dispose of and otherwise handle Hazardous Materials, a list of all of
which permits and approvals is set forth on Schedule 5.13, and has reported to
the appropriate authorities, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Hazardous
Materials have been treated, stored, disposed of or otherwise handled, (iii) to
the knowledge of the Stockholders there have been no releases or threats of
releases (as these terms are defined in Environmental Laws) of any Hazardous
Materials at, from, in or on any property owned or operated by the Company
except as permitted by Environmental Laws, and (iv) to the knowledge of the
Stockholders, there is no on-site or off-site location to which the Company has
transported or disposed of Hazardous Materials or arranged for the
transportation of Hazardous Materials which is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the Company, TCI or Newco for any clean-up cost,
remedial work, damage to natural resources, property damage or personal injury,
including, but not limited to, any claim under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act or
comparable state or local statutes or regulations.
5.14 PERSONAL PROPERTY. The Company has delivered to TCI an accurate list
(which is set forth on Schedule 5.14) of (x) all personal property material to
the operations of the Company included in "plant, property and equipment" on the
balance sheet of the Company as of the Balance Sheet Date, (y) all other
tangible personal property owned by the Company with an individual fair market
value (in the reasonable judgment of the Stockholders; it being understood by
the parties herein that the Stockholders are not obtaining appraisals of any
such property in connection with the preparation of Schedule 5.14) in excess of
$25,000 (i) as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date and (z) all material leases and agreements in respect of personal
property, including, in the case of each of (x), (y) and (z), (1) true, complete
and correct copies of all such leases and (2) an indication as to which assets
are currently owned, or were formerly owned, by Stockholders, relatives of
Stockholders, or Affiliates of the Company. Except as set forth on Schedule
5.14, (i) all material personal property used by the Company in its business is
either owned by the Company or leased by the Company pursuant to a lease
included on Schedule 5.14, (ii) all of the personal property listed on Schedule
5.14 is in good working order and condition, ordinary wear and tear excepted
except to the extent such wear and tear would have a Material Adverse Effect and
(iii) to the knowledge of the Stockholders, all leases and agreements included
on Schedule 5.14
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are in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.15 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.15) of all customers (persons or entities) representing 1% or more of the
Company's annual revenues for the year ended December 31, 1997; provided,
however, that Schedule 5.15 need not set forth more than the Company's 20
largest customers during such period. Except to the extent set forth on Schedule
5.15, none of such customers have canceled or substantially reduced or, to the
knowledge of the Stockholders, are currently attempting or threatening to cancel
a contract or substantially reduce utilization of the services provided by the
Company.
The Company has listed on Schedule 5.15 all Material Contracts (as defined
below) to which the Company is a party or by which it or any of its properties
are bound, other than agreements listed on Schedules 5.10, 5.14 or 5.16, (a) in
existence as of the Balance Sheet Date and (b) entered into since the Balance
Sheet Date, and in each case has delivered true, complete and correct copies of
such agreements to TCI. For purposes of this Agreement, the term "Material
Contracts" includes contracts between the Company and significant customers (as
described above), joint venture or partnership agreements, contracts with any
labor organization, strategic alliances, options to purchase land and other
contracts which are not terminable on sixty days or less notice and involve
payments by the Company in any twelve-month period in excess of $25,000. The
Company has also indicated on Schedule 5.15 a summary description of all plans
or projects involving the opening of new operations, expansion of existing
operations, the acquisition of any personal property, business or assets
requiring, in any event, the payment of more than $25,000 by the Company during
any 12- month period. To the knowledge of the Stockholders, all of the Material
Contracts are in full force and effect and constitute valid and binding
agreements of the parties (and their successors) thereto in accordance with
their respective terms except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity.
5.16 REAL PROPERTY. Schedule 5.16 includes a list of all real property
owned or leased by the Company at the date hereof and all other real property,
if any, used by the Company in the conduct of its business. Except as set forth
on Schedule 5.16, any such real property owned by the Company will be sold or
distributed by the Company on the terms set forth on Schedule 5.16 and leased
back by the Company on the terms set forth on Schedule 5.16 pursuant to a lease
in the form of Annex VI hereto at or prior to the Closing Date. Except as set
forth on Schedule 5.16, the lease relating to any such real property leased by
the Company from any of the Stockholders or any Affiliate of any of the
Stockholders will be terminated as of the Closing Date and a new lease in the
form of Annex VI hereto will be entered into as of the Closing Date on the terms
set forth on Schedule 5.16. The Company has good title to any real property
owned by it that is not shown on
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Schedule 5.16 as property intended to be sold or distributed prior to the
Closing Date, subject to no mortgage, pledge, lien, conditional sales agreement,
encumbrance or charge, except for:
(i) liens reflected on Schedules 5.10 or 5.16 as securing specified
liabilities (with respect to which no material default exists);
(ii) liens for current taxes not yet payable and assessments not in
default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title which do not adversely affect the current use of the property.
True, complete and correct copies of all leases and agreements in respect
of such real property leased by the Company are attached to Schedule 5.16, and
an indication as to which such properties, if any, are currently owned, or were
formerly owned, by Stockholders or Affiliates of the Company or Stockholders is
included in Schedule 5.16. Except as set forth on Schedule 5.16, to the
knowledge of the Stockholders, all of such leases included on Schedule 5.16 are
in full force and effect and constitute valid and binding agreements of the
parties (and their successors) thereto in accordance with their respective terms
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and by general principles of equity.
5.17 INSURANCE. The Company has delivered to TCI (i) an accurate list as
of the Balance Sheet Date of all insurance policies carried by the Company, (ii)
an accurate list of all insurance loss runs or workers compensation claims
received for the past three policy years and (iii) true, complete and correct
copies of all insurance policies currently in effect. Such insurance policies
evidence all of the insurance that the Company is required to carry pursuant to
all of its contracts and other agreements and pursuant to all applicable laws,
and to the knowledge of the Stockholders provide adequate coverage against the
risks involved in the Company's business. All of such insurance policies are
currently in full force and effect. Since January 1, 1995, no insurance carried
by the Company has been canceled by the insurer and the Company has not been
denied coverage.
5.18 COMPENSATION; EMPLOYMENT AGREEMENTS; ORGANIZED LABOR MATTERS. The
Company has delivered to TCI an accurate list (which is set forth on Schedule
5.18) showing all officers, directors and key employees of the Company, listing
all employment agreements with such officers, directors and key employees and
the rate of compensation (and the portions thereof attributable to salary, bonus
and other compensation, respectively) of each of such persons as of (i) the
Balance Sheet Date and (ii) the date hereof. The Company has provided to TCI
true, complete and correct copies of any employment agreements for persons
listed on Schedule 5.18. Since the Balance Sheet Date, there have been no
material increases in the compensation payable or any special bonuses to any
officer, director, key employee or other employee, except ordinary salary
increases implemented and bonuses paid on a basis consistent with past
practices.
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Except as set forth on Schedule 5.18, (i) the Company is not bound by or
subject to any arrangement with any labor union, (ii) no employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the knowledge of the Stockholders, no campaign to
establish such representation is in progress and (iv) there is no pending or, to
the knowledge of the Stockholders, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any labor
interruptions over the past three years. The Company believes its relationship
with employees to be good.
5.19 EMPLOYEE PLANS. The Stockholders have delivered to TCI an accurate
schedule (Schedule 5.19) (the "Benefit Plans Schedule") showing all employee
benefit plans of the Company, including all employment agreements and other
agreements or arrangements containing "golden parachute" or other similar
provisions, and deferred compensation agreements, together with true, complete
and correct copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on the Benefit Plans
Schedule, the Company does not sponsor, maintain or contribute to any plan,
program, fund or arrangement that constitutes an "employee pension benefit
plan", and the Company has no obligation to contribute to or accrue or pay any
benefits under any deferred compensation or retirement funding arrangement on
behalf of any employee or employees (such as, for example, and without
limitation, any individual retirement account or annuity, any "excess benefit
plan" (within the meaning of Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) or any non-qualified deferred
compensation arrangement). For the purposes of this Agreement, the term
"employee pension benefit plan" shall have the same meaning as is given that
term in Section 3(2) of ERISA. The Company has not sponsored, maintained or
contributed to any employee pension benefit plan other than the plans set forth
on the Benefit Plans Schedule. Except as set forth on the Benefit Plans
Schedule, the Company is not required to contribute to any retirement plan
pursuant to the provisions of any collective bargaining agreement establishing
the terms and conditions or employment of any of the Company's or any
subsidiary's employees.
Except as set forth on the Benefit Plans Schedule, the Company is not now,
or will not as a result of its past activities become, liable to the Pension
Benefit Guaranty Corporation or to any multiemployer employee pension benefit
plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on the Benefit Plans Schedule and the
administration thereof are in compliance in all material respects with their
terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations except to the extent that any failure to
comply would not have a Material Adverse Effect on the Company.
All accrued contribution obligations of the Company with respect to any
plan listed on the Benefit Plans Schedule have either been fulfilled in their
entirety or are fully reflected on the balance sheet of the Company as of the
Balance Sheet Date.
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5.20 COMPLIANCE WITH ERISA. All plans listed on the Benefit Plans Schedule
that are intended to qualify (the "Qualified Plans") under Section 401(a) of the
Code have been determined by the Internal Revenue Service to be so qualified,
and copies of the determination letters relating thereto are attached to the
Benefit Plans Schedule. Except as disclosed on the Benefit Plans Schedule, all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including, but not limited
to, actuarial reports, audits or tax returns) have been timely filed or
distributed, and copies thereof for the past two years are included as part of
the Benefit Plans Schedule. None of (i) the Stockholders, (ii) the Company, or
(iii) to the knowledge of the Stockholders, any other person, has engaged in any
transaction with any plan listed in the Benefit Plans Schedule prohibited under
the provisions of Section 4975 of the Code or Section 406 of ERISA. No plan
listed in the Benefit Plans Schedule has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA; and the Company has not incurred any liability for excise tax or penalty
due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. Except as set forth on the Benefit Plans Schedule:
(i) there have been no terminations, partial terminations or
discontinuations of contributions to any Qualified Plan without notice to and
approval by the Internal Revenue Service;
(ii) no plan listed in the Benefit Plans Schedule subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan listed in the
Benefit Plans Schedule; and
(iv) to the knowledge of the Stockholders, no circumstances exist
pursuant to which the Company could have any direct or indirect liability
whatsoever (including, but not limited to, any liability to any multiemployer
plan or the PBGC under Title IV of ERISA or to the Internal Revenue Service for
any excise tax or penalty, or being subject to any statutory lien to secure
payment of any such liability) with respect to any plan now or heretofore
maintained or contributed to by any entity other than the Company that is, or at
any time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the Company.
5.21 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth on
Schedule 5.21 or 5.13, and except for violations which, either singly or in the
aggregate, have not had and will not have any Material Adverse Effect, the
Company is not in violation of any law or regulation or any order of any court
or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it; and except
to the extent set forth on Schedule 5.10 or 5.13, there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of the Stockholders,
threatened against or affecting, the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over it and no
notice of any claim, action, suit or proceeding, whether pending or threatened,
has been received by the Company, and, to the
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knowledge of the Stockholders, there is no basis for any such claim, action,
suit or proceeding. The Company has conducted and is now conducting its business
in compliance with the requirements, standards, criteria and conditions set
forth in applicable federal, state and local statutes, ordinances, orders,
approvals, variances, rules and regulations, including all such orders and other
governmental approvals set forth on Schedules 5.12 and 5.13, except where any
such noncompliance, individually or in the aggregate, would not have a Material
Adverse Effect.
5.22 TAXES. Except as set forth on Schedule 5.22, the Company has timely
filed all requisite Federal, state and other tax returns or extension requests
for all fiscal periods ended on or before the Balance Sheet Date; and except as
set forth on Schedule 5.22, there are no examinations in progress or claims
pending against it for federal, state and other Taxes (including penalties and
interest) for any period or periods prior to and including the Balance Sheet
Date and no notice of any claim for Taxes, whether pending or threatened, has
been received. All Tax due from the Company for any period ended before the date
hereof, including interest and penalties (whether or not shown on any Return)
has been paid. The amounts shown as accruals for taxes on the Company Financial
Statements are sufficient for the payment of all Taxes (including penalties and
interest) for all periods ended on or before that date. Copies of (i) any tax
examinations, (ii) extensions of statutory limitations and (iii) the federal and
local income tax returns and franchise tax returns of the Company for their last
three (3) fiscal years, or such shorter period of time as any of them shall have
existed, are attached hereto as Schedule 5.22 or have otherwise been delivered
to TCI. The Company has disclosed to TCI when its taxable year ends. The Company
uses the accrual method of accounting for income tax purposes, and the Company's
methods of accounting have not changed in the past five years. The Company is
not an investment Company as defined in Section 351(e)(1) of the Code. The
Company is not and has not during the last five years been a party to any tax
sharing agreement or agreement of similar effect. The Company is not and has not
during the last five years been a member of any consolidated group. Except as
described on Schedule 5.22, the Company has not received, been denied, or
applied for any private letter ruling during the last five years.
The Stockholders of Amparts International, Inc. made a valid election
under the provisions of Subchapter S of the Code, and Amparts International,
Inc. has not, within the past five years, been taxed under the provisions of
Subchapter C of the Code. The Stockholders of Amparts International, Inc. shall
pay, and they hereby indemnify TCI, Amparts International, Inc. and AIII
Acquisition Corporation against, all income taxes payable for all periods ending
on or before the Funding and Consummation Date.
5.23 NO VIOLATIONS; NO CONSENTS REQUIRED, ETC. The Company is not in
violation of any Charter Document. Neither the Company nor, to the knowledge of
the Stockholders, any other party thereto, is in default under any lease,
instrument, agreement, License, or permit set forth on Schedule 5.12, 5.13,
5.14, 5.15 or 5.16 (the "Material Documents") in any manner that could result in
a Material Adverse Effect; and, except as set forth in Schedule 5.23, (a) the
rights and benefits of the Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (b)
the execution of this Agreement and the performance of
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the obligations hereunder and the consummation of the transactions contemplated
hereby will not result in any material violation or breach of or constitute a
default under, any of the terms or provisions of the Material Documents or the
Charter Documents. Except as set forth on Schedule 5.23, none of the Material
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions contemplated
hereby in order to remain in full force and effect, and consummation of the
transactions contemplated hereby will not give rise to any right to termination,
cancellation or acceleration or loss of any material right or benefit regarding
the Material Documents. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the Company, TCI or Newco
of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts the Company from freely providing
services to any other customer or potential customer of the Company, TCI, Newco
or any Other Founding Company.
5.24 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
on Schedule 5.24 or the other schedules hereto or as otherwise contemplated
hereby, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of the Company;
(ii) any damage, destruction or casualty loss (whether or not
covered by insurance) materially adversely affecting the properties or business
of the Company;
(iii) any change in the authorized capital of the Company or its
outstanding securities or any change in its ownership interests or any grant by
the Company of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, Stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in accordance
with past practice;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company outside of the ordinary course of
business to any person, including, without limitation, the Stockholders and
their Affiliates;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof;
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(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(ix) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(x) any waiver of any material rights or claims of the Company;
(xi) any amendment, cancellation or termination of any material
contract, agreement, License, permit or other right to which the Company is a
party;
(xii) any change in the Company's Charter Documents;
(xiii) any contract entered into or commitment incurred involving
any liability or commitment to make any capital expenditures, except in the
normal course of business (consistent with past practice) or involving an amount
not in excess of $25,000;
(xiv) any mortgage, pledge or other lien or encumbrance upon any
assets or properties of the Company (whether now owned or hereafter acquired)
created, assumed or permitted to exist, except (1) purchase money liens incurred
in connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the businesses of
the Company, (2) (A) liens for taxes either not yet due or being contested in
good faith and by appropriate proceedings (and for which contested taxes
adequate reserves have been established and are being maintained) or (B)
materialmen's, mechanics', workers', repairmen's, employees' or other like liens
arising in the ordinary course of business, or (3) liens set forth on Schedule
5.10 and/or 5.15 hereto; or
(xv) any transaction by the Company outside the ordinary course of
its business.
5.25 DEPOSIT ACCOUNTS; POWERS OF ATTORNEY. The Company has delivered to
TCI an accurate schedule (which is set forth on Schedule 5.25) as of the date of
this Agreement of:
(i) the name of each financial institution in which the Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
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Schedule 5.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
5.26 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by the Company and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the Company and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the Company.
5.27 RELATIONS WITH GOVERNMENTS. Except for political contributions made
in compliance with applicable laws, neither the Company nor any Affiliate of the
Company acting on behalf of the Company has given or offered anything of value
to any governmental official, political party or candidate for government
office. None of such Persons has taken any action which would cause the Company
to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or
any law of similar effect.
5.28 DISCLOSURE. (a) The representations and warranties of the
Stockholders set forth in this Agreement, including the relevant Annexes and
Schedules hereto, do not contain an untrue statement of a material fact or omit
to state a material fact necessary to make the statements herein and therein, in
light of the circumstances under which they were made, not misleading. If, prior
to the 25th day after the date of the final prospectus of TCI utilized in
connection with the IPO, the Company or the Stockholders become aware of any
fact or circumstance which would affect the accuracy of a representation or
warranty of Company or Stockholders in this Agreement in any material respect,
the Company and the Stockholders shall immediately give notice of such fact or
circumstance to TCI. Subject to the provisions of Section 7.8, such notification
shall not relieve either the Company or the Stockholders of their respective
obligations under this Agreement.
(b) The Company and the Stockholders acknowledge and agree (i) that there
exists no firm commitment, binding agreement, or promise or other assurance of
any kind, whether express or implied, oral or written, that the Registration
Statement will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither TCI or any of its officers, directors, agents or representatives
nor any Underwriter shall have any liability to the Company, the Stockholders or
any other person affiliated or associated with the Company for any failure of
the Registration Statement to become effective, the IPO to occur at a particular
price or to occur at all; and (iii) that the decision of Stockholders to enter
into this Agreement, or to vote in favor of or consent to the proposed Merger,
has been or will be made independent of, and without reliance upon, any
statements, opinions or other communications, or due diligence investigations
which have been or will be made or performed by any prospective Underwriter,
relative to TCI or the prospective IPO, except for statements and
representations made herein.
5.29 NO INTERESTS IN OTHER BUSINESSES. Except as disclosed on Schedule
5.29, neither the Company nor any Stockholder, nor any Affiliate of any of them,
has any ownership or similar
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interest in any business that offers or sells services or products of any nature
whatsoever to the Company or to any customers of the Company in connection with
or as a direct or indirect result of the Company's provision of services or
products to its customers.
5.30 AUTHORITY; OWNERSHIP. Such Stockholder has the full legal right,
power and authority to enter into this Agreement. Such Stockholder owns
beneficially and of record all of the shares of the Company Stock identified on
Annex II as being owned by such Stockholder, and, except as set forth on
Schedule 5.30, such Company Stock is owned free and clear of all liens, security
interests, pledges, voting agreements, voting trusts, contractual restrictions
on transfer, encumbrances and claims of every kind.
5.31 PREEMPTIVE RIGHTS. No Stockholder has, or hereby waives, any
preemptive or other right to acquire shares of Company Stock that such
Stockholder has or may have had.
5.32 NO INTENTION TO DISPOSE OF TCI STOCK. No Stockholder is under any
binding commitment or contract to sell, exchange or otherwise dispose of shares
of TCI Stock to be received as described in Section 3.1 of this Agreement.
TCI and each Newco acknowledge that the representations in Sections 5.30,
5.31 and 5.32 are made by each Stockholder separately, and as to itself only.
6. REPRESENTATIONS OF TCI AND NEWCO
TCI and Newco jointly and severally represent and warrant that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 7.8 hereof, shall be true at the time
of Closing and the Funding and Consummation Date, and that such representations
and warranties shall survive the Funding and Consummation Date for a period of
twelve months (the last day of such period being the "Expiration Date"), except
that the warranties and representations set forth in Section 6.14 hereof shall
survive until such time as the limitations period has run for all tax periods
ended on or prior to the Funding and Consummation Date, which shall be deemed to
be the Expiration Date for Section 6.14.
6.1 DUE ORGANIZATION. TCI and Newco are each corporations duly
incorporated and organized, validly existing and in good standing under the laws
of the State of Delaware, and each has the requisite power and authority to
carry on its business as it is now being conducted. TCI and Newco are each
qualified to do business and are each in good standing in each jurisdiction in
which the nature of its business makes such qualification necessary, except
where the failure to be so authorized or qualified would not have a Material
Adverse Effect. True, complete and correct copies of the Certificate of
Incorporation and By-laws of TCI (the "TCI Charter Documents") have been or will
be filed as exhibits to the Registration Statement, and copies thereof and
copies of the Certificate of Incorporation and Bylaws of Newco will be provided
to the Stockholders promptly upon request.
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6.2 AUTHORIZATION. (i) The respective representatives of TCI and Newco
executing this Agreement have the authority to enter into and bind TCI and Newco
to the terms of this Agreement and (ii) TCI and Newco have the full legal right,
power and authority to enter into this Agreement and consummate the Merger. All
corporate acts and other proceedings required to have been taken by TCI and
Newco to authorize the execution, delivery and performance of this Agreement and
the consummation of the Merger have been duly and properly taken.
6.3 CAPITAL STOCK OF TCI AND NEWCO. The authorized capital stock of TCI
and Newco is as set forth in Sections 1.4(ii) and (iii), respectively. All of
the issued and outstanding shares of the capital stock of Newco are owned by
TCI. All of the issued and outstanding shares of the capital stock of TCI and
Newco have been duly authorized and validly issued, are fully paid and
nonassessable, and further, such shares were offered, issued, sold and delivered
by TCI and Newco in compliance with all applicable state and federal laws
concerning the issuance of securities. Further, none of such shares were issued
in violation of the preemptive rights of any past or present stockholder of TCI
or Newco.
6.4 TRANSACTIONS IN CAPITAL STOCK, ORGANIZATION ACCOUNTING. Except for the
Other Agreements and except as set forth in or contemplated by the Draft
Registration Statement or set forth on Schedule 6.4 hereto, (i) no option,
warrant, call, conversion right or commitment of any kind exists which obligates
TCI or Newco to issue any of their respective authorized but unissued capital
stock; and (ii) neither TCI nor Newco has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Complete and accurate copies of all stock option or stock
purchase plans and a list of all outstanding options, warrants or other rights
to acquire shares of the stock of TCI will be provided to the Stockholders
promptly upon request.
6.5 SUBSIDIARIES. Newco has no Subsidiaries. TCI has no Subsidiaries
except for Newco and each of the companies identified as "Newco" in each of the
Other Agreements and other newly incorporated Subsidiaries that have conducted
no business and have been created solely to effectuate the business of TCI.
Except as set forth in the preceding sentence or set forth on Schedule 6.5
hereto, neither TCI nor any Subsidiary of TCI presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock, securities
convertible into capital stock or any other equity interest in any corporation,
association or business entity, and neither TCI nor Newco, directly or
indirectly, is a participant in any joint venture, partnership or other
non-corporate entity.
6.6 FINANCIAL STATEMENTS. The financial statements of TCI included in the
Draft Registration Statement (the "TCI Financial Statements") have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated (except as noted thereon), and
the balance sheet included therein presents fairly the financial position of TCI
as of its date.
6.7 LIABILITIES AND OBLIGATIONS. Except as set forth in the Draft
Registration Statement or on Schedule 6.7 hereto, neither TCI nor any Subsidiary
of TCI has any material liabilities,
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contingent or otherwise, except as set forth in or contemplated by this
Agreement and the Other Agreements and except for fees incurred in connection
with the transactions contemplated hereby and thereby.
6.8 CONFORMITY WITH LAW; LITIGATION. Except to the extent set forth in the
Draft Registration Statement or on Schedule 6.8 hereto, (a) neither TCI nor any
Subsidiary of TCI is in violation of any law or regulation or any order of any
court or Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality having jurisdiction over any of them
which would have a Material Adverse Effect, (b) there are no material claims,
actions, suits or proceedings, pending or, to the knowledge of TCI or Newco,
threatened against or affecting, TCI or any Subsidiary of TCI, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over any of them, and (c) no notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by TCI or Newco.
TCI and its Subsidiaries have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which would have a
Material Adverse Effect.
6.9 NO VIOLATIONS. TCI is not in violation of any TCI Charter Document,
and no Subsidiary of TCI is in violation of its Certificate of Incorporation or
Bylaws. None of TCI, Newco, or, to the knowledge of TCI and Newco, any other
party thereto, is in default under any lease, instrument, agreement, license, or
permit to which TCI or any Subsidiary of TCI is a party, or by which TCI or any
Subsidiary of TCI, or any of their respective properties, are bound
(collectively, the "TCI Documents"); and (a) the rights and benefits of TCI and
any Subsidiary of TCI under the TCI Documents will not be adversely affected by
the transactions contemplated hereby and (b) the execution and delivery of this
Agreement by TCI and Newco and the performance of their obligations hereunder do
not, and the consummation of the transactions contemplated hereby and compliance
with the terms hereof will not, conflict with, or result in any violation or
default (with or without notice or lapse of time, or both), under or give rise
to a right of termination, cancellation, or acceleration of any obligation or to
loss of a material benefit under, or result in the creation of any lien upon any
of the assets of TCI or any Subsidiary of TCI under, any provision of (i) the
Certificate of Incorporation or Bylaws of TCI or the comparable governing
instruments of any Subsidiary of TCI, (ii) any note, bond, mortgage, indenture
or deed of trust or any license, lease, contract, commitment, agreement or
arrangement to which TCI and any Subsidiary of TCI is a party or by which any of
their respective properties or assets are bound or (iii) any judgment, order,
decree or law, ordinance, rule or regulation, applicable to TCI or any
Subsidiary of TCI or their respective properties or assets. The execution of
this Agreement and the Other Agreements and the performance of the obligations
hereunder and thereunder and the consummation of the transactions contemplated
by the TCI Plan of Organization will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the TCI
Documents or the TCI Charter Documents. Except as contemplated hereby or
described in the Registration Statement or on Schedule 6.9 hereto, none of the
TCI Documents requires notice to, or the consent or approval of,
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any governmental agency or other third party with respect to any of the
transactions contemplated by the TCI Plan of Organization in order to remain in
full force and effect and consummation of the transactions contemplated thereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit.
6.10 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and Newco and the performance of the transactions contemplated herein
have been duly and validly authorized by the respective Boards of Directors of
TCI and Newco and this Agreement has been duly and validly authorized by all
necessary corporate action and is a legal, valid and binding obligation of TCI
and Newco.
6.11 TCI STOCK. At the time of issuance thereof and delivery to the
Stockholders, the TCI Stock to be delivered to the Stockholders pursuant to this
Agreement will constitute valid and legally issued shares of TCI, fully paid and
nonassessable, and with the exception of restrictions upon resale set forth in
Sections 15 and 16 hereof, will be identical in all substantive respects (which
do not include the form of certificate upon which it is printed or the presence
or absence of a CUSIP number on any such certificate) to the TCI Stock issued
and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. Except as set forth above, the TCI Stock issued and delivered to
the Stockholders shall at the time of such issuance and delivery be free and
clear of any liens, security interests, claims or encumbrances of any kind or
character. The shares of TCI Stock to be issued to the Stockholders pursuant to
this Agreement will not be registered under the 1933 Act except as provided in
Section 17 hereof.
6.12 OTHER AGREEMENTS; NO SIDE AGREEMENTS. Except for differences in form
or as described on Schedule 6.12 hereto, each of the Other Agreements is
substantially similar to this Agreement. Neither TCI nor Newco has entered or
will enter into any agreement with any of the Other Founding Companies or any of
the stockholders of the Other Founding Companies other than the Other Agreements
and the agreements contemplated by each of the Other Agreements, including the
employment agreements and leases referred to herein or entered into in
connection with the transactions contemplated hereby and thereby.
6.13 BUSINESS; REAL PROPERTY; MATERIAL AGREEMENTS. TCI was formed in
October 1997 and has conducted only limited operations since that time. Neither
TCI nor any Subsidiary thereof has conducted any material business since the
date of its inception, except in connection with this Agreement, the Other
Agreements and the IPO. Except as described in the Draft Registration Statement,
neither TCI nor any Subsidiary of TCI owns or has at any time owned any real
property or any material personal property or is a party to any other agreement
other than the Other Agreements and the agreements contemplated thereby and to
such agreements as will be filed as Exhibits to the Registration Statement.
6.14 TAXES. TCI and each Subsidiary thereof have timely filed all
requisite federal, state and other Returns or extension requests for all fiscal
periods ended prior to the date hereof for which such Returns are due; and there
are no examinations in progress or claims against TCI or any
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Subsidiary thereof for federal, state and other Taxes (including penalties and
interest) for any such period and no notice of any claim for Taxes, whether
pending or threatened, has been received. All Taxes which TCI or any Subsidiary
of TCI has been required to collect or withhold have been duly and timely
collected and withheld and have been set aside in accounts for such purposes, or
have been duly and timely paid to the proper governmental authority. All Tax,
including interest and penalties (whether or not shown on any tax return) owed
by TCI, any member of an affiliated or consolidated group which includes or
included TCI, or with respect to any payment made or deemed made by TCI herein
has been paid. Neither TCI nor any Subsidiary thereof has entered into any tax
sharing agreement or similar arrangement. Neither TCI nor any Subsidiary thereof
is an investment company as defined in Section 351(e)(1) of the Code.
6.15 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set forth
in the Draft Registration Statement delivered to the Stockholders, and except as
contemplated by this Agreement and the Other Agreements or as set forth on
Schedule 6.15 hereto, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise) or business of TCI or Newco;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of TCI or
Newco;
(iii) any change in the authorized capital of TCI or Newco or their
outstanding securities or any change in their ownership interests or any grant
of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase or
other acquisition of any of the capital stock of TCI or Newco;
(v) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of TCI or any Subsidiary thereof to any
person;
(vi) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to TCI or any Subsidiary thereof;
(vii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of TCI or any Subsidiary thereof or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(viii) any waiver of any material rights or claims of TCI or any
Subsidiary of TCI;
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(ix) any amendment or termination of any material contract,
agreement, license, permit or other right to which TCI or any Subsidiary of TCI
is a party;
(x) any transaction by TCI or any Subsidiary of TCI outside the
ordinary course of its business;
(xi) any other distribution of property or assets by TCI or any
Subsidiary of TCI other than in the ordinary course of business.
6.16 DISCLOSURE. (a) The Draft Registration Statement delivered to the
Company and the Stockholders, together with the representations and warranties
of TCI and Newco set forth in this Agreement, does not contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements herein and therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the foregoing does not
apply to statements contained in or omitted from any of such documents made or
omitted in reliance upon information furnished by the Company or the
Stockholders or the Other Founding Companies or the stockholders thereof.
(b) Based on and assuming the accuracy of certain information furnished to
TCI by the Stockholders, the offering and issuance of shares of TCI Stock to the
Stockholders pursuant to this Agreement has been made in compliance with all
applicable federal and state securities laws.
(c) TCI has conducted a reasonable due diligence investigation with
respect to the Other Founding Companies, and to the best knowledge of TCI, the
Draft Registration Statement does not contain an untrue statement of material
fact or omit to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being agreed that the term "material" as used in this paragraph (c) means
material with respect to TCI and all of the Founding Companies, taken as a
whole.
7. COVENANTS PRIOR TO CLOSING
7.1 ACCESS AND COOPERATION; DUE DILIGENCE. (a) Between the date of this
Agreement and the Funding and Consummation Date, the Company will afford to the
officers and authorized representatives of TCI access to all of the Company's
sites, properties, books and records and will furnish TCI with such additional
financial and operating data and other information as to the business and
properties of the Company as TCI may from time to time reasonably request. The
Company will cooperate with TCI and its representatives, auditors and counsel in
the preparation of any documents or other materials which may be required in
connection with any documents or materials required by this Agreement. TCI,
Newco, the Stockholders and the Company will treat all information obtained in
connection with the negotiation and performance of this Agreement or the due
diligence investigations conducted with respect to the Other Founding Companies
as confidential in accordance with the provisions of Section 14 hereof. In
addition, TCI will cause each of the Other Founding Companies to enter into a
provision similar to this Section 7.1.
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(b) Between the date of this Agreement and the Funding and Consummation
Date, TCI will afford to the officers and authorized representatives of the
Company access to all of TCI's and Newco's sites, properties, books and records
and will furnish the Company with such additional financial and operating data
and other information as to the business and properties of TCI and Newco as the
Company may from time to time reasonably request. TCI and Newco will cooperate
with the Company, its representatives, auditors and counsel in the preparation
of any documents or other material which may be required in connection with any
documents or materials required by this Agreement. The Company will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Funding and Consummation Date, the Company will, except as set
forth on Schedule 7.2:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management, operation or
accounting;
(ii) use its reasonable efforts to maintain its properties and
facilities, including those held under leases, in as good working order and
condition as at present, ordinary wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or rights;
(iv) use its reasonable efforts to keep in full force and effect
present insurance policies or other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its business
organization intact, retain its respective present key employees and maintain
its relationships with suppliers, customers and others having business relations
with the Company;
(vi) use its reasonable efforts to maintain compliance with all
Licenses, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities
applicable to it;
(vii) maintain present debt and lease instruments and not enter into
new or amended debt or lease instruments without the knowledge and consent of
TCI (which consent shall not be unreasonably withheld), provided that debt
and/or lease instruments may be replaced without the consent of TCI if such
replacement instruments are on terms at least as favorable to the Company as the
instruments being replaced; and
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(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and customary
bonus and salary increases for employees in accordance with past practices.
7.3 PROHIBITED ACTIVITIES. Except as disclosed on Schedule 7.3, between
the date hereof and the Funding and Consummation Date, the Company will not,
without prior written consent of TCI, which consent will not be unreasonably
withheld:
(i) make any change in its Articles of Incorporation or By-laws;
(ii) issue any securities, options, warrants, calls, conversion
rights or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 5.4;
(iii) except as provided on Annex I hereto, and except for
distributions approved by TCI in an amount equal to income taxes, if any,
incurred by the Stockholders on any S corporation earnings after June 30, 1998
and prior to the Closing Date, declare or pay any dividend, or make any
distribution in respect of its stock whether now or hereafter outstanding, or
purchase, redeem or otherwise acquire or retire for value any shares of its
stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except in the normal
course of business (consistent with past practice) or involving an amount not in
excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or hereafter
acquired, except (1) with respect to purchase money liens incurred in connection
with the acquisition of equipment with an aggregate cost not in excess of
$25,000 necessary or desirable for the conduct of the businesses of the Company,
(2) (A) liens for taxes either not yet due or being contested in good faith and
by appropriate proceedings (and for which contested taxes adequate reserves have
been established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the ordinary
course of business (the liens set forth in clause (2) being referred to herein
as "Statutory Liens"), or (3) liens set forth on Schedule 5.10 and/or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business and other than
distributions of real estate and other assets as permitted in this Agreement
(including the Schedules hereto);
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
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(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material rights or claims of the Company, provided
that the Company may negotiate and adjust bills and accounts in the course of
good faith disputes with customers in a manner consistent with past practice,
provided, further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(x) amend or terminate any Material Document, License or other right
of the Company except in the ordinary course of business; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder.
7.4 NO SHOP. None of the Stockholders, the Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Funding and Consummation Date or the termination of this
Agreement in accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from
any person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than TCI, the
Other Founding Companies (to the extent necessary or appropriate in connection
with the transactions contemplated hereby) or their respective authorized agents
relating to, any acquisition or purchase of all or a material amount of the
assets of, or any equity interest in, the Company or a merger, consolidation or
business combination of the Company.
7.5 NOTICE TO BARGAINING AGENTS. Prior to the Closing Date, the Company
shall satisfy any requirement for notice of the transactions contemplated by
this Agreement under applicable collective bargaining agreements, and shall
provide TCI on Schedule 7.5 with proof that any required notice has been sent.
7.6 AGREEMENTS. The Stockholders and the Company shall (except as
otherwise agreed to by TCI or reflected in Schedule 7.6) terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants and
employment agreements between the Company and any employee listed on Schedule
9.12 hereto and (ii) any existing agreement between the Company and any
Stockholder, on or prior to the Funding and Consummation Date provided that
nothing herein shall prohibit or prevent the Company from paying (either prior
to or on the Closing Date) notes or other obligations from the Company to the
Stockholders in accordance with the terms
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thereof, which terms have been disclosed to TCI. Such termination agreements are
listed on Schedule 7.6 and copies thereof shall be attached thereto.
7.7 NOTIFICATION OF CERTAIN MATTERS. The Stockholders and the Company
shall give prompt notice to TCI of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the Company or the Stockholders contained herein
to be untrue or inaccurate in any material respect at or prior to the Closing
and (ii) any failure of any Stockholder or the Company to comply with or satisfy
in any material respect any material covenant, condition or agreement to be
complied with or satisfied by such person hereunder. TCI and Newco shall give
prompt notice to the Company of (i) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of TCI or Newco contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
failure of TCI or Newco to comply with or satisfy in any material respect any
material covenant, condition or agreement to be complied with or satisfied by it
hereunder. The delivery of any notice pursuant to this Section 7.7 shall not be
deemed to (i) modify the representations or warranties hereunder of the party
delivering such notice, which modification may only be made pursuant to Section
7.8, (ii) modify the conditions set forth in Sections 8 and 9, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
7.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until 24 hours prior to the
anticipated effectiveness of the Registration Statement to supplement or amend
promptly the Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in the Schedules, provided however,
that supplements and amendments to Schedules 5.10, 5.11, 5.14 and 5.15 shall
only have to be delivered at the Closing Date, unless such Schedule is to be
amended to reflect an event occurring other than in the ordinary course of
business. Notwithstanding the foregoing sentence, no amendment or supplement to
a Schedule prepared by the Company that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless TCI and
a majority of the Founding Companies other than the Company consent to such
amendment or supplement; and provided further, that no amendment or supplement
to a Schedule prepared by TCI or Newco that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 8.1 and 9.1 have been
fulfilled, the Schedules hereto shall be deemed to be the Schedules as amended
or supplemented pursuant to this Section 7.8. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company, TCI shall
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give the Company notice promptly after it has knowledge thereof. If TCI and a
majority of the Founding Companies (other than the Founding Company seeking to
amend or supplement a Schedule) consent to such amendment or supplement, which
consent shall have been deemed given by TCI or any Founding Company if no
response is received within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the circumstances under which
such consent is requested), but the Company does not give its consent, the
Company may terminate this Agreement pursuant to Section 12.1(iv) hereof. In the
event that the Company seeks to amend or supplement a Schedule pursuant to this
Section 7.8, and TCI and a majority of the Other Founding Companies do not
consent to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that TCI or Newco seeks to amend or supplement a Schedule pursuant to this
Section 7.8 and a majority of the Founding Companies do not consent to such
amendment or supplement, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 12.1(i) hereof. No party to this Agreement shall
be liable to any other party if this Agreement shall be terminated pursuant to
the provisions of this Section 7.8. No amendment of or supplement to a Schedule
shall be made later than 24 hours prior to the anticipated effectiveness of the
Registration Statement.
7.9 COOPERATION IN PREPARATION OF REGISTRATION STATEMENT. The Company and
Stockholders shall furnish or cause to be furnished to TCI and the Underwriters
all of the information concerning the Company and the Stockholders reasonably
requested by TCI or the Underwriters for inclusion in, and will cooperate with
TCI and the Underwriters in the preparation of, the Registration Statement and
the prospectus included therein (including audited and unaudited financial
statements of the Company, prepared in accordance with generally accepted
accounting principles, in form suitable for inclusion in the Registration
Statement). The Company and the Stockholders agree promptly to advise TCI if at
any time during the period in which a prospectus relating to the IPO is required
to be delivered under the 1933 Act, any information contained in the prospectus
concerning the Company or the Stockholders becomes incorrect or incomplete in
any material respect, and to provide the information needed to correct such
inaccuracy. Insofar as the information relates solely to the Company or the
Stockholders, the Company represents and warrants as to such information with
respect to itself, and each Stockholder represents and warrants, as to such
information with respect to the Company and himself or herself, that the
Registration Statement will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
7.10 FINAL FINANCIAL STATEMENTS. The Company shall provide prior to the
Funding and Consummation Date, and TCI shall have had sufficient time to review,
the unaudited consolidated balance sheets of the Company as of the end of all
fiscal quarters following the Balance Sheet Date and ending not later than 15
days prior to the Funding and Consummation Date, and the unaudited consolidated
statement of income, cash flows and retained earnings of the Company for all
fiscal quarters ended after the Balance Sheet Date, disclosing no material
adverse change in the financial
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condition of the Company or the results of its operations from the financial
statements as of the Balance Sheet Date. Such financial statements shall have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein). Except as noted in such financial statements, all of such financial
statements will present fairly the results of operations of the Company for the
periods indicated therein.
7.11 FURTHER ASSURANCES. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 AUTHORIZED CAPITAL. Prior to the Funding and Consummation Date, TCI
shall maintain its authorized capital stock as set forth in the Registration
Statement filed with the SEC except for such changes in authorized capital stock
as are made to respond to comments made by the SEC or requirements of any
exchange or automated trading system for which application is made to register
the TCI Stock and any changes necessary or advisable in order to permit the
delivery of the opinion contemplated by Section 8.12 hereof.
7.13 COMPLIANCE WITH THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF
1976 (THE "HART-SCOTT-RODINO ACT"). All parties to this Agreement hereby
recognize that one or more filings under the Hart-Scott-Rodino Act may be
required in connection with the transactions contemplated herein. If it is
determined by the parties to this Agreement that filings under the
Hart-Scott-Rodino Act are required, then: (i) each of the parties hereto agrees
to cooperate and use its best efforts to comply with the Hart-Scott-Rodino Act,
and (ii) such compliance by the Stockholders and the Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
9 of this Agreement, and such compliance by TCI and Newco shall be deemed a
condition precedent in addition to the conditions precedent set forth in Section
8 of this Agreement. If filings under the Hart-Scott-Rodino Act are required,
the costs and expenses thereof (including legal fees and costs and filing fees)
shall be borne by TCI. The obligation of each party to consummate the
transactions contemplated by this Agreement is subject to the expiration or
termination of the waiting period under the Hart-Scott-Rodino Act, if
applicable.
7.14 STOCKHOLDERS OF TCI. Promptly after a request by the Company, TCI
will deliver to the Company a list of the stockholders of TCI as of the date of
this Agreement.
7.15 IPO. TCI agrees to use its reasonable efforts to consummate the TCI
Plan of Organization and IPO as contemplated hereby.
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8. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of the Stockholders and the Company with respect to
actions to be taken on the Closing Date are subject to the satisfaction or
waiver on or prior to the Closing Date of all of the following conditions. The
obligations of the Stockholders and the Company with respect to actions to be
taken on the Funding and Consummation Date are subject to the satisfaction or
waiver on or prior to the Funding and Consummation Date of the conditions set
forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12. As of the Closing Date or, with
respect to the conditions set forth in Sections 8.1, 8.5, 8.8, 8.9 and 8.12, as
of the Funding and Consummation Date, if any such conditions have not been
satisfied, the Company or the Stockholders (acting in unison) shall have the
right to terminate this Agreement, or in the alternative, waive any condition
not so satisfied. Any act or action of the Stockholders in consummating the
Closing or delivering certificates representing Company Stock as of the Funding
and Consummation Date shall constitute a waiver of any conditions not so
satisfied. However, no such waiver shall be deemed to affect the survival of the
representations and warranties of TCI and Newco contained in Section 6 hereof.
8.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of TCI and Newco contained in Section 6, as
amended or supplemented in accordance with Section 7.8, shall be true and
correct in all material respects as of the Closing Date and the Funding and
Consummation Date as though such representations and warranties had been made as
of that time; all of the terms, covenants and conditions of this Agreement to be
complied with and performed by TCI and Newco on or before the Closing Date and
the Funding and Consummation Date shall have been duly complied with and
performed in all material respects; and certificates to the foregoing effect
dated the Closing Date and the Funding and Consummation Date, respectively, and
signed by the President or any Vice President of TCI shall have been delivered
to the Stockholders.
8.2 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to the Company and its counsel.
The Stockholders and the Company shall be satisfied that the Registration
Statement and the prospectus forming a part thereof, including any amendments
thereof or supplements thereto, shall not contain any untrue statement of a
material fact, or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided
that the condition contained in this sentence shall (for purposes of this
Section 8.2) be deemed satisfied if the Company or Stockholders shall have
failed to inform TCI in writing prior to the effectiveness of the Registration
Statement of the existence of an untrue statement of a material fact or the
omission of such a statement of a material fact.
8.3 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO
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and no governmental agency or body shall have taken any other action or made any
request of the Company as a result of which the management of the Company deems
it inadvisable to proceed with the transactions hereunder.
8.4 OPINION OF COUNSEL. The Company shall have received an opinion from
counsel for TCI, dated the Closing Date, in the form annexed hereto as Annex
III.
8.5 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC and the underwriters named therein shall have
agreed to acquire on a firm commitment basis, subject to the conditions set
forth in the underwriting agreement, on terms such that the aggregate value of
the cash and the number of shares of TCI Stock to be received by the
Stockholders is not less than the Minimum Value set forth on Annex I.
8.6 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the Merger and no governmental agency or body shall have taken any other action
or made any request of the Company as a result of which the Company deems it
inadvisable to proceed with the transactions hereunder.
8.7 GOOD STANDING CERTIFICATES. TCI and Newco each shall have delivered to
the Company a certificate, dated as of a date no later than ten days prior to
the Closing Date, duly issued by the Delaware Secretary of State and in each
state in which TCI or Newco is authorized to do business, showing that each of
TCI and Newco is in good standing and authorized to do business and that all
state franchise and/or income tax returns and taxes for TCI and Newco,
respectively, for all periods prior to the Closing have been filed and paid.
8.8 NO MATERIAL ADVERSE CHANGE. No event or circumstance shall have
occurred with respect to TCI or Newco which has had or is reasonably likely to
have a Material Adverse Effect.
8.9 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
8.10 SECRETARY'S CERTIFICATE. The Company shall have received a
certificate or certificates, dated the Closing Date and signed by the secretary
of TCI and of Newco, certifying the truth and correctness of attached copies of
the TCI's and Newco's respective Certificates of Incorporation (including
amendments thereto), By-Laws (including amendments thereto), and resolutions of
the boards of directors and, if required, the Stockholders of TCI and Newco
approving TCI's and Newco's entering into this Agreement and the consummation of
the transactions contemplated hereby.
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8.11 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder of the Company shall have been afforded the opportunity to enter
into a Founder's Employment Agreement substantially in the form of Annex V
hereto; and the other persons, if any, identified by the Company after
consultation with TCI shall be afforded the opportunity to enter into employment
agreements in forms reasonably acceptable to TCI.
8.12 TAX MATTERS. The Stockholders shall have received an opinion of
Arthur Andersen LLP or other tax advisor reasonably acceptable to the
Stockholders that the TCI Plan of Organization will qualify as a tax-free
transfer of property under Section 351 of the Code and that the Stockholders
will not recognize gain to the extent the Stockholders exchange stock of the
Company for TCI Stock (but not cash or other property) pursuant to the TCI Plan
of Organization.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF TCI AND NEWCO
The obligations of TCI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. The obligations of TCI and
Newco with respect to actions to be taken on the Funding and Consummation Date
are subject to the satisfaction or waiver on or prior to the Funding and
Consummation Date of the conditions set forth in Sections 9.1, 9.4 and 9.13. As
of the Closing Date or, with respect to the conditions set forth in Sections
9.1, 9.4 and 9.13, as of the Funding and Consummation Date, if any such
conditions have not been satisfied, TCI and Newco shall have the right to
terminate this Agreement, or waive any such condition, but no such waiver shall
be deemed to affect the survival of the representations and warranties contained
in Section 5 hereof.
9.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All the
representations and warranties of the Stockholders and the Company contained in
this Agreement, as amended or supplemented in accordance with Section 7.8, shall
be true and correct in all material respects as of the Closing Date and the
Funding and Consummation Date with the same effect as though such
representations and warranties had been made on and as of such date; all of the
terms, covenants and conditions of this Agreement to be complied with or
performed by the Stockholders and the Company on or before the Closing Date or
the Funding and Consummation Date, as the case may be, shall have been duly
performed or complied with in all material respects; and the Stockholders shall
have delivered to TCI certificates dated the Closing Date and the Funding and
Consummation Date, respectively, and signed by them to such effect.
9.2 NO LITIGATION. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of TCI as a result of which the
management of TCI (acting in good faith) deems it inadvisable to proceed with
the transactions hereunder.
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9.3 SECRETARY'S CERTIFICATE. TCI shall have received a certificate, dated
the Closing Date and signed by the secretary of the Company, certifying the
truth and correctness of attached copies of the Company's Certificate of
Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and the Stockholders
approving the Company's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.4 NO MATERIAL ADVERSE EFFECT. No event or circumstance shall have
occurred with respect to the Company which has had or is reasonably likely to
have a Material Adverse Effect.
9.5 STOCKHOLDERS' RELEASE. The Stockholders shall have delivered to TCI an
instrument dated the Closing Date which shall be effective only upon the
occurrence of the Funding and Consummation Date releasing the Company from (i)
any and all claims of the Stockholders against the Company and (ii) obligations
of the Company to the Stockholders, except for (x) items specifically identified
on Schedules 5.10 and 5.15 as being claims of or obligations to the
Stockholders, and (y) continuing obligations to Stockholders relating to their
employment by the Company. In the event that the Funding and Consummation Date
does not occur, then the release instrument referenced herein shall be void and
of no further force or effect.
9.6 SATISFACTION. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been reasonably
approved by counsel to TCI.
9.7 TERMINATION OF RELATED PARTY AGREEMENTS. Except as set forth on
Schedules 7.6 or 9.7 or otherwise approved by TCI, all existing agreements
between the Company and the Stockholders (and entities controlled by the
Stockholders) other than real property leases shall have been canceled effective
prior to or as of the Closing Date, and all real property leases between the
Company and the Stockholders (and any entity controlled by the Stockholders)
shall have been amended as described in Section 5.16.
9.8 OPINION OF COUNSEL. TCI shall have received an opinion from Counsel to
the Company and the Stockholders, dated the Closing Date, substantially in the
form annexed hereto as Annex IV.
9.9 CONSENTS AND APPROVALS. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; all consents
and approvals of third parties listed on Schedule 5.23 shall have been obtained.
9.10 GOOD STANDING CERTIFICATES. The Company shall have delivered to TCI a
certificate, dated as of a date no earlier than ten days prior to the Closing
Date, duly issued by the
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appropriate governmental authority in the Company's state of incorporation and,
unless waived by TCI, in each state in which the Company is authorized to do
business, showing the Company is in good standing and authorized to do business
and that all state franchise and/or income tax returns and taxes for the Company
for all periods prior to the Closing have been filed and paid.
9.11 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective by the SEC.
9.12 EMPLOYMENT AGREEMENTS. The person(s) identified on Schedule 9.12 as
the Founder shall enter into an employment agreement substantially in the form
of Annex V hereto.
9.13 CLOSING OF IPO. The closing of the sale of the TCI Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Funding and
Consummation Date hereunder.
9.14 FIRPTA CERTIFICATE. Each Stockholder shall have delivered to TCI a
certificate to the effect that he is not a foreign person pursuant to Section
1.1445-2(b) of the Treasury regulations.
9.15 ENVIRONMENTAL REVIEWS. TCI shall have received a report from an
independent environmental consultant retained by TCI at its expense to conduct
an environmental review of the Company's owned and leased sites, and such report
shall not disclose any environmental condition that, in TCI's judgment, either
(i) could be expected to have a Material Adverse Effect on the Company, or (ii)
or poses any risk of a substantial liability to the Company.
10. COVENANTS OF TCI AND THE STOCKHOLDERS AFTER CLOSING
10.1 RELEASE FROM GUARANTEES; REPAYMENT OF CERTAIN OBLIGATIONS. TCI shall
use reasonable efforts, including offering its own guarantee, to have the
Stockholders released from any and all guarantees of the Company's indebtedness
identified on Schedule 10.1. In the event that TCI cannot obtain such releases
from the lenders of any such guaranteed indebtedness identified on Schedule 10.1
on or prior to 60 days subsequent to the Funding and Consummation Date, TCI
shall promptly pay off or otherwise refinance or retire such indebtedness. TCI
shall indemnify the Stockholders against, and shall promptly reimburse the
Stockholders for, any amounts which the Stockholders are obligated to pay under
any such guarantees listed on Schedule 10.1, and shall be subrogated to any
rights of the Stockholders accruing as a result of any such payments by the
Stockholders.
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10.2 PRESERVATION OF TAX AND ACCOUNTING TREATMENT. Except as contemplated
by this Agreement or the Registration Statement, after the Funding and
Consummation Date, TCI shall not and shall not permit any of its subsidiaries to
undertake any act that would jeopardize the tax-free status of the organization,
including without limitation:
(a) the retirement or reacquisition, directly or indirectly, of all
or part of the TCI Stock issued in connection with the transactions contemplated
hereby; or
(b) the entering into of financial arrangements for the benefit of
the Stockholders.
10.3 PREPARATION AND FILING OF TAX RETURNS.
(i) The Company, if possible, or otherwise the Stockholders shall
file or cause to be filed all income Tax Returns (federal, state, local or
otherwise) of any Acquired Party for all taxable periods that end on or before
the Funding and Consummation Date, and shall permit TCI to review all such Tax
Returns prior to such filings. Unless the Company is a C corporation, the
Stockholders shall pay or cause to be paid all Tax liabilities (in excess of all
amounts already paid with respect thereto or properly accrued or reserved with
respect thereto on the Company Financial Statements) shown by such Returns to be
due.
(ii) TCI shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Funding and Consummation Date, and shall permit the Stockholders a reasonable
opportunity to review all such Returns for periods including the Funding and
Consummation Date prior to the filing thereof.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees and independent certified public accountants reasonably
available on a mutually convenient basis at its cost to provide explanation of
any documents or information so provided. Subject to the preceding sentence,
each party required to file Returns pursuant to this Agreement shall bear all
costs of filing such Returns.
(iv) Each of the Company, Newco, TCI and each Stockholder shall
comply with the Tax reporting requirements of Section 1.351-3 of the Treasury
Regulations promulgated under
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the Code, and treat the transaction as a tax-free contribution under Section
351(a) of the Code subject to gain, if any, recognized on the receipt of cash or
other property under Section 351(b) of the Code.
10.4 DIRECTORS. The persons named in the Draft Registration Statement
shall be appointed as directors and elected as officers of TCI, as and to the
extent set forth in the Draft Registration Statement, promptly following the
Funding and Consummation Date.
11. INDEMNIFICATION
The Stockholders, TCI and Newco each make the following covenants that are
applicable to them, respectively:
11.1 GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to Section 11.5,
the Stockholders covenant and agree that they severally (in accordance with
their percentage ownership interest in the Company) will indemnify, defend,
protect and hold harmless TCI, Newco, and, subsequent to the Funding and
Consummation Date, the Company and the Surviving Corporation at all times, from
and after the date of this Agreement until the Expiration Date (provided that
for purposes of Section 11.1(iii) below, the Expiration Date shall be the date
on which the applicable statute of limitations expires), from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by TCI, Newco, the
Company or the Surviving Corporation as a result of or arising from (i) any
breach of the representations and warranties of the Stockholders or the Company
set forth herein or on the schedules or certificates delivered in connection
herewith, (ii) any breach of any agreement on the part of the Stockholders or
the Company under this Agreement, or (iii) any liability under the 1933 Act, the
1934 Act or other Federal or state law or regulation, at common law or
otherwise, arising out of or based upon any untrue statement of a material fact
relating to the Company or the Stockholders, and provided to TCI or its counsel
by the Company or the Stockholders (but in the case of the Stockholders, only if
such statement was provided in writing) which is contained in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the Company or the
Stockholders required to be stated therein or necessary to make the statements
therein not misleading, provided, however, that such indemnity shall not inure
to the benefit of TCI, Newco, the Company or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
Company or the Stockholders provided, in writing, corrected information to TCI
for inclusion in the final prospectus, and such information was not so included
or the final prospectus was not properly delivered, and provided further, that
no Stockholder shall be liable for any indemnification obligation pursuant to
this Section 11.1 to the extent attributable to a breach of any representation,
warranty or agreement made herein individually by any other Stockholder.
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TCI and Newco acknowledge and agree that other than the representations
and warranties of the Company or the Stockholders specifically contained in this
Agreement, there are no representations or warranties of the Company or the
Stockholders, either express or implied, with respect to the transactions
contemplated by this Agreement, the Company or its assets, liabilities and
business.
TCI and Newco further acknowledge and agree that, should the Funding and
Consummation Date occur, their sole and exclusive remedy with respect to any and
all claims relating to this Agreement and the transactions contemplated in this
Agreement, shall be pursuant to the indemnification provisions set forth in this
Section 11. TCI and Newco hereby waive, from and after the Funding and
Consummation Date, to the fullest extent permitted under applicable law, any and
all rights, claims and causes of action they or any indemnified person may have
against any Stockholder relating to this Agreement or the transactions arising
under or based upon any federal, state, local or foreign statute, law, rule,
regulation or otherwise except their rights under this Section 11.
11.2 INDEMNIFICATION BY TCI. TCI covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and, prior to the
Funding and Consummation Date, the Company, at all times from and after the date
of this Agreement until the Expiration Date (provided that for purposes of
Section 11.2(iv) below, the Expiration Date shall be the date on which the
applicable statute of limitations expires), from and against all claims,
damages, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses of investigation) incurred by the Stockholders or
the Company as a result of or arising from (i) any breach by TCI or Newco of
their representations and warranties set forth herein or on the schedules or
certificates attached hereto, (ii) any breach of any agreement on the part of
TCI or Newco under this Agreement, (iii) any liabilities which the Stockholders
may incur due to TCI's or Newco's failure to be responsible for the liabilities
and obligations of the Company as provided in Section 1 hereof (except to the
extent that TCI or Newco has claims against the Stockholders by reason of such
liabilities); or (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact relating to TCI, Newco or any of the Other Founding Companies contained in
any preliminary prospectus, the Registration Statement or any prospectus forming
a part thereof, or any amendment thereof or supplement thereto, or arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to TCI or Newco or any of the Other Founding Companies required to
be stated therein or necessary to make the statements therein not misleading.
11.3 THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
Person not a party to this Agreement ("Third Person"), or the commencement of
any action or proceeding by a Third Person, the Indemnified Party shall, as a
condition precedent to a claim with respect thereto being made
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against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any proceeding
without the written consent of the Indemnified Party, which consent shall not be
unreasonably withheld or delayed. If the Indemnifying Party undertakes to defend
or settle, it shall promptly notify the Indemnified Party of its intention to do
so, and the Indemnified Party shall cooperate with the Indemnifying Party and
its counsel in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, granting the
Indemnifying Party with access any books, records or information reasonably
requested by the Indemnifying Party that are in the Indemnified Party's
possession or control. All Indemnified Parties shall use the same counsel, which
shall be the counsel selected by Indemnifying Party, provided that if counsel to
the Indemnifying Party shall have a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel. After the
Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses incurred by the
Indemnified Party in connection with any defense or settlement of such asserted
liability, except (i) as set forth in the preceding sentence and (ii) to the
extent such participation is requested by the Indemnifying Party, in which event
the Indemnified Party shall be reimbursed by the Indemnifying Party for
reasonable additional legal expenses and out-of-pocket expenses. If the
Indemnifying Party desires to accept a final and complete settlement of any such
Third Person claim and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement by said Third Person. Upon agreement as to such settlement between
said Third Person and the Indemnifying Party, the Indemnifying Party shall, in
exchange for a complete release from the Indemnified Party, promptly pay to the
Indemnified Party the amount agreed to in such settlement and the Indemnified
Party shall, from that moment on, bear full responsibility for any additional
costs of defense which it subsequently incurs with respect to such claim and all
additional costs of settlement or judgment, and the Indemnifying Party shall
have no further liability or obligation to the Indemnified Party under Sections
11.1 or 11.2 with respect to such claim. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no
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circumstances shall the Indemnified Party settle any Third Person claim without
the written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld or delayed. All settlements hereunder shall effect a
complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 EXCLUSIVE REMEDY. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party
with respect to the matters set forth herein, provided that, nothing herein
shall be construed to limit the right of a party, in a proper case, to seek
injunctive relief for a breach of this Agreement. Any indemnity payment under
this Section 11 shall be treated as an adjustment to the exchange consideration
for tax purposes unless a final determination (which shall include the execution
of a Form 870-AD or successor form) with respect to the indemnified party or any
of its Affiliates causes any such payment not to be treated as an adjustment to
the exchange consideration for U.S. Federal Income Tax purposes.
11.5 LIMITATIONS ON INDEMNIFICATION. TCI, Newco, the Surviving Corporation
and the other persons or entities indemnified pursuant to Section 11.1 or 11.2
shall not assert any claim for indemnification hereunder against the
Stockholders until such time as, and solely to the extent that, the aggregate of
all claims which such persons may have against such the Stockholders shall
exceed the greater of (a) 1.0% of the sum of (i) the cash paid to Stockholders
plus (ii) the value of the TCI Stock delivered to Stockholders (calculated as
provided in this Section 11.5) or (b) $100,000 (the "Indemnification
Threshold"). Except with respect to the right to receive the merger
consideration as set forth on Annex I, the Stockholders shall not assert any
claim for indemnification hereunder against TCI or Newco until such time as, and
solely to the extent that, the aggregate of all claims which the Stockholders
may have against TCI or Newco shall exceed the Indemnification Threshold.
No person shall be entitled to indemnification under this Section 11 if
and to the extent that such person's claim for indemnification is directly or
indirectly related to a breach by such person of any representation, warranty,
covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement, no Stockholder shall be
liable under this Section 11 for an amount which exceeds the amount of proceeds
received by such Stockholder in connection with the Merger. For purposes of
calculating the value of the TCI Stock received by a Stockholder, TCI Stock
shall be valued at its initial public offering price as set forth in the
Registration Statement. It is hereby agreed that a Stockholder shall have the
right to satisfy an indemnification obligation through payment of a combination
of stock and cash in proportion equal to the proportion of stock and cash
received by such Stockholder in connection with the Merger, valued as described
immediately above, but shall also have the right to satisfy any such obligation
in cash.
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12. TERMINATION OF AGREEMENT
12.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by mutual consent of the boards of directors of TCI and the
Company;
(ii) by the Company or by TCI if the transactions contemplated by
this Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party (including, in the case of TCI's right
to terminate, any such failure of the Stockholders) seeking to terminate this
Agreement to perform any of its obligations under this Agreement to the extent
required to be performed by it prior to or on the Closing Date;
(iii) by the Company or by TCI if a material breach or default shall
be made by the other party (including, in the case of TCI's right to terminate,
any such material breach or default by the Stockholders) in the observance or in
the due and timely performance of any of the covenants or agreements contained
herein, and the curing of such default shall not have been made on or before the
Funding and Consummation Date, or by the Company, if the conditions set forth in
Section 8 hereof have not been satisfied or waived as of the Closing Date or the
Funding and Consummation Date, as applicable, or by TCI, if the conditions set
forth in Section 9 hereof have not been satisfied or waived as of the Closing
Date or the Funding and Consummation Date, as applicable;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof;
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
12.2 LIABILITIES IN EVENT OF TERMINATION. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
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13. NONCOMPETITION
13.1 PROHIBITED ACTIVITIES. Except as and solely to the extent set forth
on Schedule 13.1 hereto, the Stockholders will not, for a period of five (5)
years following the Funding and Consummation Date, for any reason whatsoever,
directly or indirectly, for themselves or on behalf of or in conjunction with
any other Person or Persons:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any
heavy-duty truck, trailer and/or bus components business or operation or related
services business in direct competition with TCI or any of the Subsidiaries
thereof, within 100 miles of where the Company conducted business prior to the
Funding and Consummation Date or within the one-year period prior to the Funding
and Consummation Date (the "Territory");
(ii) call upon any individual who is, at that time, within the
Territory, an employee of TCI or any Subsidiary thereof for the purpose or with
the intent of enticing such employee away from or out of the employ of TCI or
any Subsidiary thereof;
(iii) call upon any Person which is, at that time, or which has
been, within the one-year prior to the Funding and Consummation Date, a customer
of TCI or any Subsidiary thereof, of the Company or of any of the Other Founding
Companies within the Territory for the purpose of soliciting or selling products
or services in direct competition with TCI within the Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor in the heavy-duty truck,
trailer or bus components business or operation or any related services
business, which candidate, to the actual knowledge of such Stockholder after due
inquiry, was called upon by TCI or any Subsidiary thereof or for which, to the
actual knowledge of such Stockholder after due inquiry, TCI or any Subsidiary
thereof made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) except on behalf of TCI or any Subsidiary, disclose customers,
whether in existence or proposed, of the Company to any Person, for any reason
or purpose whatsoever except to the extent that the Company has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit any Stockholder from acquiring as a passive investment not more than
one percent (1%) of the capital stock of a competing business whose stock is
traded on a national securities exchange or over-the-counter.
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13.2 DAMAGES. Because of the difficulty of measuring economic losses to
TCI as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to TCI for which it would
have no other adequate remedy, each Stockholder agrees that the foregoing
covenant may be enforced by TCI in the event of breach by such Stockholder, by
injunctions and restraining orders.
13.3 REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
Stockholders in light of the activities and business of TCI and the Subsidiaries
thereof on the date of the execution of this Agreement and the current plans of
TCI and its Subsidiaries.
13.4 SEVERABILITY; REFORMATION. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and the Agreement shall thereby be reformed.
13.5 INDEPENDENT COVENANT. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any Stockholder
against TCI or any subsidiary thereof, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by TCI of such
covenants. The covenants contained in Section 13 shall not be affected by any
breach of any other provision hereof by any party hereto and shall have no
effect if the transactions contemplated by this Agreement are not consummated.
13.6 MATERIALITY. The Company and the Stockholders hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The Stockholders recognize and acknowledge that they
had in the past, currently have, and in the future may possibly have, access to
certain confidential information of the Company, the Other Founding Companies,
and/or TCI, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's, the Other Founding
Companies' and/or TCI's respective businesses ("Confidential Information"). The
Stockholders agree that they will not disclose such Confidential Information to
any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except (a) to authorized representatives of TCI, (b)
following the Closing, such Confidential Information may be disclosed by the
Stockholders as is required in the course of performing their duties for TCI or
the Surviving Corporation and (c) to counsel and other advisers, provided that
such advisers (other than counsel)
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agree to the confidentiality provisions of this Section 14.1, unless (i) such
Confidential Information becomes known to the public generally through no fault
of the Stockholders, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any Confidential Information pursuant to this clause (ii), the Stockholders
shall, if possible, give prior written notice thereof to TCI and provide TCI
with the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by any of the Stockholders of the provisions of this Section
14.1, TCI shall be entitled to an injunction restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting TCI from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Stockholders shall have none of the above-mentioned restrictions on their
ability to disseminate Confidential Information with respect to the Company.
Each Stockholder further agrees that in the event the transactions contemplated
herein are not consummated (i) neither the Company nor any Stockholder can
thereafter use any Confidential Information of the Other Founding Companies for
any purpose and (ii) upon written request of any Other Founding Company to the
Company, the Company and Stockholders will return all Confidential Information
pertaining to such Other Founding Company to such Other Founding Company.
14.2 TCI AND NEWCO. TCI and Newco recognize and acknowledge that they had
in the past and currently have access to certain Confidential Information of the
Company, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the Company's business. TCI and Newco
agree that, prior to the Closing, or if the Transactions contemplated by this
Agreement are not consummated, they will not disclose such Confidential
Information to any Person for any purpose or reason whatsoever, except (a) to
authorized representatives of the Company, (b) to counsel and other advisers,
provided that such advisers (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to the Other Founding Companies and their
representatives pursuant to Section 7.1(a), unless (i) such Confidential
Information is or becomes known to the public generally through no fault of TCI
or Newco, (ii) disclosure is required by law or the order of any governmental
authority under color of law, provided, that prior to disclosing any information
pursuant to this clause (ii), TCI and Newco shall, if possible, give prior
written notice thereof to the Company and the Stockholders and provide the
Company and the Stockholders with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party, and
(d) to the public to the extent necessary or advisable in connection with the
filing of the Registration Statement and the IPO and the securities laws
applicable thereto and to the operation of TCI as a publicly held entity after
the IPO. In the event of a breach or threatened breach by TCI or Newco of the
provisions of this Section 14.2, the Company and the Stockholders shall be
entitled to an injunction restraining TCI and Newco from disclosing, in whole or
in part, such Confidential Information. Nothing herein shall be construed as
prohibiting the
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Company and the Stockholders from pursuing any other available remedy for such
breach or threatened breach, including the recovery of damages.
14.3 DAMAGES. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced by the other parties by injunctions and restraining orders.
14.4 SURVIVAL. The obligations of the parties under this Article 14 shall
survive the termination of this Agreement for a period of five years from the
Funding and Consummation Date.
15. TRANSFER RESTRICTIONS
15.1 TRANSFER RESTRICTIONS. Unless otherwise agreed by TCI, except for
transfers to immediate family members who agree to be bound by the restrictions
set forth in this Section 15.1 (or partnerships or trusts for the benefit of the
Stockholders or family members, the trustees or partners of which so agree), for
a period of two years from the Funding and Consummation Date, except pursuant to
Section 17 hereof, none of the Stockholders shall sell, assign, exchange,
transfer, encumber, pledge, distribute, appoint, or otherwise dispose of any
shares of TCI Stock received by the Stockholders in the Merger. The certificates
evidencing the TCI Stock delivered to the Stockholders pursuant to Section 3 of
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as TCI may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED
OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT
OR OTHER DISPOSITION PRIOR TO [SECOND ANNIVERSARY OF FUNDING AND CONSUMMATION
DATE]. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
16. FEDERAL SECURITIES ACT REPRESENTATIONS
16.1 COMPLIANCE WITH LAW. The Stockholders acknowledge that the shares of
TCI Stock to be delivered to the Stockholders pursuant to this Agreement have
not been and will not be registered under the 1933 Act (except as provided in
Section 17 hereof) and therefore may not be resold without compliance with the
1933 Act. The TCI Stock to be acquired by such Stockholders
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pursuant to this Agreement is being acquired solely for their own respective
accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of it in connection with a
distribution. The Stockholders covenant, warrant and represent that none of the
shares of TCI Stock issued to such Stockholders will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC. All the TCI Stock shall bear the following legend in
addition to the legend required under Section 15 of this Agreement:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE TRANSFERRED IF THE HOLDER
HEREOF COMPLIES WITH THE ACT AND APPLICABLE SECURITIES LAW.
16.2 ECONOMIC RISK; SOPHISTICATION. The Stockholders are able to bear the
economic risk of an investment in the TCI Stock to be acquired pursuant to this
Agreement and can afford to sustain a total loss of such investment and have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of the proposed investment in the TCI
Stock. The Stockholders party hereto have had an adequate opportunity to ask
questions and receive answers from the officers of TCI concerning any and all
matters relating to the transactions described herein including, without
limitation, the background and experience of the current and proposed officers
and directors of TCI, the plans for the operations of the business of TCI, the
business, operations and financial condition of the Founding Companies other
than the Company, and any plans for additional acquisitions and the like. The
Stockholders have asked any and all questions in the nature described in the
preceding sentence and all questions have been answered to their satisfaction.
17. REGISTRATION RIGHTS
17.1 PIGGYBACK REGISTRATION RIGHTS. At any time following the Funding and
Consummation Date, whenever TCI proposes to register any TCI Stock for its own
or others account under the 1933 Act for a public offering, other than (i) any
shelf or other registration of shares to be used as consideration for
acquisitions of additional businesses by TCI (including any registration of
resales of such shares by the holders thereof) and (ii) registrations relating
to employee stock options or other benefit plans, TCI shall give each of the
Stockholders prompt written notice of its intent to do so. Upon the written
request of any of the Stockholders given within 30 days after receipt of such
notice, TCI shall cause to be included in such registration all of the TCI Stock
issued to the Stockholders pursuant to this Agreement (including any stock
issued as (or issuable upon the conversion or exchange of any convertible
security, warrant, right or other security which is issued by TCI as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of
such TCI Stock) which any such Stockholder requests, provided that TCI shall
have the right to
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reduce the number of shares included in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to TCI or
its independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization under
Section 351 of the Code. In addition, if TCI is advised in writing in good faith
by any managing underwriter of an underwritten offering of the securities being
offered pursuant to any registration statement under this Section 17.1 that the
number of shares to be sold by persons other than TCI is greater than the number
of such shares which can be offered without adversely affecting the offering,
TCI may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares proposed to be sold by each such
person) to a number deemed satisfactory by such managing underwriter, provided,
that, for each such offering made by TCI after the IPO, such reduction shall be
made first by reducing the number of shares to be sold by persons other than
TCI, the Stockholders and the stockholders of the Other Founding Companies
(collectively, the Stockholders and the stockholders of the other Founding
Companies being referred to herein as the "Founding Stockholders"), and
thereafter, if a further reduction is required, by reducing the number of shares
to be sold by the Founding Stockholders.
17.2 DEMAND REGISTRATION RIGHTS. At any time after the date two years
after the Funding and Consummation Date and prior to the date three years after
the Funding and Consummation Date, the holders of a majority of the shares of
TCI Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements which have not been previously registered or sold and which are
not entitled to be sold under Rule 144(k) (or any similar or successor
provision) promulgated under the 1933 Act may request in writing that TCI file a
registration statement under the 1933 Act covering the registration of any or
all of the shares of TCI Stock issued to the Stockholders pursuant to this
Agreement and the Other Agreements (including any stock issued as (or issuable
upon the conversion or exchange of any convertible security, warrant, right or
other security which is issued by TCI as) a dividend or other distribution with
respect to, or in exchange for, or in replacement of such TCI Stock) then held
by such Founding Stockholders (a "Demand Registration"). Within ten (10) days of
the receipt of such request, TCI shall give written notice of such request to
all other Founding Stockholders and shall, as soon as practicable but in no
event later than 45 days after notice from any Stockholder, file and use its
best efforts to cause to become effective a registration statement covering all
such shares. TCI shall be obligated to effect only one Demand Registration for
all Founding Stockholders and will keep the registration statement relating to
such Demand Registration current and effective for not less than 120 days (or
such shorter period as is required to sell all of the shares registered
thereby).
Notwithstanding the foregoing paragraph, following any such a demand, a
majority of TCI's disinterested directors (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for up to a 30 day period after the date on which TCI
would otherwise be required to make such filing pursuant to the foregoing
paragraph if such directors determine in good faith that the filing of such a
registration statement or
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the making of any required disclosure in connection therewith would have an
adverse effect on TCI or interfere with a transaction in which TCI is then
engaged or is then pursuing.
If at the time of any request by the Founding Stockholders for a Demand
Registration TCI has fixed plans to file within 60 days after such request a
registration statement covering the sale of any of its securities in a public
offering under the 1933 Act, no registration of the Founding Stockholders' TCI
Stock shall be initiated under this Section 17.2 until 90 days after the
effective date of such registration unless TCI is no longer proceeding
diligently to effect such registration; provided that TCI shall provide the
Founding Stockholders the right to participate in such public offering pursuant
to, and subject to, Section 17.1 hereof.
In the event that the Founding Stockholders make a demand registration
request pursuant to this Section 17.2 and such registration is delayed by TCI as
a consequence of the exercise of its rights under this Section 17.2, then the
period during which such demand registration may be requested by the Founding
Stockholders shall be extended for an equal number of days.
17.3 REGISTRATION PROCEDURES. Whenever TCI is required to register shares
of TCI Stock pursuant to Sections 17.1 and 17.2, TCI will, as expeditiously as
possible:
a. Prepare and file with the SEC a registration statement with respect to
such shares and use its best efforts to cause such registration statement to
become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements or term sheets thereto, TCI will
furnish a representative of the Stockholders with copies of all such documents
proposed to be filed) as promptly as practical;
b. Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 120 days;
c. Furnish to each Stockholder who so requests such number of copies of
such registration statement, each amendment and supplement thereto and the
prospectus included in such registration statement (including each preliminary
prospectus and any term sheet associated therewith), and such other documents as
such Stockholder may reasonably request in order to facilitate the disposition
of the relevant shares;
d. Use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Stockholders, and to keep
such registration or qualification effective during the period such registration
statement is to be kept effective, provided that TCI shall not be required to
become subject to taxation, to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions;
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e. Cause all such shares of TCI Stock to be listed or included on any
securities exchanges or trading systems on which similar securities issued by
TCI are then listed or included;
f. Notify each Stockholder at any time when a prospectus relating thereto
is required to be delivered under the 1933 Act within the period that TCI is
required to keep the registration statement effective of the happening of any
event as a result of which the prospectus included in such registration
statement, together with any associated term sheet, contains an untrue statement
of a material fact or omits any fact necessary to make the statement therein not
misleading, and, at the request of such Stockholder, TCI will prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of the covered shares, such prospectus will not contain an untrue
statement of material fact or omit to state any fact necessary to make the
statements therein not misleading.
All expenses incurred in connection with the registration under this
Article 17 (including all registration, filing, qualification, legal, printer
and accounting fees, but excluding underwriting commissions and discounts),
shall be borne by TCI.
17.4 INDEMNIFICATION.
(a) In connection with any demand or piggyback registration, TCI shall
indemnify, to the extent permitted by law, each Stockholder and each Person who
controls such Stockholder (an "Indemnified Party") against all losses, claims,
damages, liabilities and expenses (including reasonable attorneys' fees and
expenses of investigation) arising out of or resulting from any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or associated term sheet or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading except
insofar as the same are caused by or contained in or omitted from any
information furnished in writing to TCI by such Indemnified Party expressly for
use therein or by such Indemnified Party's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements thereto
after TCI has furnished such Indemnified Party with a sufficient number of
copies of the same.
(b) In connection with any demand or piggyback registration, each
Stockholder shall furnish to TCI in writing such information as is reasonably
requested by TCI for use in any such registration statement or prospectus and
will indemnify, to the extent permitted by law, TCI, its directors and officers
and each person who controls TCI (within the meaning of the 1933 Act) against
any losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) resulting from any untrue or
alleged untrue statement of a material fact or any omission or alleged omission
of a material fact required to be stated in the registration statement or
prospectus or any amendment thereof or supplement thereto necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is
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contained in information so furnished in writing by such Stockholder
specifically for use in preparing the registration statement. Notwithstanding
the foregoing, the liability of a Stockholder under this Section 17.4 shall be
limited to an amount equal to the net proceeds actually received by such
Stockholder from the sale of the relevant shares covered by the registration
statement.
(c) Any person entitled to indemnification hereunder will (i) give prompt
notice to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable judgment,
a conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. Any failure to give prompt notice shall deprive a party of its right to
indemnification hereunder only to the extent that such failure shall have
adversely affected the indemnifying party. If the defense of any claim is
assumed, the indemnified party will not be subject to any liability for any
settlement made without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled or elects not to assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for all parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any indemnified
party, a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
17.5 UNDERWRITING AGREEMENT. In connection with each registration pursuant
to Sections 17.1 and 17.2 covering an underwritten registered offering, TCI and
each participating holder agree to enter into a written agreement with the
managing underwriters (which in the case of a Demand Registration under Section
17.2 will be reasonably satisfactory to the holders of a majority of the shares
of the Founding Stockholders participating in the Demand Registration), in such
form and containing such provisions as are customary in the securities business
for such an arrangement between such managing underwriters and companies of
TCI's size and investment stature, including indemnification provisions.
17.6 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of TCI stock
to the public without registration, TCI agrees to use its reasonable efforts to:
(i) make and keep public information regarding TCI available as
those terms are used in Rule 144 under the 1933 Act for a period of four years
beginning 90 days following the effective date of the Registration Statement;
(ii) file with the SEC in a timely manner all reports and other
documents required of TCI under the 1933 Act and the 1934 Act at any time after
it has become subject to such reporting requirements; and
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(iii) so long as a Stockholder owns any restricted TCI Common Stock,
furnish to each Stockholder forthwith upon written request a written statement
by TCI as to its compliance with the reporting requirements of Rule 144 (at any
time from and after 90 days following the effective date of the Registration
Statement), and of the 1933 Act and the 1934 Act (any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of TCI, and such other reports and documents so filed as a
Stockholder may reasonably request in availing itself of any rule or regulation
of the SEC allowing a Stockholder to sell any such shares without registration.
18. GENERAL
18.1 COOPERATION. The Company, the Stockholders, TCI and Newco shall each
deliver or cause to be delivered to the other on the Funding and Consummation
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement.
18.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
TCI, and the heirs and legal representatives of the Stockholders.
18.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and TCI and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement, upon
execution, constitutes a valid and binding agreement of the parties hereto
enforceable in accordance with its terms and may be modified or amended only by
a written instrument executed by the Stockholders, the Company, Newco and TCI,
acting through their respective officers or trustees, duly authorized by their
respective Boards of Directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the Company shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 COUNTERPARTS. This Agreement may be executed simultaneously in two
(2) or more counterparts, each of which shall be deemed an original and all of
which together shall constitute but one and the same instrument.
18.5 BROKERS AND AGENTS. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for
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fees or commission of brokers employed or alleged to have been employed by such
indemnifying party.
18.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto, including
all costs and expenses incurred in the performance and compliance with all
conditions to be performed by TCI under this Agreement, including the fees and
expenses of Arthur Andersen, LLP, Bracewell & Patterson, L.L.P., and any other
person or entity retained by TCI or by Notre Capital Ventures II, L.L.C., and
the costs of preparing and filing the Registration Statement. Each Stockholder
shall pay all sales, use, transfer, real property transfer, recording, gains,
stock transfer and other similar taxes and fees ("Transfer Taxes") imposed in
connection with the Merger, other than Transfer Taxes, if any, imposed by the
State of Delaware. Each Stockholder shall file all necessary documentation and
Returns with respect to such Transfer Taxes. In addition, each Stockholder
acknowledges that he, and not the Company or TCI, will pay all taxes due upon
receipt of the consideration payable pursuant to Section 3 hereof. The
Stockholders acknowledge that the risks of the transactions contemplated hereby
include tax risks, with respect to which the Stockholders are relying solely on
the opinion contemplated by Section 8.12 hereof. TCI hereby agrees to reimburse
an aggregate of up to $75,000 of expenses or fees incurred by the Stockholders
and the stockholders of Other Founding Companies, as a group, promptly after the
Funding and Consummation Date.
18.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
(a) If to TCI, or Newco, addressed to them at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
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(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
(c) If to Amparts, Inc. or Amparts International, Inc.,
addressed to it at:
307 Market Street
Laredo, Texas 78040
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
18.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
18.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.11 TIME. Time is of the essence with respect to this Agreement.
18.12 REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case
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<PAGE>
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.
18.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.14 CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of TCI, Newco, the Company and Stockholders who hold or who will
hold at least 50% of the TCI Stock issued or to be issued upon consummation of
the Merger. Any amendment or waiver effected in accordance with this Section
18.15 shall be binding upon each of the parties hereto, any other person
receiving TCI Stock in connection with the Merger and each future holder of such
TCI Stock.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
APM ACQUISITION CORPORATION
By:
Vice President
AIII ACQUISITION CORPORATION
By:
Vice President
AMPARTS, INC.
By:
Name: Rodolfo A. Duemichen
Title: President
-58-
<PAGE>
AMPARTS INTERNATIONAL, INC.
By:
Name: Rodolfo A. Duemichen
Title: President
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<PAGE>
Stockholders of Amparts, Inc.:
Rodolfo A. Duemichen
G. Patrick Kuzmer
Gregory R. Hatton
Stockholders of Amparts International, Inc.
Rodolfo A. Duemichen
G. Patrick Kuzmer
Gregory R. Hatton
-60-
<PAGE>
SCHEDULE 6.4
None.
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<PAGE>
SCHEDULE 6.5
None.
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<PAGE>
SCHEDULE 6.7
None.
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<PAGE>
SCHEDULE 6.8
None.
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<PAGE>
SCHEDULE 6.9
None.
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<PAGE>
SCHEDULE 6.12
None.
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<PAGE>
SCHEDULE 6.15
None.
-67-
EXHIBIT 10.13
AGREEMENT AND PLAN OF ORGANIZATION
dated as of April 14, 1998
by and among
TRANSPORTATION COMPONENTS, INC.
PERFECTION EQUIPMENT COMPANY
and
the STOCKHOLDERS named herein
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.....................................................................1
1. CERTAIN INFORMATION....................................................3
1.1 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE
COMPANY..........................................................3
2. SALE...................................................................3
2.1 AGREEMENT TO SELL................................................3
3. DELIVERY OF CONSIDERATION..............................................3
4. CLOSING................................................................3
5. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE..........................4
5.1 AUTHORITY; OWNERSHIP.............................................4
6. REPRESENTATIONS OF TCI.................................................4
6.1 DUE ORGANIZATION.................................................4
6.2 AUTHORIZATION....................................................5
6.3 VALIDITY OF OBLIGATIONS..........................................5
7. CONDITIONS PRECEDENT...................................................5
8. TERMINATION OF AGREEMENT...............................................5
8.1 TERMINATION......................................................5
9. GENERAL................................................................6
9.1 COOPERATION......................................................6
9.2 SUCCESSORS AND ASSIGNS...........................................6
9.3 ENTIRE AGREEMENT.................................................6
9.4 COUNTERPARTS.....................................................6
9.5 BROKERS AND AGENTS...............................................6
9.6 EXPENSES.........................................................6
9.7 NOTICES..........................................................6
9.8 GOVERNING LAW....................................................7
9.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.......................7
9.10 EXERCISE OF RIGHTS AND REMEDIES..................................7
9.11 TIME.............................................................8
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<PAGE>
9.12 REFORMATION AND SEVERABILITY.....................................8
9.13 REMEDIES CUMULATIVE..............................................8
9.14 CAPTIONS.........................................................8
9.15 AMENDMENTS AND WAIVERS...........................................8
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<PAGE>
ANNEXES
Annex I - Consideration to Be Paid to Stockholders
Annex II - Stock Ownership
-iii-
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION (the "Agreement") is made as
of April 14, 1998, by and among Transportation Components, Inc., a Delaware
corporation ("TCI"), Perfection Equipment Company, an Oklahoma corporation (the
"Company"), TPE, Inc., an Oklahoma corporation ("TPE"), and Maura Berney, as
Trustee (the "Trustee") of the Employee Stock Ownership Plan for Employees of
the Perfection Equipment Companies (the "ESOP"). TPE and the ESOP are herein
sometimes referred to as the "Stockholders". The Stockholders are all the
stockholders of the Company.
RECITALS
WHEREAS, the ESOP desires to sell to TCI all of the outstanding
shares of capital stock of the Company it holds for an amount of cash to
be determined as described herein, all on the terms and subject to the
conditions set forth herein;
WHEREAS, immediately after the consummation of the sale described
above, TPE and TCI will be the sole stockholders of the Company;
WHEREAS, concurrently with the execution and delivery of this
Agreement, TPE and all of the stockholders of TPE are entering into an
agreement pursuant to which, immediately after the consummation of the
sale described above, TPE will consummate a merger with a wholly owned
subsidiary of TCI, pursuant to which TPE will become a wholly owned
subsidiary of TCI;
WHEREAS, TCI is entering into other separate agreements (the "Other
Agreements"), each of which is entitled "Agreement and Plan of
Organization", with each of the Other Founding Companies (as defined
herein) and their respective stockholders in order to acquire additional
transportation components retailers and related services businesses;
WHEREAS, this Agreement, the Other Agreements and the IPO (as
defined herein) constitute the "TCI Plan of Organization";
WHEREAS, unless the context otherwise requires, capitalized terms
used in this Agreement or in any schedule attached hereto and not
otherwise defined shall have the following meanings for all purposes of
this Agreement:
"Charter Document" shall mean the Certificate of Incorporation or
corporate charter and Bylaws or governing document in effect as of the
date of this Agreement.
"Closing" has the meaning set forth in Section 4.
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<PAGE>
"Closing Date" has the meaning set forth in Section 4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
"Company Stock" has the meaning set forth in Section 2.1.
"Expiration Date" has the meaning set forth in Section 5.
"Funding and Consummation Date" has the meaning set forth in Section 4.
"IPO" means the initial public offering of TCI Stock pursuant to the
Registration Statement described herein.
"Other Agreements" has the meaning set forth in the third recital of this
Agreement.
"Other Founding Companies" means all of the Founding Companies other than
the Company.
"Person" means an individual or a corporation, limited partnership,
general partnership, limited liability company, trust, unincorporated
association, joint venture, association, or government or any agency,
instrumentality, or political subdivision thereof, or other entity.
"Pricing" means the date of determination by TCI and the Underwriters of
the public offering price of the shares of TCI Stock in the IPO; the parties
hereto contemplate that the Pricing shall take place on the Closing Date.
"Registration Statement" means that certain registration statement on Form
S-1 to be filed with the SEC covering the shares of TCI Stock to be issued in
the IPO and all amendments thereto.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Surviving Corporation" means the Company after the Sale.
"TCI" has the meaning set forth in the first paragraph of this Agreement.
"TCI Charter Documents" has the meaning set forth in Section 6.1.
"TCI Plan of Organization" has the meaning set forth in the fourth recital
to this Agreement.
"TCI Stock" means the common stock, par value $.01 per share, of TCI.
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<PAGE>
"Underwriters" means the prospective underwriters identified in the Draft
Registration Statement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
1. CERTAIN INFORMATION
1.1 CERTAIN INFORMATION WITH RESPECT TO THE CAPITAL STOCK OF THE COMPANY.
As of the date of this Agreement, the authorized and outstanding capital stock
of the Company, and the record and beneficial ownership of such outstanding
capital stock, is as set forth on Annex II hereto.
2. SALE
2.1 AGREEMENT TO SELL. As of the Closing, the ESOP shall sell to TCI (the
"Sale") all of the shares of Company Stock held by the ESOP for the right to
receive, subject to the adjustments described in Annex I hereto, the aggregate
amount of cash set forth on Annex I hereto (the "Purchase Price"); provided,
however, that such consideration shall not be delivered to the ESOP until the
Funding and Consummation Date, as described in Section 3 below.
2.2 ASSIGNMENT. TCI shall have the right to cause TPE to purchase the
Company Shares, provided that TCI shall lend to TPE funds equal to the Purchase
Price.
3. DELIVERY OF CONSIDERATION
3.1 On the Funding and Consummation Date the ESOP shall receive, upon
surrender of certificates representing the Company Stock, and subject to the
adjustments described on Annex I hereto, the amounts of cash described on Annex
I hereto, said cash to be payable by certified check or wire transfer as
requested by the ESOP at least two business days prior to closing.
3.2 The ESOP shall deliver to TCI at the Closing the certificates
representing Company Stock, duly endorsed in blank by the Trustee, or
accompanied by blank stock powers. The Trustee agrees promptly to cure any
deficiencies with respect to the endorsement of the stock certificates or other
documents of conveyance with respect to such Company Stock or with respect to
the stock powers accompanying the Company Stock.
4. CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to effect the Sale; provided, that such actions shall not include the
actual completion of the Sale or the delivery of the funds referred to in
Section 3 hereof, each of which actions shall only be taken upon the Funding and
Consummation Date as herein provided. In the event that there is no Funding and
Consummation Date and this Agreement automatically terminates as provided in
this Section 4, the
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<PAGE>
Sale shall not be consummated. The taking of the actions described above (the
"Closing") shall take place on the closing date (the "Closing Date") at the
offices of Bracewell & Patterson, L.L.P., South Tower Pennzoil Place, 711
Louisiana, Suite 2900, Houston, Texas 77002. On the Funding and Consummation
Date (x) all transactions contemplated by this Agreement, including the delivery
of shares and the delivery of funds in the amount and in the manner provided in
Section 3 hereof and (y) the closing with respect to the IPO shall occur and be
completed. The date on which the actions described in the preceding clauses (x)
and (y) occur shall be referred to as the "Funding and Consummation Date."
During the period from the Closing Date to the Funding and Consummation Date,
this Agreement may only be terminated by the parties if the underwriting
agreement in respect of the IPO is terminated pursuant to the terms of such
underwriting agreement. This Agreement shall also in any event automatically
terminate if the Funding and Consummation Date has not occurred within 15
business days following the Closing Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF THE TRUSTEE
The Trustee represents and warrants that all of the representations and
warranties in this Section 5 are true at the date of this Agreement and shall be
true at the time of Closing and the Funding and Consummation Date, and agrees
that such representations and warranties shall survive the Funding and
Consummation Date for a period of twelve months.
5.1 AUTHORITY; OWNERSHIP. The Trustee has the full legal right, power and
authority to enter into this Agreement and consuammate the transactions
contemplated hereby, and, except for the interests of the ESOP beneficiaries
created pursuant to the documents pursuant to which the ESOP was created (as
amended from time to time), the Company Stock being sold hereunder is owned free
and clear of all liens, security interests, pledges, voting agreements, voting
trusts, contractual restrictions on transfer, encumbrances and claims of every
kind.
6. REPRESENTATIONS OF TCI
TCI represents and warrants that all of the following representations and
warranties in this Section 6 are true at the date of this Agreement and that
such representations and warranties shall survive the Funding and Consummation
Date for a period of twelve months.
6.1 DUE ORGANIZATION. TCI is a corporation duly incorporated and
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to carry on its business as
it is now being conducted. TCI is qualified to do business and is in good
standing in each jurisdiction in which the nature of its business makes such
qualification necessary, except where the failure to be so authorized or
qualified would not have a material adverse effect on TCI. True, complete and
correct copies of the Certificate of Incorporation and By-laws of TCI (the "TCI
Charter Documents") have been or will be filed as exhibits to the Registration
Statement.
-4-
<PAGE>
6.2 AUTHORIZATION. (i) The representatives of TCI executing this Agreement
have the authority to enter into and bind TCI to the terms of this Agreement and
(ii) TCI has the full legal right, power and authority to enter into this
Agreement and consummate the transactions contemplated hereby. All corporate
acts and other proceedings required to have been taken by TCI to authorize the
execution, delivery and performance of this Agreement and the consummation of
the Sale have been duly and properly taken.
6.3 VALIDITY OF OBLIGATIONS. The execution and delivery of this Agreement
by TCI and the performance of the transactions contemplated herein have been
duly and validly authorized by the Board of Directors of TCI and this Agreement
has been duly and validly authorized by all necessary corporate action and is a
legal, valid and binding obligation of TCI.
7. CONDITIONS PRECEDENT
The obligations of both the ESOP and TCI with respect to actions to be
taken on the Closing Date are subject to the satisfaction of the following
conditions:
7.1 TPE AGREEMENT. The obligations of both the ESOP and TCI with respect
to actions to be taken on the Closing Date are subject to the closing of the
transactions contemplated by the Agreement and Plan of Organization dated the
date hereof to which TCI, TPE, the stockholders of TPE and certain other
entities are parties (the "TPE Agreement"); it being understood and agreed that
the Funding and Consummation Date relating to the TPE Agreement will occur
subsequent to the Closing Date, and that in the event that there is no such
Funding and Consummation Date, the Sale contemplated hereby shall not be
consummated.
7.2 OPINION. The Trustee shall have received such advice as the Trustee
deems appropriate (including, if deemed appropriate by the Trustee, a fairness
opinion and/or appraisal of the value of the shares of the Company Stock held by
the ESOP prior to the execution and delivery of this Agreement and of the TPE
Agreement) from an independent advisor selected by the Trustee regarding the
fairness of the transactions contemplated hereby to the ESOP.
8. TERMINATION OF AGREEMENT
8.1 TERMINATION.This Agreement may be terminated at any time prior to the
Funding and Consummation Date solely:
(i) by the mutual consent of TCI and the Trustee;
(ii) by TCI or the Trustee if the transactions contemplated by this
Agreement to take place at the Closing shall not have been consummated by
December 31, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
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<PAGE>
provided, however, that (except as provided in Section 4 hereof) during the
period from the Closing Date to the Funding and Consummation Date, this
Agreement may be terminated only if the underwriting agreement relating to the
IPO is terminated in accordance with its terms.
9. GENERAL
9.1 COOPERATION. The ESOP and TCI shall each deliver or cause to be
delivered to the other on the Funding and Consummation Date, and at such other
times and places as shall be reasonably agreed to, such additional instruments
as the other may reasonably request for the purpose of carrying out this
Agreement.
9.2 SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law, and except that TCI
may assign its rights hereunder to TPE or to a wholly owned subsidiary of TCI).
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and the successors of TCI.
9.3 ENTIRE AGREEMENT. This Agreement (including the schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company and TCI and supersede any prior agreement and understanding relating to
the subject matter of this Agreement. This Agreement, upon execution,
constitutes a valid and binding agreement of the parties hereto enforceable in
accordance with its terms and may be modified or amended only by a written
instrument executed by the Stockholders, the Company and TCI, acting through
their respective officers or trustees, duly authorized by their respective
Boards of Directors. .
9.4 COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
9.5 BROKERS AND AGENTS. Each party represents and warrants that it
employed no broker or agent in connection with this transaction.
9.6 EXPENSES. (a) Whether or not the transactions herein contemplated
shall be consummated, TCI will pay the fees, expenses and disbursements of TCI
and its agents, representatives, accountants and counsel incurred in connection
with the subject matter of this Agreement and any amendments thereto.
9.7 NOTICES. All notices of communication required or permitted hereunder
shall be in writing and may be given by depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, or by delivering the same in person to
an officer or agent of such party.
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<PAGE>
(a) If to TCI, addressed to it at:
Transportation Components, Inc.
Three Riverway, Suite 630
Houston, Texas 77056
Attn: President
with copies to:
Thomas W. Adkins
Bracewell & Patterson, L.L.P.
South Tower Pennzoil Place
711 Louisiana Street, Suite 2900
Houston, Texas 77002-2781
(b) If to the Stockholders, addressed to them at their addresses set
forth on Annex II, with copies to:
Christopher S. Collins
Andrews & Kurth, LLP
4200 Texas Commerce Tower
600 Travis
Houston Texas 77002
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
9.8 GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
9.9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, covenants and agreements of the parties made herein and at the time
of the Closing or in writing delivered pursuant to the provisions of this
Agreement shall survive the consummation of the transactions contemplated hereby
and any examination on behalf of the parties until the Expiration Date.
9.10 EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
-7-
<PAGE>
9.11 TIME. Time is of the essence with respect to this Agreement.
9.12 REFORMATION AND SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.
9.13 REMEDIES CUMULATIVE. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
9.14 CAPTIONS. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
9.15 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the written
consent of TCI and the Trustee.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
TRANSPORTATION COMPONENTS, INC.
By:
T. Michael Young
President and Chief Executive Officer
PERFECTION EQUIPMENT COMPANY
By:
Name: Chris Simpson
Title: President
-9-
<PAGE>
Stockholders:
EMPLOYEE STOCK OWNERSHIP PLAN FOR EMPLOYEES
OF THE PERFECTION EQUIPMENT COMPANIES
By:
Name: Maura Berney
Title: Trustee
TPE, INC.
By:
Name: Maura Berney
Title: President
-10-
EXHIBIT 10.14
FORM OF MANAGEMENT
EMPLOYMENT AGREEMENT
This Management Employment Agreement (this "Agreement") by and among
[TransCom USA Management Co., L.P., a Delaware limited partnership]
("Employer"), and _______________ ("Employee") is hereby entered into and
effective as of the __ day of ____________, 1998 (the "Effective Date"), which
date is the date of the consummation of the initial public offering of the
common stock of Transportation Components, Inc., a Delaware corporation (the
"Company"). [The Company has also joined in the execution of this Agreement as
set forth in Section 18.]
R E C I T A L S
A. The Company is engaged primarily in the heavy duty truck parts and
repair business;
B. Employer is engaged primarily in the business of providing management
services to the Company;
C. Employer desires to employ Employee hereunder in a confidential
relationship wherein Employee, in the course of his employment, will become
familiar with and aware of information as to the Company's customers, specific
manner of doing business, processes, techniques and trade secrets and future
plans with respect thereto, all of which have been and will be established and
maintained at great expense to the Company, which information is a trade secret
and constitutes the valuable good will of the Company; and
D. The Company is intended to be a third-party beneficiary of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, it is hereby agreed as follows:
A G R E E M E N T S
1. EMPLOYMENT AND DUTIES.
(a) Employer hereby employs Employee to serve as __________________
of the Company. As such, Employee shall have responsibilities, duties and
authority customarily accorded to and expected of an officer holding such
position
<PAGE>
directly with the Company. Employee hereby accepts this employment upon the
terms and conditions herein contained and agrees to devote his full time,
attention and efforts to promote and further the business of Employer.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by Employer from time to time.
2. COMPENSATION. For all services rendered by Employee, Employer shall
compensate Employee as follows:
(a) BASE SALARY; PERFORMANCE BONUS; COMPANY STOCK OPTIONS. Effective
as of the Effective Date, the base salary payable to Employee shall be $
__________ per year, payable on a regular basis in accordance with Employer's
standard payroll procedures but not less frequently than monthly. On at least an
annual basis, Employer will review Employee's performance and may, in its sole
discretion, (i) make increases to such base salary; (ii) pay a performance
bonus; or (iii) recommend Employee for the grant of Company stock options.
(b) EMPLOYEE PERQUISITES, BENEFITS AND OTHER COMPENSATION. Employee
shall be entitled to receive additional benefits and compensation from Employer
in such form and to such extent as specified below:
(i) Coverage, subject to contributions required of executives
of the Company generally, for Employee and his dependent family members
under health, hospitalization, disability, dental, life and other
insurance plans that Employer may have in effect from time to time.
Benefits provided to Employee under this clause (i) shall be equal to such
benefits provided to other Employer employees of the same level.
(ii) Reimbursement for all business travel and other
out-of-pocket expenses reasonably incurred by Employee in the performance
of services pursuant to this Agreement. All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission
of any request for reimbursement, and in a format and manner consistent
with Employer's expense reporting policy.
(iii) Employer shall provide Employee with other employee
perquisites as may be available to or deemed appropriate for Employee by
Employer and participation in all other Company-wide employee benefits as
are available from time to time.
3. NONCOMPETITION AGREEMENT.
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<PAGE>
(a) Employee shall not, during the term of his employment hereunder,
be engaged in any other business activity pursued for gain, profit or other
pecuniary advantage if such activity interferes with Employee's duties and
responsibilities hereunder. The foregoing limitations shall not be construed as
prohibiting Employee from making personal investments in such form or manner as
will neither require his services in the operation or affairs of the companies
or enterprises in which such investments are made nor violate the terms of this
paragraph 3. Employee will not, during the period of his employment by or with
Employer, and for a period of two (2) years immediately following the
termination of his employment under this Agreement, except as provided below,
directly or indirectly, for himself or on behalf of or in conjunction with any
other person, persons, company, partnership, corporation or business of whatever
nature:
(i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in any business in direct competition with Employer or the
Company within 100 miles of where the Company or any of its subsidiaries
conduct business, including any territory serviced by the Company or any
of such subsidiaries (the "Territory");
(ii) call upon any person who is, at that time, an employee of
Employer or the Company (including the respective subsidiaries thereof) in
a sales or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of Employer or the
Company (including the respective subsidiaries thereof);
(iii) call upon any person or entity which is, at that time,
or which has been, within one (1) year prior to that time, a customer of
the Company (including the respective subsidiaries thereof) for the
purpose of soliciting or selling products or services in direct
competition with the Company; or
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate was,
to Employee's actual knowledge after due inquiry, either called upon by
Employer or the Company (including the respective subsidiaries thereof) or
for which Employer or the Company made an acquisition analysis for the
purpose of acquiring such entity or all or substantially all of such
entity's assets.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring as a passive investment not more than two
percent (2%) of the capital stock of a competing business the stock of which is
traded on a national securities exchange or on an over-the -counter or similar
market.
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<PAGE>
(b) Because of the difficulty of measuring economic losses to
Employer or the Company as a result of a breach of the foregoing covenant, and
because of the immediate and irreparable damage that could be caused to Employer
or the Company for which they would have no other adequate remedy, Employee
agrees that the foregoing covenant may be enforced by Employer or the Company in
the event of breach or threatened breach by Employee, by injunctions,
restraining orders and other appropriate equitable relief.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries) on the date
of the execution of this Agreement and the current plans of the Company
(including the Company's subsidiaries); but it is also the intent of the Company
and Employee that such covenants be construed and enforced in accordance with
the changing activities, business and locations of the Company (including the
Company's subsidiaries) throughout the term of this covenant, whether before or
after the date of termination of the employment of Employee. For example, if,
during the term of this Agreement, the Company (including the Company's
subsidiaries) engages in new and different activities, enters a new business or
establishes new locations for its current activities or business in addition to
or other than the activities or business enumerated under the Recitals above or
the locations currently established therefor, then Employee will be precluded
from soliciting the customers or Employees of such new activities or business or
from such new location and from directly competing with such new business within
100 miles of its then-established operating location(s) through the term of this
covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's subsidiaries), or similar activities or business in locations the
operation of which, under such circumstances, does not violate clause (i) of
paragraph 3(a), Employee shall not be chargeable with a violation of this
paragraph 3 if the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar or a competitive (i) business, (ii) course of
activities or (iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate,
and the unenforceability of any specific covenant shall not affect the
provisions of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth herein are unreasonable, then it is the intention of the parties that
such restrictions be enforced to the fullest extent which the court deems
reasonable, and this Agreement shall thereby be reformed.
-4-
<PAGE>
(e) All of the covenants in this paragraph 3 shall be construed as
an agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against Employer or the
Company, whether predicated on this Agreement or otherwise, shall not constitute
a defense to the enforcement by Employer or the Company of such covenants. It is
specifically agreed that the period of two (2) years following termination of
employment stated at the beginning of this paragraph 3, during which the
agreements and covenants of Employee made in this paragraph 3 shall be
effective, shall be computed by excluding from such computation any time during
which Employee is in violation of any provision of this paragraph 3.
4. PLACE OF PERFORMANCE; RELOCATION RIGHTS.
(a) Employee understands that he may be requested by Employer or the
Company to relocate from his present residence to another geographic location in
order to more efficiently carry out his duties and responsibilities under this
Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, Employer or the
Company will pay all relocation costs to move Employee, his immediate family and
their personal property and effects. Such costs may include, by way of example,
but are not limited to, pre-move visits to search for a new residence,
investigate schools or for other purposes; temporary lodging and living costs
prior to moving into a new permanent residence; duplicate home carrying costs;
all closing costs on the sale of Employee's present residence and on the
purchase of a comparable residence in the new location; and added income taxes
that Employee may incur if any relocation costs are not deductible for tax
purposes. The general intent of the foregoing is that Employee shall not
personally bear any out-of-pocket cost as a result of the relocation, with an
understanding that Employee will use his best efforts to incur only those costs
which are reasonable and necessary to effect a smooth, efficient and orderly
relocation with minimal disruption to the business affairs of Employer or the
Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by Employer
to relocate and Employee refuses, such refusal shall not constitute "Cause" for
termination of this Agreement under the terms of paragraph 5(a)(iii).
5. TERM; TERMINATION; RIGHTS ON TERMINATION.
(a) TERM. The term of this Agreement shall begin on the date hereof
and continue for three (3) years (the "Initial Term") unless terminated sooner
as herein provided, and shall continue thereafter on a year-to-year basis on the
same terms and conditions contained herein in effect as of the time of renewal
(the "Term"). This Agreement and Employee's employment may be terminated in any
one of the followings ways:
-5-
<PAGE>
(i) TERMINATION AS A RESULT OF THE EMPLOYEE'S DEATH. The death
of Employee shall immediately terminate this Agreement with no severance
compensation due to Employee's estate.
(ii) TERMINATION ON ACCOUNT OF DISABILITY. If, as a result of
incapacity due to physical or mental illness or injury, Employee shall
have been absent from his full-time duties hereunder for four (4)
consecutive months, then thirty (30) days after receiving written notice
(which notice may occur before or after the end of such four (4) month
period, but which shall not be effective earlier than the last day of such
four (4) month period), Employer may terminate Employee's employment
hereunder provided Employee is unable to resume his full-time duties with
or without reasonable accommodation at the conclusion of such notice
period. Also, Employee may terminate his employment hereunder if his
health should become impaired to an extent that makes the continued
performance of his duties hereunder hazardous to his physical or mental
health or his life, provided that Employee shall have furnished Employer
with a written statement from a qualified doctor to such effect and
provided, further, that, at Employer's request made within thirty (30)
days of the date of such written statement, Employee shall submit to an
examination by a doctor selected by Employer who is reasonably acceptable
to Employee or Employee's doctor and such doctor shall have concurred in
the conclusion of Employee's doctor. In the event this Agreement is
terminated as a result of Employee's disability, Employee shall receive
from Employer, in a lump-sum payment due within ten (10) days of the
effective date of termination, the base salary at the rate then in effect
for whatever time period is remaining under the Initial Term of this
Agreement or for one (1) year, whichever amount is greater; provided,
however, that any such payments shall be reduced by the amount of any
disability insurance payments payable to the Employee as a result of such
disability.
(iii) TERMINATION BY THE COMPANY FOR CAUSE. Employer may
terminate this Agreement immediately for "Cause," which shall be: (1)
Employee's willful and material breach of this Agreement (which breach
cannot be cured or, if capable of being cured, is not cured within ten
(10) days after receipt of written notice to cure); (2) Employee's gross
negligence in the performance or intentional nonperformance of any of
Employee's material duties and responsibilities hereunder; (3) Employee's
willful dishonesty, fraud or misconduct with respect to the business or
affairs of Employer or the Company which materially and adversely affects
the operations or reputation of Employer or the Company; (4) Employee's
conviction of a felony crime; or (5) Employee's confirmed positive illegal
drug test result. In the event of a termination for Cause, as enumerated
above, Employee shall have no right to any severance compensation.
-6-
<PAGE>
(iv) TERMINATION WITHOUT CAUSE. At any time after the
commencement of employment, either Employee or Employer may, voluntarily
or without Cause, respectively, terminate this Agreement and Employee's
employment, effective thirty (30) days after written notice is provided to
the other. Should Employee be terminated by Employer without Cause,
Employee shall receive from Employer a lump-sum payment due on the
effective date of termination equal to Employee's then-current salary for
one (1) year. Further, any termination without Cause by Employer shall
operate to shorten the period set forth in paragraph 3(a) and during which
the terms of paragraph 3 apply to one (1) year from the date of
termination of employment. Except as provided in paragraph 12 below, if
Employee resigns or otherwise terminates this Agreement, the provisions of
paragraph 3 hereof shall apply, except that Employee shall receive no
severance compensation. If Employee is terminated by the Company without
Cause, or if the Employee terminates his employment pursuant to paragraph
12(c) below, then the Company shall make the insurance premium payments
contemplated by COBRA for a period of twelve (12) months immediately
following such termination.
(b) CHANGE IN CONTROL OF THE COMPANY. In the event of a Change in
Control of the Company (as defined below) during the Term, paragraph 12 below
shall apply.
(c) EFFECT OF TERMINATION. Upon termination of this Agreement for
any reason provided above, Employee shall be entitled to receive all
compensation earned and all benefits and reimbursements due through the
effective date of termination. Additional compensation subsequent to
termination, if any, will be due and payable to Employee only to the extent and
in the manner expressly provided herein. All other rights and obligations of
Employer and Employee under this Agreement shall cease as of the effective date
of termination, except that Employer's obligations under paragraph 9 herein and
Employee's obligations under paragraphs 3, 6, 7, 8 and 10 herein shall survive
such termination in accordance with their terms.
(d) BREACH BY COMPANY. If termination of Employee's employment
arises out of Employer's failure to pay Employee on a timely basis the amounts
to which he is entitled under this Agreement or as a result of any other breach
of this Agreement by Employer, as determined by a court of competent
jurisdiction or pursuant to the provisions of paragraph 16 below, Employer shall
pay all amounts and damages to which Employee may be entitled as a result of
such breach, including interest thereon and all reasonable legal fees and
expenses and other costs incurred by Employee to enforce his rights hereunder.
Further, none of the provisions of paragraph 3 shall apply in the event this
Agreement is terminated as a result of a breach by Employer.
-7-
<PAGE>
6. RETURN OF COMPANY PROPERTY. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company or its
representatives, vendors or customers which pertain to the business of the
Company shall be and remain the property of the Company and be subject at all
times to its discretion and control. Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company which is collected by
Employee shall be delivered promptly to the Company without request by it upon
termination of Employee's employment.
7. INVENTIONS. Employee shall disclose promptly to the Company any and all
significant conceptions and ideas for inventions, improvements and valuable
discoveries, whether patentable or not, which are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
(1) year thereafter, and which are directly related to the business or
activities of the Company and which Employee conceives as a result of his
employment hereunder. Employee hereby assigns and agrees to assign all his
interests therein to the Company or its nominee. Whenever requested to do so by
the Company, Employee shall execute any and all applications, assignments or
other instruments that the Company shall deem necessary to apply for and obtain
Letters Patent of the United States or any foreign country or to otherwise
protect the Company's interest therein.
8. TRADE SECRETS. Employee agrees that he will not, during or after the
Term of this Agreement, disclose the specific terms of the Company's
relationships or agreements with their respective significant vendors or
customers or any other significant and material trade secret of the Company,
whether in existence or proposed, to any person, firm, partnership, corporation
or business for any reason or purpose whatsoever, except and only to the extent
required by law or legal process following notice to the Company.
9. INDEMNIFICATION. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by Employer
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then Employer shall indemnify Employee against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith, to the maximum extent permitted by applicable law. The advancement of
expenses shall be mandatory to the extent permitted by applicable law. In the
event that both Employee and Employer are made a party to the same third-party
action, complaint, suit or proceeding, Employer agrees to engage counsel, and
Employee agrees to use the same counsel, provided that if counsel selected by
Employer shall have a conflict of interest that prevents such counsel from
representing Employee, Employee may engage separate
-8-
<PAGE>
counsel and Employer shall pay all reasonable attorneys' fees of such separate
counsel. Employer shall not be required to pay the fees of more than one law
firm except as described in the preceding sentence, and shall not be required to
pay the fees of more than two law firms under any circumstances. Further, while
Employee is expected at all times to use his best efforts to faithfully
discharge his duties under this Agreement, Employee cannot be held liable to
Employer for errors or omissions made in good faith where Employee has not
exhibited gross, willful and wanton negligence or misconduct or performed
criminal or fraudulent acts.
10. NO PRIOR AGREEMENTS. Employee hereby represents and warrants to
Employer and the Company that the execution of this Agreement by Employee and
his employment by Employer and the performance of his duties hereunder will not
violate or be a breach of any agreement with a former employer, client or any
other person or entity. Further, Employee agrees to indemnify Employer and the
Company for any claim, including, but not limited to, attorneys' fees and
expenses of investigation, by any such third party that such third party may now
have or may hereafter come to have against Employer or the Company based upon or
arising out of any noncompetition agreement, invention or secrecy agreement
between Employee and such third party which was in existence as of the date of
this Agreement.
11. ASSIGNMENT; BINDING EFFECT. Employee understands that he has been
selected for employment by Employer and/or the Company on the basis of his
personal qualifications, experience and skills. Employee agrees, therefore, he
cannot assign all or any portion of his performance under this Agreement.
Subject to the preceding two (2) sentences and the express provisions of
paragraph 12 below, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
12. CHANGE IN CONTROL.
(a) Unless Employee elects to terminate this Agreement pursuant to
paragraph 12(b) below, Employee understands and acknowledges that Employer
and/or the Company may be merged or consolidated with or into another entity and
that such entity shall automatically succeed to the rights and obligations of
Employer and/or the Company hereunder or that the Company may undergo another
type of Change in Control. In the event such a merger or consolidation or other
Change in Control is initiated during the Term of this Agreement, then the
provisions of this paragraph 12 shall be applicable.
(b) If a Change in Control occurs more than one (1) year after the
Effective Date, Employee may elect to terminate his employment under this
Agreement, for any reason or for no reason at all, and shall be entitled to
receive in one lump sum the amount equal to two (2) times his
-9-
<PAGE>
annual base salary then in effect, and the noncompetition provisions of
paragraph 3 shall apply for a period of one (1) year immediately following the
effective date of termination.
(c) In the event of a Change of Control, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
Employee's vested options to purchase Company common stock, such that Employee
may convert the options to shares of Company common stock at or prior to the
closing of the transaction giving rise to the Change in Control, if Employee so
desires.
(d) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit
plan of the Company, and other than Notre Capital Ventures II, L.L.C. or
any entity controlled by it, acquires directly or indirectly the
Beneficial Ownership (as defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended) of any voting security of the Company
and immediately after such acquisition such Person is, directly or
indirectly, the Beneficial Owner of voting securities representing fifty
percent (50%) or more of the total voting power of all of the
then-outstanding voting securities of the Company;
(ii) the following individuals no longer constitute a majority
of the members of the Board of Directors of the Company: (A) the
individuals who, as of the closing date of the Company's initial public
offering, constitute the Board of Directors of the Company (the "Original
Directors"); (B) the individuals who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of the Company was approved by a vote
of at least two-thirds (2/3) of the Original Directors then still in
office (such directors becoming "Additional Original Directors"
immediately following their election); and (C) the individuals who are
elected to the Board of Directors of the Company and whose election, or
nomination for election, to the Board of Directors of the Company was
approved by a vote of at least two-thirds (2/3) of the Original Directors
and Additional Original Directors then still in office (such directors
also becoming "Additional Original Directors" immediately following their
election);
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting securities, or consummation of
any such transaction if stockholder approval is not obtained, other than
any such transaction which would result in at least seventy-five percent
(75%) of the total voting power represented by the voting securities of
the surviving entity outstanding immediately after such transaction being
Beneficially
-10-
<PAGE>
Owned by at least seventy-five percent (75%) of the holders of outstanding
voting securities of the Company immediately prior to the transaction,
with the voting power of each such continuing holder relative to other
such continuing holders not substantially altered in the transaction; or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or a substantial portion of the
Company's assets (i.e., fifty percent (50%) or more of the total assets of
the Company).
(e) If it shall be determined that any payment or distribution by
Employer, the Company or any other person to or for the benefit of the Employee
(a "Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Excise Tax"), as a result of the
termination of employment of the Employee in the event of a Change in Control,
then Employer, the Company or the successor to the Company shall pay an
additional payment (a "Gross-Up Payment") in an amount such that after payment
by the Employee of all taxes, including, without limitation, any income taxes
and Excise Tax imposed on the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed on the Payments. Such
amount will be due and payable by Employer, the Company or the successor to the
Company within ten (10) days after the Employee delivers written request for
reimbursement accompanied by a copy of the Employee's tax return(s) or other tax
filings showing the excise tax actually incurred by the Employee.
13. COMPLETE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto relating to the subject matter hereof and supersedes any
other employment agreements or understandings, written or oral, between or among
Employer, the Company and Employee. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or agreements
with Employer or the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
Agreement is the final, complete and exclusive statement and expression of the
agreement between Employer and Employee and of all the terms of this Agreement,
and it cannot be varied, contradicted or supplemented by evidence of any prior
or contemporaneous oral or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly authorized officer
of Employer and Employee, and no term of this Agreement may be waived except in
writing signed by the party waiving the benefit of such term.
14. NOTICE. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
-11-
<PAGE>
To Employer:
[TransCom USA] Management Co., L.P.
Three Riverway, Suite 630
Houston, Texas 77056
Attention: Law Department
To Employee:
Notice shall be deemed given and effective on the earlier of three (3) days
after the deposit in the U.S. mail of a writing addressed as above and sent
first class mail, certified, return receipt requested, or when actually received
by means of hand delivery, delivery by Federal Express or other courier service,
or by facsimile transmission. Either party may change the address for notice by
notifying the other party of such change in accordance with this paragraph 14.
15. SEVERABILITY; HEADINGS. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. The
paragraph headings herein are for reference purposes only and are not intended
in any way to describe, interpret, define or limit the extent or intent of this
Agreement or of any part hereof.
16. ARBITRATION. With the exception of paragraphs 3 and 7, any unresolved
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration, conducted before a panel of three (3)
arbitrators in Houston, Texas, in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association
("AAA") then in effect, provided that Employee shall comply with Employer's
grievance procedures in an effort to resolve such dispute or controversy before
resorting to arbitration, and provided further that the parties may agree to use
arbitrators other than those provided by the AAA. The arbitrators shall not have
the authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest
-12-
<PAGE>
thereon in the event the arbitrators determine that Employee was terminated
without disability or Cause, as defined in paragraphs 5(a)(ii) and 5(a)(iii),
respectively, or that Employer has breached this Agreement in any material
respect. A decision by a majority of the arbitration panel shall be final and
binding. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The direct expense of any arbitration proceeding shall be borne by
Employer.
17. GOVERNING LAW. This Agreement shall in all respects be construed
according to the laws of the State of Texas.
18. COUNTERPARTS. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
19. THIRD-PARTY BENEFICIARY. [The Company is intended to be a third-party
beneficiary under this Agreement, and shall be entitled to enforce the
provisions hereof benefiting the Company.] [The Company hereby joins this
Agreement and hereby guarantees all obligations of Employor hereunder.]
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
[TRANSCOM USA MANAGEMENT CO., L.P.
By: TUSA GP, INC.]
By:
Vice-President
TRANSPORTATION COMPONENTS, INC.
By:
EMPLOYEE
-14-
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
May 28, 1998
EXHIBIT 23.2
CONSENT OF INDEPEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 24, 1998, on our audit of the financial statements of
Perfection Group, and to all references to our Firm, included in or made a part
of this registration statement.
ARTHUR ANDERSEN LLP
Oklahoma City, Oklahoma
May 28, 1998
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated May 15, 1998, with respect to the consolidated
financial statements of Charles W. Carter Co. -- Los Angeles included in the
Registration Statement (Form S-1 No. 333-50447) and related Prospectus of
Transportation Components, Inc. for the registration of 5,500,000 shares of its
common stock.
ERNST & YOUNG LLP
Los Angeles, California
May 28, 1998
EXHIBIT 23.5
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By: /s/ MAURA BERNEY
Name: Maura Berney
EXHIBIT 23.6
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By: /s/ LOUIS J. BOGGEMAN
Name: Louis J. Boggeman, Jr.
EXHIBIT 23.7
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By: /s/ HENRY B. COOK, JR.
Name: Henry B. Cook, Jr.
EXHIBIT 23.8
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By: /s/Rudolpho A. Duemichen
Name: Rudolpho A. Duemichen
EXHIBIT 23.9
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By: /s/ DAVID GOOCH
Name: David Gooch
EXHIBIT 23.10
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By: /s/PETER D. LUND
Name: Peter D. Lund
EXHIBIT 23.11
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By:/s/ John Oren
Name: John Oren
EXHIBIT 23.12
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April 7, 1998
By:/s/Everett W. Petry
Name: Everett W. Petry
EXHIBIT 23.13
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April 9, 1998
By: /s/Ron Short
Name: Ron Short
EXHIBIT 23.14
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By:/s/THOMAS A. WORK
Name: Thomas A. Work
EXHIBIT 23.15
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April 9, 1998
By: /s/ T. Michael Young
Name: T. Michael Young
EXHIBIT 23.16
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By:/s/LAWRENCE KING
Name: Lawrence King
EXHIBIT 23.17
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By: /s/ I. T. Corley
Name: I. T. Corley
EXHIBIT 23.18
CONSENT TO BE NAMED AS A DIRECTOR
OF
TRANSPORTATION COMPONENTS, INC.
The undersigned hereby consents to be named as a director of
Transportation Components Inc. (the "Company") in the Registration Statement on
Form S-1 to be filed by the Company with the Securities and Exchange Commission.
Dated: April __, 1998
By: /s/HUGH H. N. MCCONNELL, JR.
Name: Hugh H. N. McConnell, Jr.
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5
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0
0
<COMMON> 26
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<NET-INCOME> (3,498)
<EPS-PRIMARY> 0
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</TABLE>
