<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONLEY, CANITANO & ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
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OHIO 34-1375019 7373
(State or Other Jurisdiction of (I.R.S. Employer (Primary Standard Industrial
Incorporation or Organization) Identification Number) Classification Code Number)
</TABLE>
CCAI RENAISSANCE CENTRE
5800 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
TELEPHONE: (440) 684-6600
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
PAUL A. FARMER
CHIEF FINANCIAL OFFICER
CCAI RENAISSANCE CENTRE
5800 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
TELEPHONE: (440) 684-6600
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Copies to:
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DAVID P. PORTER, ESQ. ELLEN B. CORENSWET, ESQ.
JONES, DAY, REAVIS & POGUE BABAK YAGHMAIE, ESQ.
NORTH POINT, 901 LAKESIDE AVENUE BROBECK, PHLEGER & HARRISON LLP
CLEVELAND, OHIO 44114 1633 BROADWAY, 47TH FLOOR
NEW YORK, NEW YORK 10019
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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
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1)(2) REGISTRATION FEE
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Common Stock, without par value per share............... $62,291,672 $18,376.05
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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> 2
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 , 1998
PROSPECTUS
, 1998
[ ] SHARES
[CCAI LOGO]
CONLEY, CANITANO & ASSOCIATES, INC.
COMMON STOCK
Of the shares (the "Shares") of common stock, no par value (the
"Common Stock"), being offered hereby (the "Offering"), shares are
being sold by Conley, Canitano & Associates, Inc. ("CCAi" or the "Company") and
shares are being sold by certain shareholders (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders.
Prior to the Offering, there has been no public market for the Shares. It
is currently anticipated that the initial offering price will be between
$ and $ per share. See "Underwriting" for information relating
to the factors considered in determining the initial public offering price.
The Company has applied to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "CCAI."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
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<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total (3)........................... $ $ $ $
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(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $ , payable by the Company.
(3) The Company and certain Selling Shareholders have granted to the
Underwriters a 30-day option to purchase up to an aggregate of
additional shares at the Price to Public less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to the Company and Proceeds to the Selling
Shareholders will be $ , $ , $ and $ , respectively.
See "Principal and Selling Shareholders" and "Underwriting."
The Shares are being offered by the several Underwriters when, as and if
delivered to and accepted by the Underwriters and subject to various prior
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the Shares will be made in New York, New York, on or
about , 1998.
DONALDSON, LUFKIN & JENRETTE
BANCAMERICA ROBERTSON STEPHENS
LEHMAN BROTHERS
MCDONALD & COMPANY
SECURITIES, INC.
<PAGE> 3
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 THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------
This Prospectus includes forward-looking statements, which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to, those discussed
in "Risk Factors" and elsewhere in this Prospectus. The words "believe,"
"expect," "anticipate," "project" and similar expressions identify forward-
looking statements. These forward-looking statements speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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CCAi and FIRM are trademarks of the Company. This Prospectus also includes
names, trademarks, service marks and registered trademarks and service marks of
companies other than the Company.
4
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements and Notes thereto included
elsewhere in this Prospectus. The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors" beginning on page 8. Unless otherwise
indicated, all information contained in this Prospectus: (i) assumes no exercise
of the Underwriters' over-allotment option; (ii) reflects the conversion of all
of the outstanding shares of the Company's Convertible Preferred Stock, $0.01
par value per share (the "Convertible Preferred Stock") into 2,504,000 shares of
Common Stock and 250,400 shares of Series A Redeemable Preferred Stock, $0.01
par value per share (the "Redeemable Preferred Stock"), all to be effected
immediately prior to the consummation of the Offering; (iii) reflects a 10-for-1
split of the Company's Common Stock and an increase in the Company's authorized
Common Stock and preferred stock due to the adoption on July 24, 1998 of the
Company's Second Amended Restated Articles of Incorporation (the "Articles of
Incorporation"). Unless otherwise indicated, the terms "Company" and "CCAi"
refer to Conley, Canitano & Associates, Inc.
THE COMPANY
CCAi is a leading provider of rapid implementations of Enterprise Resource
Planning ("ERP") applications. CCAi also offers its clients a comprehensive
range of related services, including post-implementation and platform
independent services, such as network and Windows NT support, custom application
development, mainframe and legacy application support, Year 2000 compliance and
remote support. The Company's services are primarily targeted at middle market
organizations, or divisions of larger organizations, with annual revenues
between $200 million and $2.5 billion. The Company's rapid ERP implementation
services enable its clients to reduce the length and risks of implementations,
lower overall costs and achieve early realization of ERP-related benefits. The
Company provides its services to clients across a broad spectrum of industries,
including aerospace, automotive, chemical process, communications, consumer
products, energy, financial and professional services, health care, industrial,
publishing, retail and technology. CCAi's clients include Aluminum Company of
America, BP America Inc., Brush Wellman Inc., Dow Chemical Co., Eaton
Corporation, General Motors Corporation ("GM"), Goodyear Tire & Rubber Co.,
KeyCorp, Master Builders, Inc. and OfficeMax, Inc.
CCAi has established strategic relationships with leading software
application vendors, hardware vendors and other information technology ("IT")
service providers, including multinational consulting firms. For example, the
Company has a relationship with SAP America, Inc. ("SAP") dating from 1989 and
has been an SAP National Implementation Partner since 1994. In addition, the
Company is a member of SAP's National Advisory Board and was involved in the
development of SAP's AcceleratedSAP methodology ("ASAP"), which has become an
industry standard for rapid SAP implementations. In 1997, the Company became one
of SAP's first ASAP Partners and has since become one of the first organizations
to certify 100 consultants in the ASAP methodology. Also, CCAi has been an
Oracle Corporation ("Oracle") Alliance Member since 1997 and utilizes its own
rapid implementation methodology, known as Fast Implementation Roadmap
Methodology ("FIRM"), for Oracle ERP applications. In 1998, CCAi was named by
Compaq Computer Corporation ("Compaq") as one of its first regional
configuration support centers to provide rapid implementation and related
services in connection with R/3PAQ, a preconfigured ERP solution jointly
developed by Compaq and SAP. In addition, the Company has been an integral
member of implementation teams managed by Andersen Consulting LLP ("Andersen
Consulting"), Electronic Data Systems Corporation ("EDS"), Ernst & Young LLP
("Ernst & Young") and SAP.
The successful implementation of ERP applications requires extensive
resources, specific software expertise, end-user training and significant
ongoing modifications to support an organization's evolving business processes.
Organizations are increasingly using third-party service providers to implement
ERP applications in order to reduce the length and risks of implementations,
lower overall costs and achieve early realization of ERP-related benefits.
According to Forrester Research, Inc., a market research company, the worldwide
market for ERP applications and services totaled approximately $15 billion in
1997 and is projected to grow to approximately $32 billion by 2000, representing
a compound annual growth rate of approximately 29%. In addition, according to
industry sources, for every dollar spent on ERP applications, four to six
dollars are spent on ERP
5
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implementation and related services. The Company believes that a large portion
of this market is represented by middle market organizations and that the need
for third-party ERP implementation and related services is particularly acute
among these organizations. Middle market organizations expect timely and
substantial economic returns from their ERP investments and are particularly
sensitive to the risk of cost overruns and delays associated with poorly managed
ERP implementations. In addition, these organizations are under growing pressure
from their Fortune 500 customers to rapidly implement compatible ERP
applications.
CCAi is a "company of employees" and has adopted a business model focused
on establishing and maintaining long-term relationships with its employees. The
Company believes, in a resource constrained industry, it distinguishes itself
from its competitors by recruiting and retaining consultants with both practical
business and relevant IT experience, thereby enhancing the Company's ability to
identify industry-specific business issues and develop practical IT solutions to
address such issues. CCAi's consultants who perform ERP implementations
generally have 10 to 15 years of business or IT experience, including three to
five years of ERP implementation experience.
The Company's objective is to be a leading provider of IT solutions to the
middle market by continuing to deliver rapid ERP implementations and related
services. CCAi intends to achieve this objective by (i) expanding its base of
highly skilled employees and promoting an entrepreneurial culture; (ii)
leveraging its existing strategic relationships and seeking new relationships
with leading developers of complementary enterprise-wide applications; (iii)
broadening its presence in targeted geographic regions; (iv) expanding its
service offerings; and (v) pursuing strategic acquisitions. The Company recently
completed the acquisition of Kelly-Levey & Associates, Inc. ("KLA"), a
Kentucky-based provider of ERP implementation services, which enabled the
Company to acquire a staff of highly skilled ERP consultants, obtain additional
recruiting and sales and marketing opportunities, gain ERP implementation
expertise in the automotive and financial services industries and enhance its
presence in the Cincinnati market.
The Company is an Ohio corporation formed in 1983 and maintains its
principal executive office at the CCAi Renaissance Centre, 5800 Landerbrook
Drive, Mayfield Heights, Ohio 44124. The Company's telephone number is (440)
684-6600.
THE OFFERING
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Common Stock offered by the Company......................... shares
Common Stock offered by the Selling Shareholders............ shares
Common Stock to be outstanding after the Offering........... shares (1)
Use of Proceeds............................................. To redeem all outstanding shares
of Redeemable Preferred Stock
for approximately $15.8 million,
to repay indebtedness of
approximately $8.3 million and
for general corporate purposes,
including working capital. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol...................... CCAI
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(1) Excludes (i) 64,734 shares of Common Stock subject to outstanding
compensatory options as of June 30, 1998 issued in connection with the KLA
acquisition (the "KLA Options"); (ii) 195,266 shares of Common Stock subject
to outstanding warrants as of June 30, 1998 issued in connection with the
KLA acquisition (the "KLA Warrants"); (iii) 320,200 shares of Common Stock
subject to options outstanding under the Company's 1997 Equity and
Performance Incentive Plan (the "1997 Equity and Performance Plan"); (iv)
1,022,850 additional shares of Common Stock reserved for issuance under the
1997 Equity and Performance Plan; and (v) additional shares of
Common Stock anticipated to be reserved for issuance pursuant to the
Company's Employee Stock Purchase Plan (the "Purchase Plan"). See
"Management -- Employee Benefits Plans" and Notes 11 and 12 of Notes to
Financial Statements.
6
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SUMMARY FINANCIAL DATA
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YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Revenues............... $ 11,107 $ 17,994 $ 32,218 $ 40,672 $ 14,334 $ 22,024 $ 24,437
Cost of revenues....... 6,985 10,978 19,222 25,539 8,191 13,327 14,712
Gross profit........... 4,122 7,016 12,996 15,133 6,144 8,697 9,725
Income from
operations........... 380 1,134 3,706 2,151 1,888 2,212 2,190
Net income (prior to
accretion)........... 165 591 2,124 765 1,080 1,190 1,066
Net income per share
(prior to accretion):
Basic................ $ $ $ $ $ $ $
Diluted.............. $ $ $ $ $ $ $
Net income per share:
Basic................ $ $ $ $ $ $ $
Diluted.............. $ $ $ $ $ $ $
Weighted average shares
outstanding:
Basic................
Diluted..............
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AS OF JUNE 30, 1998
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ACTUAL AS ADJUSTED
(UNAUDITED) (UNAUDITED)(2)
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,009 $
Working capital (deficit)................................. (3,157)
Total assets.............................................. 21,002
Line of credit............................................ 8,285
Redeemable securities..................................... 18,197
Total shareholders' equity (deficit)...................... (12,331)
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(1) The pro forma statements of summary financial data for the year ended
December 31, 1997 and for the six months ended June 30, 1998 are presented
as if the acquisition of KLA had been consummated as of January 1, 1997. See
"Unaudited Pro Forma Statements of Operations Data" and Notes thereto.
(2) As adjusted to give effect to (i) the conversion of all outstanding shares
of Convertible Preferred Stock into 2,504,000 shares of Common Stock and
250,400 shares of Redeemable Preferred Stock immediately prior to the
consummation of the Offering; (ii) the sale of shares of Common
Stock offered hereby at an assumed initial public offering price of $
per share, after deducting estimated underwriting discounts and commissions
and Offering expenses payable by the Company; and (iii) the application of
the estimated net proceeds of the Offering, including the redemption of the
250,400 shares of Redeemable Preferred Stock. See "Use of Proceeds" and
"Capitalization."
7
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RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not limited to, those
discussed below as well as those discussed elsewhere in this Prospectus.
Dependence on SAP and Other Relationships. The Company has historically
derived, and expects to continue to derive, a significant portion of its
revenues from implementations of SAP's ERP applications and related services.
For the three years ended December 31, 1995, 1996 and 1997 and for the six
months ended June 30, 1998, approximately 55%, 69%, 75% and 77%, respectively,
of CCAi's revenues were derived from engagements in which the Company
implemented SAP applications. CCAi's future success depends largely on its
continued relationship with SAP, including its continued status as an SAP
National Implementation Partner and as an ASAP Partner. CCAi's status as an SAP
National Implementation Partner is awarded by SAP on an annual basis pursuant to
contract. To achieve such status, CCAi was required to demonstrate: (i) customer
satisfaction with the Company's SAP-related services; (ii) expertise with SAP
software; and (iii) an employee base containing an appropriate number of
SAP-experienced consultants. CCAi's current contract with SAP expires on
December 31, 1998. Annual renewal of CCAi's contract and its National
Implementation Partner status is subject to SAP's review of the Company's
performance according to certain criteria, including: (i) customer satisfaction;
(ii) number and scope of engagements completed; and (iii) thoroughness of
consultant training. There can be no assurance that the Company's contract and
its National Implementation Partner status will be renewed or amended by SAP on
terms acceptable to the Company, if at all.
The Company has recently established a strategic relationship with Oracle
and has been an Oracle Alliance Member since 1997. CCAi's future success in its
Oracle-related services depends on its continued relationship with Oracle and
its continued status as an Oracle Alliance Member. This status is awarded by
Oracle pursuant to contract and may be terminated by Oracle upon 30 days' notice
to the Company. The Company also maintains relationships with software and
hardware vendors and other IT service providers, such as multinational
consulting firms. These relationships, whether contractual or otherwise, may be
terminated by either party with little or no notice. There can be no assurance
that CCAi's relationship with Oracle or with these other vendors and IT service
providers will continue under terms acceptable to the Company, if at all.
If CCAi's relationship with SAP, Oracle or the other organizations with
which the Company maintains strategic relationships deteriorates, or if SAP,
Oracle or one of the other organizations with which the Company maintains
strategic relationships elects to compete directly with the Company, the
Company's business, operating results and financial condition could be
materially adversely affected. Moreover, in the event that the demand for such
organizations' products and services lessens or fails to grow, the Company's
business, operating results and financial condition could be materially
adversely affected. The Company also intends to pursue other strategic
relationships with leading client/server software solution providers. There can
be no assurance that CCAi will be successful in establishing relationships with
the vendors of such software or that such relationships will be successful once
established. The Company's failure to establish or maintain any such
relationships could materially adversely affect the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business -- The
CCAi Solution" and " -- Competition."
Recruiting and Retaining Consultants. CCAi's business entails the delivery
of professional IT services, and its success depends in large part upon its
ability to recruit, motivate and retain highly skilled consultants with the
functional and technical skills and experience necessary to deliver the
Company's services. Because there is a limited pool of such qualified employee
candidates, competition for such consultants is intense and is likely to remain
so. There can be no assurance that the Company will be able to recruit, motivate
and retain sufficient numbers of highly skilled consultants in the future. A
failure to do so could materially adversely affect the Company's business,
operating results and financial condition, including its ability to secure and
complete engagements. See "Business -- Human Resources" and "-- Competition."
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Management of Growth. CCAi has experienced, and expects to continue to
experience, rapid growth that has challenged, and may continue to challenge, the
Company's managerial and other resources. Between June 30, 1997 and June 30,
1998, the number of consultants employed by the Company increased to 245 from
167, and further significant increases are anticipated. In addition, the
Company's revenues increased 53.6% from $14.3 million for the six months ended
June 30, 1997 to $22.0 million for the six months ended June 30, 1998. The
Company has recently opened offices in Dallas and Cincinnati and plans to open
additional offices over the next 12 months. The Company's inability to generate
sufficient additional revenues to offset the costs associated with such
expansion, or to successfully integrate these offices into the Company's
operations, could materially adversely affect the Company's business, operating
results and financial condition. CCAi's success in managing its growth will
depend on its ability to continue to enhance its operating, financial and
managerial resources and to recruit, motivate and retain its expanding work
force. If CCAi is unable to manage growth effectively, the quality of the
Company's services, its ability to retain key employees and its business,
operating results and financial condition could be materially adversely
affected. Moreover, there can be no assurance that CCAi's business will continue
to grow. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Strategy" and "-- Human Resources."
Variability and Seasonality of Quarterly Operating Results. CCAi's revenues
and operating results are subject to significant variation from
quarter-to-quarter as a result of a number of factors, including employee
hiring, consultant billing and utilization rates, the mix, size and timing of
client engagements commenced and completed during a quarter, the number of
billable days in a quarter, the timing of office and service expansion and the
timing of expenditures. Because a high percentage of CCAi's expenses are
relatively fixed, a variation in the number of engagements or the timing of the
initiation or the completion of such engagements, particularly at or near the
end of any quarter, can cause significant variations in operating results from
quarter-to-quarter and could result in losses to the Company. In addition,
CCAi's engagements are generally terminable by the client without penalty.
Unanticipated termination of an engagement, a client's decision not to proceed
to the next phase of an engagement as anticipated by the Company, completion
during a quarter of several engagements without the deployment of consultants to
new engagements or expansion of existing engagements could result in the
Company's underutilization of employees and could, therefore, materially
adversely affect the Company's business, operating results and financial
condition. To the extent that increases in the number of employees do not result
in corresponding increases in revenues, the Company's business, operating
results and financial condition could be materially adversely affected. Further,
it is difficult for the Company to forecast the timing of revenues because
engagement cycles depend on factors such as the size and scope of engagements
and circumstances specific to particular clients. Because the Company derives
revenues only when its consultants are billing on engagements, its business,
operating results and financial condition are materially adversely affected due
to vacations, training schedules, sick days, holidays, inclement weather or
other similar events. For example, the Company has historically generated lower
margins during the second and fourth quarters of the year due to a lower number
of billable days resulting from training schedules and the number of vacations
and holidays in those quarters. Given all of the foregoing, the Company believes
that quarter-to-quarter comparisons of its operating results are not necessarily
meaningful, and that such results for one quarter should not be relied upon as
an indication of future performance. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Demand for IT consulting services is also significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of IT consultants. The Company is
unable to predict the level of economic activity at any particular time, and
fluctuations in the general economy could materially adversely affect the
Company's business, operating results and financial condition.
Acquisition of KLA. The Company acquired KLA in April 1998. For the six
months ended June 30, 1998, KLA accounted for approximately $2.4 million, or 11%
of the Company's revenues. The success of the acquisition will depend on a
number of factors, including the Company's ability to integrate the business and
operations of KLA with those of the Company, to retain certain key employees
formerly employed by KLA and to preserve and expand the business and operations
of KLA. There can be no assurance that the Company will be able to successfully
integrate and operate the business of KLA or that it will not experience losses
as a result of the acquisition. Failure to achieve the anticipated benefits of
the acquisition or to successfully integrate the
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operations of KLA could materially adversely affect the business, operating
results and financial condition of the Company. Moreover, goodwill as a result
of the KLA acquisition is being amortized by the Company on a straight-line
basis over 20 years. In accordance with Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, the Company will continually
evaluate whether later events and circumstances have occurred that indicate the
remaining goodwill may warrant revision. There can be no assurance that the
Company will not be required to undertake such revisions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risks of Acquisition Strategy. The Company intends to further expand its
business and operations by pursuing acquisitions of complementary ERP
implementation and IT consulting businesses. The timing, size and success of the
Company's acquisition efforts and the associated capital commitments cannot be
predicted. CCAi expects to face competition for acquisition candidates, which
may limit the number of acquisition opportunities available to the Company and
may lead to higher purchase prices or transaction costs. There can be no
assurance that CCAi will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses without
substantial costs, including costs in pursuing and negotiating with acquisition
candidates, delays in consummating such acquisitions or other operational or
financial difficulties. In addition, such a strategy involves a number of other
risks, including failure of the acquired businesses to achieve expected results,
diversion of management's attention and resources to acquisitions, failure to
retain key clients or personnel of the acquired businesses and risks associated
with unanticipated events, liabilities or contingencies. Client dissatisfaction
or performance problems relating to an acquired business could negatively affect
the reputation of CCAi as a whole. Acquisitions accounted for under the purchase
method of accounting may result in substantial annual noncash amortization
charges for goodwill and other intangible assets in the Company's statements of
operations. In addition, the Company could be obligated to make substantial cash
payments related to any such acquisition. There can be no assurance that the
Company will derive any value or benefit from any such payments. If CCAi is
unable to acquire complementary ERP implementation and IT consulting businesses
on reasonable terms or successfully integrate and manage acquired companies, or
if performance problems occur at acquired companies, CCAi's business, operating
results and financial condition may be materially adversely affected. See "Use
of Proceeds" and "Business -- Growth Strategy."
Rapid Technological Change; Dependence on New Solutions. The IT industry is
characterized by rapid technological change, evolving industry standards,
changing client preferences and new and frequent product and service
introductions. CCAi's continued success is dependent in part on its ability to
stay abreast of such continuing changes. There can be no assurance that CCAi
will be successful in identifying and addressing these developments on a timely
basis or that, if CCAi does identify and address such developments, CCAi will be
successful in the marketplace. In addition, there can be no assurance that
products, technologies or services developed or offered by others will not
render the Company's services noncompetitive. CCAi's failure to identify and
address these developments could materially adversely affect the Company's
business, operating results and financial condition.
Highly Competitive Information Technology Services Industry. The market for
CCAi's services is highly competitive. CCAi believes that its principal
competitors include the internal information systems groups of its prospective
clients, IT consulting companies, systems integration firms and the consulting
divisions of software applications vendors, some of which are also clients of
the Company. Many of CCAi's competitors have longer operating histories, possess
greater industry and name recognition and have significantly greater financial,
technical and marketing resources than the Company. In addition, there are
relatively low barriers to entry into CCAi's market, and the Company has faced,
and expects to continue to face, additional competition from new entrants into
its market, including new entrants operating offshore who may have lower fixed
operating costs than the Company and new entrants who may develop new or
innovative means of delivering IT services.
CCAi believes that the principal competitive factors in its market include
quality of service, speed of development and implementation, price, engagement
management capability, technical and business expertise and reputation. The
Company believes it competes favorably with respect to such factors. The Company
believes its ability to compete also depends in part on a number of competitive
factors outside its control. These include
10
<PAGE> 10
the ability of its competitors to recruit, motivate and retain project managers
and other senior professionals, develop services that are competitive with the
Company's services and respond to customer needs. There can be no assurance that
the Company will be able to compete successfully with its competitors. See
"Business -- The CCAi Solution" and "-- Competition."
Engagement Risks. Many of CCAi's engagements are critical to the operations
of its clients' businesses and provide benefits that may be difficult to
quantify. The Company's inability to meet a client's expectations in any
engagement, especially in performing mission and time critical projects such as
Year 2000 compliance services, could have a material adverse effect on the
client and, therefore, could give rise to claims against the Company or damage
the Company's reputation, which could in turn materially adversely affect the
Company's business, operating results and financial condition. In addition, most
of the Company's contracts are terminable by its clients with little or no
notice to the Company and without penalty. The cancellation or a significant
change in the scope of engagements could materially adversely affect the
Company's business, operating results and financial condition.
The Company faces increased pressure to undertake engagements on a
fixed-fee basis, instead of on a time and materials basis. The failure of the
Company to complete a fixed-fee engagement within budget could expose the
Company to risks associated with cost overruns, which could materially adversely
affect the Company's business, operating results and financial condition. These
risks may be heightened if the Company acts as a subcontractor on a fixed-fee
engagement because of its limited ability to control engagement variables and to
negotiate directly with the client.
Concentration of Revenues. Since its inception, the Company has derived a
significant portion of its revenues from a relatively limited number of clients.
For example, for the years ended December 31, 1995, 1996 and 1997 and for the
six months ended June 30, 1998, the Company's 10 largest clients accounted for
approximately 51%, 43%, 39% and 40% of its revenues, respectively. For the six
months ended June 30, 1998, one of the Company's clients accounted for 12% of
revenues. There can be no assurance that these clients will continue to hire the
Company for additional engagements or do so at the same revenue levels. Clients
engage the Company on an engagement-by-engagement basis, and a client can
generally terminate a contract with little or no notice to the Company and
without penalty. The loss of any such client, or a reduction in the scope of
engagements undertaken for such a client, could materially adversely affect the
Company's business, operating results and financial condition. In addition,
there can be no assurance that the portion of the Company's revenues
attributable to a relatively limited number of clients will not increase in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Clients and Representative Engagements."
Reliance on Key Executives. The success of CCAi has been highly dependent
upon certain key executives and senior managers, particularly the Company's
founders, Nicholas A. Canitano, Kenneth L. Conley, Karen M. Conley and Annette
M. Canitano (collectively, the "Founders"). None of these individuals has
entered into an employment agreement with CCAi, and there is no guarantee that
any of these individuals will continue his or her employment with the Company.
The loss of the services of any of these persons for any reason could materially
adversely affect the Company's business, operating results and financial
condition. See "Management."
Government Regulation of Immigration. The Company recruits certain of its
IT professionals from countries outside the United States to avail itself of the
best available consulting talent and, therefore, must comply with the
immigration laws in the countries in which it operates, particularly in the
United States and Canada. There is a limit on the number of new H-1B permits
that may be approved in any year. In years in which this limit is reached, the
Company may be unable to obtain enough H-1B permits to meet its requirements. If
the Company were unable to obtain H-1B permits for its employees in sufficient
quantities or at a sufficient rate, the Company's business, operating results
and financial condition could be materially adversely affected. Furthermore,
Congress and administrative agencies with jurisdiction over immigration matters
have periodically expressed concerns over the levels of legal and illegal
immigration into the U.S. These concerns have often resulted in proposed
legislation, rules and regulations aimed at reducing the number of work permits
that may be issued. Any changes in such laws and regulations that make it more
difficult to hire foreign nationals or that limit
11
<PAGE> 11
the ability of the Company to retain employees who are foreign nationals could
require the Company to incur additional unexpected labor costs and other
expenses and limit the Company's ability to implement its expansion strategy.
Any such restrictions or limitations on the Company's ability to hire
professionals from countries outside the United States could materially
adversely affect the Company's business, operating results and financial
condition. See "Business -- Human Resources."
Significant Influence of Principal Shareholders. Upon consummation of the
Offering, the executive officers and directors of the Company and their
affiliates will beneficially own approximately % of the outstanding shares
of Common Stock, and the Founders will beneficially own approximately % of
the outstanding shares of Common Stock. While there is no agreement among the
executive officers and directors of the Company regarding the voting of their
Common Stock, if voted together, they will effectively control the outcome of
any matters requiring shareholder approval, including the election of the
members of the Board of Directors. Such influence could materially adversely
affect the market price of the Common Stock or delay or prevent a change in
control of the Company. See "Principal and Selling Shareholders."
Dependence on Intellectual Property Rights. CCAi's success is dependent
upon certain methodologies and other proprietary intellectual property rights.
Software developed by the Company for a client is typically assigned to the
client. CCAi also independently develops certain foundation and application
software products, or software "tools" that remain the property of the Company.
CCAi relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. CCAi enters into confidentiality
agreements with its employees and limits distribution of proprietary
information. There can be no assurance that the steps taken by CCAi in this
regard will be adequate to deter misappropriation of the Company's proprietary
information, that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights or that such steps
will prevent the Company's employees from using intellectual property belonging
to others. Although CCAi believes its services do not infringe on the
intellectual property rights of others and it has all rights necessary to
utilize the intellectual property employed in its business, the Company is
subject to the risk of claims alleging infringement of third-party intellectual
property rights, including the rights of its clients. Any such claims could
require CCAi to expend significant resources in litigation, pay damages, cease
using infringing intellectual property, develop non-infringing intellectual
property or acquire licenses to the intellectual property that is the subject of
asserted infringement. See "Business -- Intellectual Property Rights."
Year 2000 Compliance. Many existing computer systems and applications, and
other control devices, use only two digits to identify a year in the date code
field, and were not designed to account for the upcoming change in the century.
As a result, such systems and applications could fail or create erroneous
results unless corrected so that they can process dates in the Year 2000 and
beyond. The Company and its clients rely on their systems, applications and
devices in operating and monitoring all major aspects of their businesses,
including financial systems (such as general ledger, accounts payable and
accounts receivable modules), customer services, infrastructure, embedded
computer chips, networks and telecommunications equipment and end products. The
Company and its clients also rely directly and indirectly, on external systems
of business enterprises such as customers, suppliers, creditors, financial
organizations, and of governmental entities, both domestic and international,
for accurate exchange of data. Despite the Company's efforts to address the Year
2000 impact on its internal systems and the systems of its clients, the Company
has not fully identified such impact or whether it can resolve such impact
without disruption of its business or without incurring significant expense.
Based on the information currently available, the Company believes that the
costs associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results and financial condition in any given
year. However, there can be no assurance that the Company, or its clients, will
not encounter unexpected costs or disruption in their businesses as a result of
the Year 2000 issue. In addition, even if the internal system of the Company are
not materially affected by the Year 2000 issue, the Company's business,
operating results and financial condition could be materially adversely affected
through disruption in the operation of the enterprises with which the Company
interacts.
12
<PAGE> 12
No Prior Public Market; Possible Volatility of Stock Price. Prior to the
Offering, there has been no public market for the Common Stock, and there is no
assurance an active trading market will develop or be sustained after the
Offering. The initial public offering price will be determined through
negotiations among the Company and the representatives of the Underwriters and
may not be indicative of the market price of the Common Stock after the
Offering. The trading price of the Common Stock is likely to be highly volatile
and may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results, announcements of technological
innovations, new products or new contracts by the Company or its competitors,
developments with respect to patents, copyrights or proprietary rights,
conditions and trends in the IT consulting industry, changes in financial
estimates by securities analysts, general market conditions and other factors.
In addition, the public equity markets from time to time have experienced
significant price and volume fluctuations that particularly have affected the
stock prices of technology companies. These broad market fluctuations, as well
as shortfalls in sales or earnings as compared with securities analysts'
expectations, changes in such analysts' recommendations or projections and
general economic and market conditions, may materially adversely affect the
market price of the Common Stock. See "Underwriting."
Certain Anti-Takeover Effects. Certain provisions of the Articles of
Incorporation and Amended and Restated Code of Regulations (the "Code of
Regulations"), as well as Ohio statutes, may be deemed to have certain
anti-takeover effects. Such provisions, including those providing for the
possible issuance of preferred stock, and the division of the Company's Board of
Directors into two classes of directors, may make it more difficult for other
persons, without the approval of the Company's Board of Directors, to make a
tender offer or acquisitions of substantial amounts of the Common Stock or to
launch other takeover attempts that a shareholder might consider to be in such
shareholder's best interest. These provisions could limit the price that certain
investors might be willing to pay in the future for shares of Common Stock. See
"Description of Capital Stock -- Certain Articles of Incorporation and Code of
Regulations Provisions and Ohio Law; Anti-Takeover Provisions."
Shares Eligible for Future Sale; Registration Rights Agreements. Sales of
significant amounts of Common Stock in the public market after the Offering or
the perception that such sales will occur could materially adversely affect the
market price of the Common Stock or the future ability of the Company to raise
capital through an offering of its equity securities. Of the
shares of Common Stock to be outstanding upon completion of the Offering, the
shares offered hereby will be eligible for immediate sale in the
public market without restriction unless such Shares are purchased by
"affiliates" of the Company within the meaning of Rule 144 ("Rule 144") under
the Securities Act of 1933, as amended (the "Securities Act").
The remaining shares of Common Stock held by existing
shareholders upon completion of the Offering will be "restricted securities" as
that term is defined in Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Directors, officers and certain
shareholders of the Company holding an aggregate of shares of
Common Stock have agreed that they will not sell, directly or indirectly, any
Common Stock without the prior consent of Donaldson, Lufkin & Jenrette
Securities Corporation for a period of 180 days from the date of this Prospectus
(the "Lock-up Agreements"). Subject to these Lock-up Agreements, additional
shares of Common Stock will be available for sale in the public market (subject
in the case of shares held by affiliates in compliance with certain volume
restrictions) as follows: (i) shares will be available for
immediate sale in the public market on the date of this Prospectus; (ii)
shares will be eligible for sale 90 days after the date of this
Prospectus; (iii) shares will be eligible for sale upon the
expiration of the Lock-Up Agreements 180 days after the date of this Prospectus;
and (iv) shares will be eligible for sale under Rule 144 upon the
expiration of the applicable one-year holding periods.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 approximately
shares of Common Stock issuable under the 1997 Equity and Performance Plan and
the Purchase Plan (collectively, the "Stock Plans"). Of the
shares of Common Stock issuable under the Stock Plans, 320,200 shares are
subject to outstanding options as of June 30, 1998, none of which will be
exercisable at the time of the Offering. The Company also has reserved 195,266
shares of Common Stock for issuance upon exercise of the KLA Warrants and 64,734
shares of Common Stock for issuance upon exercise of the KLA Options.
13
<PAGE> 13
Upon completion of the Offering, the holders of shares
of Common Stock will be entitled to certain registration rights with respect to
such shares. If such holders, by exercising their registration rights, cause a
large number of shares of Common Stock to be registered and sold in the public
market, such sales could have an adverse effect on the market price of the
Common Stock. In addition, if the Company is required, pursuant to such
registration rights, to include shares held by such persons in a registration
statement, which the Company files to raise additional capital, the inclusion of
such shares could adversely affect the Company's ability to raise needed
capital. See "Certain Transactions," "Management -- Employee Benefit Plans,"
"Shares Eligible for Future Sale," and "Principal and Selling Shareholders."
Significant Unallocated Net Proceeds. The principal purposes of the
Offering are to obtain additional working capital, create a public market for
the Common Stock, provide liquidity to the Company's shareholders, enhance the
Company's ability to use its Common Stock as a means of recruiting, motivating
and retaining key employees and facilitate the Company's future access to public
equity markets. A substantial portion of the anticipated net proceeds of the
Offering has not been designated for specific uses. CCAi expects to use the net
proceeds from the Offering for: (i) redemption of all outstanding shares of
Redeemable Preferred Stock for approximately $15.8 million; (ii) repayment in
full of existing indebtedness of approximately $8.3 million; and (iii) general
corporate purposes, including working capital. Although the Company has no
plans, commitments or agreements with respect to any material acquisitions as of
the date of this Prospectus, the Company may seek acquisitions of businesses or
service offerings that are complementary to those of the Company, and a portion
of the net proceeds may be used for such acquisitions. Accordingly, the Company
will have significant flexibility in applying the net proceeds of the Offering.
See "Use of Proceeds."
Dilution. Investors participating in the Offering will incur immediate and
substantial dilution of net tangible book value per share of $ from the
assumed initial public offering price. To the extent outstanding options to
purchase shares of Common Stock are exercised, there will be further dilution to
investors participating in the Offering. There can be no assurance that the
Company will not require additional funds to support its working capital
requirements or for other purposes, in which case the Company may seek to raise
such additional funds through public or private equity financing or from other
sources. There can be no assurance that such additional financing will be
available or that, if available, such financing will be obtained on terms
favorable to the Company and would not result in additional dilution of the
Company's shareholders. See "Dilution."
14
<PAGE> 14
USE OF PROCEEDS
The net proceeds to CCAi from the sale of the shares offered
by the Company pursuant to the Offering are estimated to be approximately
$ million ($ million if the Underwriters' over-allotment
option is exercised in full), at an assumed offering price of $ per share
after deducting the estimated underwriting discounts and commissions and
Offering expenses payable by the Company. The principal purposes of the Offering
are to obtain additional working capital, create a public market for the Common
Stock, provide liquidity to the Company's shareholders, enhance the Company's
ability to use its Common Stock as a means of attracting, motivating and
retaining key employees and facilitate the Company's future access to public
equity markets. CCAi expects to use the net proceeds from the Offering: (i) to
redeem all outstanding shares of Redeemable Preferred Stock for approximately
$15.8 million; (ii) to repay in full existing indebtedness of approximately $8.3
million; and (iii) for general corporate purposes, including working capital.
The Company may also use a portion of the net proceeds to fund acquisitions of
complementary businesses or service offerings. Although the Company may
periodically review potential acquisition opportunities, there are no current
agreements with respect to any such transactions. Pending such uses, the Company
intends to invest the net proceeds from the Offering in short-term,
investment-grade, interest-bearing securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has never declared or paid any dividends. The Company does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain future earnings to fund the
development and growth of its business. The payment of dividends in the future,
if any, will be at the discretion of the Board of Directors.
15
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1998 and as adjusted to give effect to (i) the conversion of all outstanding
shares of Convertible Preferred Stock into 2,504,000 shares of Common Stock and
250,400 shares of Redeemable Preferred Stock immediately prior to the
consummation of the Offering, (ii) the redemption of the 250,400 outstanding
shares of Redeemable Preferred Stock to be effected immediately upon
consummation of the Offering, (iii) the amendment to the Articles of
Incorporation adopted by the Company's Board of Directors and shareholders
increasing the number of authorized shares of preferred stock and Common Stock,
(iv) the sale of shares offered hereby at an assumed initial public
offering price of $ per share, after deducting estimated underwriting discounts
and commissions and Offering expenses payable by the Company and (v) the
application of the estimated net proceeds of the Offering. See "Use of
Proceeds." The information set forth below should be read in conjunction with
the Financial Statements and related Notes thereto included elsewhere in this
Prospectus:
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
--------------------------
ACTUAL AS ADJUSTED
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Line of credit.............................................. $ 8,285 $
Redeemable securities....................................... 18,197
Shareholders' equity (deficit):
Preferred stock(1)
Common stock(1)(2)..................................... 8
Additional paid-in capital............................. 359
Retained earnings (accumulated deficit)................ (12,338)
Less: note receivable from shareholder................. (359)
-------- -------
Total shareholders' equity (deficit)................. (12,331)
-------- -------
Total capitalization.............................. $ 5,866 $
======== =======
</TABLE>
- ---------------
(1) In July 1998, the Company's shareholders granted approval to increase
authorized shares of stock as follows:
<TABLE>
<S> <C>
Preferred Stock, voting, $0.01 par value.................... 500,800
Preferred Stock, non-voting, no par value................... 5,000,000
Preferred Stock, voting, no par value....................... 5,000,000
Common Stock, no par value.................................. 45,000,000
</TABLE>
(2) Excludes (i) 64,734 shares of Common Stock subject to the KLA Options, (ii)
195,266 shares subject to the KLA Warrants, (iii) 320,200 shares of Common
Stock subject to options outstanding under the 1997 Equity and Performance
Plan; (iv) 1,022,850 additional shares of Common Stock reserved for issuance
pursuant to the 1997 Equity and Performance Plan; and (v)
additional shares of Common Stock anticipated to be reserved for issuance
pursuant to the Purchase Plan. See "Management -- Employee Benefits Plans"
and Notes 11 and 12 of Notes to Financial Statements.
16
<PAGE> 16
DILUTION
As of June 30, 1998, the net tangible book value (deficit) of the Company
was $ or $ per share of Common Stock. Net tangible book value
per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock outstanding.
After giving effect to the sale by the Company of the shares of
Common Stock offered hereby at an assumed initial public offering price of
$ per share, and after deducting the underwriting discounts and commissions
and estimated Offering expenses payable by the Company, the pro forma net
tangible book value of the Company as of June 30, 1998 would have been
$ million, or $ per share of Common Stock. This represents an
immediate increase in net tangible book value of $ per share of Common Stock
to existing shareholders and an immediate dilution of $ per share to new
shareholders. The following table illustrates this dilution on a per share
basis.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
-----
Net tangible deficit per share before the Offering........ $ ()
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after the
Offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1998,
the difference between the existing shareholders and new shareholders with
respect to the number of shares of Common Stock purchased from the Company, the
total consideration paid to the Company and the average price paid per share by
existing shareholders and by new shareholders:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... % $ % $
New shareholders...........................
-------- ----- -------- -----
Total............................ 100.0% $ 100.0%
======== ===== ======== =====
</TABLE>
The foregoing tables and calculations assume no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants. As of June 30, 1998, there were 64,734 shares of Common Stock subject
to the KLA Options; 195,266 shares of Common Stock subject to the KLA Warrants;
320,200 shares of Common Stock subject to options outstanding under the 1997
Equity and Performance Plan; 1,022,850 additional shares of Common Stock
reserved for issuance pursuant to such plan; and additional
shares of Common Stock anticipated to be reserved for issuance pursuant to the
Purchase Plan. See "Management -- Employee Benefit Plans," and "Shares Eligible
for Future Sale."
17
<PAGE> 17
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" and the Company's financial
statements and Notes thereto included elsewhere in this Prospectus. The
Statements of Income Data presented below for each of the years in the three
year period ended December 31, 1997 and the Balance Sheet Data, for the years
ended December 31, 1996 and 1997, have been derived from the Company's financial
statements included elsewhere in this Prospectus, which have been audited by
PricewaterhouseCoopers LLP, whose report with respect thereto is included
elsewhere in this Prospectus. The Balance Sheet Data as of December 31, 1995 and
1994 has been derived from audited financial statements not included herein. The
Balance Sheet Data as of December 31, 1993 and June 30, 1998 and the Statements
of Income Data for the ten months ended December 31, 1993, for the year ended
December 31, 1994 and for each of the six months ended June 30, 1997 and 1998
have been derived from the unaudited financial statements of the Company. In the
opinion of management, the unaudited financial statements include all
adjustments (consisting only of normal and recurring adjustments) necessary for
a fair presentation of its financial position and operating results for such
periods. The selected financial data for the six months ended June 30, 1998 are
not necessarily indicative of the results to be expected for the year ending
December 31, 1998 or any other future period. See the financial statements and
the related Notes thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEARS ENDED DECEMBER 31,
DECEMBER 31,(1) ----------------------------------------
1993 1994 1995
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................ $4,559 $ 6,149 $ 11,107
Cost of revenues........ 2,968 3,977 6,985
------ ----------- -----------
Gross profit............ 1,591 2,172 4,122
Selling, general and
administrative
expenses.............. 1,428 2,066 3,038
Incentive
compensation.......... 258 216 678
Acquisition
compensation.......... -- -- --
Depreciation and
amortization.......... 39 22 26
------ ----------- -----------
(Loss) income from
operations............ (134) (132) 380
Interest income......... 1 0 3
Interest expense........ (27) (40) (38)
------ ----------- -----------
(Loss) income before
provision for income
taxes................. (160) (172) 345
(Benefit from) provision
for income taxes...... (69) (80) 180
------ ----------- -----------
Net (loss) income....... $ (91) $ (92) $ 165
====== =========== ===========
Accretion to redemption
value of redeemable
securities............ -- -- --
------ ----------- -----------
Net (loss) income
available to common
shareholders.......... $ (91) $ (92) $ 165
====== =========== ===========
Net (loss) income per
share:
Basic................. $ $ $
Diluted............... $ $ $
Weighted average shares
outstanding:
Basic.................
Diluted...............
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------------------------------
1997 1997 1998
1996 (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues................ $ 17,994 $ 32,218 $ 14,334 $ 22,024
Cost of revenues........ 10,978 19,222 8,190 13,327
----------- ----------- ----------- -----------
Gross profit............ 7,016 12,996 6,144 8,697
Selling, general and
administrative
expenses.............. 4,204 6,555 2,980 4,357
Incentive
compensation.......... 1,647 2,700 1,259 1,591
Acquisition
compensation.......... -- -- -- 362
Depreciation and
amortization.......... 31 35 17 175
----------- ----------- ----------- -----------
(Loss) income from
operations............ 1,134 3,706 1,888 2,212
Interest income......... 6 20 8 15
Interest expense........ (88) (107) (56) (132)
----------- ----------- ----------- -----------
(Loss) income before
provision for income
taxes................. 1,052 3,619 1,840 2,095
(Benefit from) provision
for income taxes...... 461 1,495 760 905
----------- ----------- ----------- -----------
Net (loss) income....... $ 591 $ 2,124 $ 1,080 $ 1,190
=========== =========== =========== ===========
Accretion to redemption
value of redeemable
securities............ -- (93) -- (227)
----------- ----------- ----------- -----------
Net (loss) income
available to common
shareholders.......... $ 591 $ 2,031 $ 1,080 $ 963
=========== =========== =========== ===========
Net (loss) income per
share:
Basic................. $ $ $ $
Diluted............... $ $ $ $
Weighted average shares
outstanding:
Basic.................
Diluted...............
</TABLE>
- ---------------
(1) Reflects a change in the Company's fiscal year to the calendar year
effective as of December 31, 1993.
18
<PAGE> 18
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 66 $ 109 $ 100 $ 362 $ 2,174 $ 2,009
Working capital (deficit)...... 11 (142) (170) 429 2,119 (3,157)
Total assets................... 1,175 1,164 2,054 3,697 7,712 21,002
Line of credit................. -- -- -- -- 698 8,285
Redeemable securities.......... -- -- -- -- 15,970 18,197
Total shareholders' equity
(deficit).................... 59 (33) (25) 723 (13,294) (12,331)
</TABLE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA
The following Unaudited Pro Forma Statements of Operations Data gives pro
forma effect to the acquisition of KLA by CCAi on April 8, 1998. The Unaudited
Pro Forma Statements of Operations Data for the year ended December 31, 1997 and
for the six months ended June 30, 1998 combine the historical statements of
income of CCAi and the historical statements of operations of KLA as if the
acquisition had been completed on January 1, 1997. The Unaudited Pro Forma
Statement of Operations Data for the six months ended June 30, 1998 reflects the
last full quarter of KLA operations prior to being acquired by CCAi on April 8,
1998. This pro forma data should be read in conjunction with the respective
historical financial statements (including Notes thereto) of CCAi and KLA,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Notes to Unaudited Pro Forma Statements of Operations Data
presented below and other financial information of CCAi and KLA appearing
elsewhere herein.
The pro forma adjustments reflecting the consummation of the KLA
acquisition are based on the purchase method of accounting, available financial
information and certain estimates and assumptions set forth in the Notes to the
Unaudited Pro Forma Statements of Operations Data. The Unaudited Pro Forma
Statements of Operations Data reflects CCAi's best estimates; however, the
actual financial position and results of operations may differ significantly
from the pro forma amounts reflected herein due to various factors, including,
without limitation, access to additional information and changes in value. The
pro forma adjustments do not reflect any operating efficiencies or cost savings
that may be achievable with respect to the combined business of CCAi and KLA.
The following data is not necessarily indicative of the future financial
position or operating results of the combined businesses or the financial
position or operating results of the combined businesses had the acquisition
occurred at the beginning of 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
------------------------------------------------------
KLA
THREE
MONTHS
YEAR ENDED DECEMBER 31, 1997 ENDED
--------------------------------------------------- MARCH 31,
PRO FORMA PRO FORMA CCAI 1998 PRO FORMA PRO FORMA
CCAI KLA ADJUSTMENTS COMBINED HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $32,218 $8,726 $ (272)(1) $40,672 $ 22,024 $2,570 $(157)(1) $ 24,437
Cost of revenues..... 19,222 6,589 (272)(1) 25,539 13,327 1,542 (157)(1) 14,712
------- ------ ------- ------- -------- ------ ----- ---------
Gross profit......... 12,996 2,137 -- 15,133 8,697 1,028 -- 9,725
Selling, general and
administrative
expenses........... 6,555 2,238 (818)(2) 7,975 4,357 925 (250)(2) 5,032
Incentive
compensation....... 2,700 -- -- 2,700 1,591 -- -- 1,591
Acquisition
compensation....... -- -- 1,825(3,4) 1,825 362 -- 263(3,4) 625
Depreciation and
amortization....... 35 74 373(5) 482 175 19 93(5) 287
------- ------ ------- ------- -------- ------ ----- ---------
Income (loss) from
operations......... 3,706 (175) (1,380) 2,151 2,212 84 (106) 2,190
Transaction costs.... -- -- -- -- -- 302 (302)(6) --
Net interest
expense............ 88 28 469(7) 585 117 4 120(7) 241
------- ------ ------- ------- -------- ------ ----- ---------
</TABLE>
19
<PAGE> 19
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
-----------------------------------------------------
KLA
THREE
MONTHS
YEAR ENDED DECEMBER 31, 1997 ENDED
--------------------------------------------------- MARCH 31,
PRO FORMA PRO FORMA CCAI 1998 PRO FORMA PRO FORMA
CCAI KLA ADJUSTMENTS COMBINED HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
HISTORICAL HISTORICAL (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
provision for
(benefit from)
income taxes....... 3,619 (204) (1,849) 1,566 2,095 (222) 76 1,949
Provision for
(benefit from)
income taxes....... 1,495 (64) (630)(8) 801 905 (83) 61(8) 883
------- ------ ------- ------- -------- ------ ----- ---------
Net income (loss).... $ 2,124 $ (140) $(1,219) $ 765 $ 1,190 $ (139) $ 15 $ 1,066
======= ====== ======= ======= ======== ====== ===== =========
Accretion to
redemption value of
redeemable
securities......... (93) -- -- (92) (227) -- -- (227)
------- ------ ------- ------- -------- ------ ----- ---------
Net income (loss)
available to common
shareholders....... $ 2,031 $ (140) $(1,219) $ 673 $ 963 $ (139) $ 15 $ 839
======= ====== ======= ======= ======== ====== ===== =========
Net income per share:
Basic.............. $ $
Diluted............ $ $
Weighted average
shares outstanding:
Basic.............. $ $
Diluted............ $ $
</TABLE>
- ---------------
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA:
(1) Reflects eliminating entries for purposes of combining CCAi and KLA.
(2) Reflects the elimination of KLA expenses, which consist of the salary
related to an officer of KLA who was not retained by CCAi and certain
nonrecurring travel expenses incurred by KLA officers and employees, that
will no longer be incurred as a result of the KLA acquisition.
(3) Reflects pro forma adjustment to acquisition compensation in the amount of
$0.3 million and $0.1 million for the year ended December 31, 1997 and for
the six months ended June 30, 1998, respectively, for the amortization of
$0.5 million of compensation expense resulting from the issuance of the KLA
Options. The expense associated with the KLA Options is amortized on a
straight-line basis over the 24 month vesting period for such options. In
connection with the Offering, the KLA Options will fully vest and the
unamortized balance will be included in acquisition compensation. See Note
12 of Notes to Financial Statements.
(4) Reflects pro forma adjustment to acquisition compensation in the amount of
$1.6 million and $0.1 million for the year ended December 31, 1997 and for
the six months ended June 30, 1998, respectively, for bonus retention pool
payments to an escrow account for KLA employees retained by CCAi. See Note
12 of Notes to Financial Statements.
(5) Reflects the pro forma increase in amortization expenses associated with the
amortization of goodwill of $7.5 million resulting from the KLA acquisition,
on a straight-line basis over 20 years.
(6) Reflects transaction costs, which consist of professional services expenses,
incurred by KLA resulting from the KLA acquisition. Transaction costs
incurred by CCAi are included in goodwill. Amortization of goodwill is
included in depreciation and amortization.
(7) Reflects the pro forma increase in interest expense associated with the
borrowings by CCAi in connection with the KLA acquisition. The borrowings
are assumed to have an interest rate of 8.5%.
(8) Reflects pro forma adjustments to provision for (benefit from) income taxes
assuming an effective income tax rate of 51.1% and 45.3% for the year ended
December 31, 1997 and for the six months ended June 30, 1998, respectively.
The difference between the effective income tax rate from the federal
statutory rate is primarily due to nondeductible goodwill amortization and,
to a lesser extent, state taxes.
20
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of this Prospectus contains certain forward-looking
statements that involve substantial risks and uncertainties. When used in this
section, the words "anticipate," "believe," "estimate," and "expect" and similar
expressions as they relate to the Company or its management are intended to
identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results,
performance or achievements expressed in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
CCAi is a leading provider of rapid implementations of ERP applications.
CCAi also offers its clients a comprehensive range of related services,
including post-implementation and platform independent services, such as network
and Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance and remote support. The Company's
services are primarily targeted at middle market organizations, or divisions of
larger organizations, with annual revenues between $200 million and $2.5
billion. The Company's rapid ERP implementation services enable its clients to
reduce the length and risks of implementations, lower overall costs and achieve
early realization of ERP-related benefits. The Company provides its services to
clients across a broad spectrum of industries, including aerospace, automotive,
chemical process, communications, consumer products, energy, financial and
professional services, health care, industrial, publishing, retail and
technology.
From its inception through 1989, CCAi was engaged in the implementation of
mainframe and minicomputer software applications, as well as the development of
custom applications and software products for mainframe and minicomputer
systems. In 1989, the Company participated in one of the first mainframe SAP
implementations in the U.S. and thereafter continued to provide its clients with
mainframe ERP implementations and related services for SAP applications
throughout the early 1990s. With the advent of client/server architecture and
the availability of affordable personal computers, the Company began to develop
custom applications for client/server environments and subsequently began to
participate in SAP client/server ERP implementations undertaken by larger IT
service providers at Fortune 500 companies.
Since 1994, when the Company became an SAP National Implementation Partner,
CCAi has differentiated itself by developing expertise as a provider of rapid
ERP implementation services and developing its own rapid implementation
methodology. The Company was involved in the development of SAP's ASAP
methodology, which has become an industry standard for rapid SAP
implementations. In 1997, CCAi became one of SAP's first ASAP Partners and has
since become one of the first organizations to certify 100 consultants in the
ASAP methodology. Also during 1997, the Company expanded its ERP implementation
capabilities by becoming an Oracle Alliance Member and has since developed its
own proprietary rapid implementation methodology, known as FIRM, for Oracle ERP
applications. Since 1997, the Company has increasingly undertaken the management
of engagements for middle market clients. With the continuing growth in demand
for ERP solutions among middle market organizations, the Company has focused on
providing rapid ERP implementations and related services for such organizations.
In 1998, the Company was one of the first organizations named by Compaq as a
regional configuration support center to provide rapid implementation and
related services in connection with R/3PAQ, a preconfigured ERP solution jointly
developed by Compaq and SAP.
In April 1998, the Company purchased all of the capital stock of KLA. The
Company paid $3.9 million in cash, issued the KLA Warrants and agreed to make
additional cash payments of (i) $3.4 million, subject to certain revenue targets
and contribution margins during the two-year period following the acquisition
and (ii) $1.1 million in three equal annual installments beginning April 1999.
In addition, the Company agreed to grant the KLA Options and to pay $3.5 million
in retention bonuses at certain intervals to an escrow account which benefits
former KLA employees who remain employees of the Company at such intervals.
Goodwill from the KLA acquisition is being amortized on a straight-line basis
over 20 years. In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, the Company
21
<PAGE> 21
will continually evaluate whether later events and circumstances have occurred
that indicate the acquired goodwill may warrant revision. See Note 12 of Notes
to Financial Statements.
The Company generates revenues by providing professional services for ERP
implementations and platform independent services. Revenues are recognized as
services are performed. The Company's ERP implementation services are typically
billed at a higher rate than its other services. The Company undertakes
engagements in a variety of roles, including: (i) as the lead consulting firm on
its own engagements; (ii) as a lead consulting firm on a part of larger
engagements undertaken by multinational IT consulting firms or other large
service providers or (iii) as an integral member of a joint engagement team on
such engagements. The Company provides services to its clients predominantly on
a time and materials basis pursuant to written contracts, which can be
terminated with little or no notice, typically not more than 30 days, and
without penalty. The Company typically bills on a bi-weekly basis to monitor
client satisfaction and manage its outstanding accounts receivable balances.
Substantially all of the Company's revenues are derived from clients located in
the U.S. and Canada. Revenues generated in connection with SAP implementations
and related services for the years ended December 31, 1995, 1996 and 1997 and
for the six months ended June 30, 1998 accounted for approximately 55%, 69%, 75%
and 77%, of revenues, respectively. Revenues derived from services provided to
the Company's 10 largest clients for the years ended December 31, 1995, 1996 and
1997 and for the six months ended June 30, 1998, were approximately 51%, 43%,
39% and 40% of revenues, respectively. During each of the years ended December
31, 1995, 1996 and 1997, none of the Company's clients individually accounted
for 10% or more of the Company's revenues. For the six months ended June 30,
1998, one of the Company's clients accounted for 12% of revenues. See "Risk
Factors -- Dependence on SAP and Other Relationships" and "-- Concentration of
Revenues."
Gross profit is derived from revenues less the cost of revenues, which
includes salaries, bonuses and benefits paid to consultants. The Company's
financial performance is primarily based upon billing margin (billable hourly
rate less the consultant's hourly cost) and personnel utilization rates
(billable hours divided by paid hours). Generally, clients are billed for
expenses incurred by the Company on the clients' behalf. To date, the Company
has been able to maintain its billing margins by offsetting increases in
salaries with increases in its hourly rates. Because most of the Company's
engagements are billed on a time and materials basis, increases in its cost of
revenues are generally passed along to the Company's clients. In addition, the
Company closely monitors and attempts to control expenses that are not passed
through to its clients.
The Company continuously monitors its engagements in order to effectively
manage billing and utilization rates. Actual billing rates are established on an
engagement-by-engagement basis. Over the last three years, the Company's average
hourly billing rate has steadily increased. The growth in average hourly billing
rates reflects both an increase in billing rates and a shift towards a higher
percentage of billable hours related to ERP implementations, which command
higher billing rates. The Company assigns consultants to engagements according
to the size, duration, status and degree of complexity of each engagement.
Selling, general and administrative expenses consists of salaries,
benefits, training and travel expenses and other promotional costs. These
expenses are associated with the Company's development of new business and with
the Company's management, finance, marketing and administrative activities.
Incentive compensation consists of amounts paid for non-consultant
discretionary bonuses, sales commissions and company-wide profit sharing to
employees who provide exceptional service to clients or the Company. Incentive
compensation expenses have a large variable component relating to revenue and
profit and, therefore vary based upon the Company's ability to achieve its
operating objectives.
Acquisition compensation consists of bonus retention pool payments to be
made by the Company in connection with the KLA acquisition. In addition,
amortization of the $0.5 million of compensation attributed to the KLA Options
is included in acquisition compensation and is being amortized over the 24 month
vesting period of the options. As a result of the Offering, the KLA Options will
fully vest and, accordingly, the unamortized balance of the compensation will be
charged to acquisition compensation in the quarter in which the Offering is
consummated.
The Company's income tax rates vary from the federal statutory rate of 34%
predominately due to state and local taxes and nondeductible meal expenses. The
decrease in the Company's effective tax rate for the year ended
22
<PAGE> 22
December 31, 1996 relative to the year ended December 31, 1995 was predominantly
due to nondeductible goodwill amortization and meal expenses becoming a smaller
percentage of taxable income. The effective income tax rate for the six months
ended June 30, 1998 reflects nondeductible goodwill amortization.
RESULTS OF OPERATIONS
The following table sets forth the Statements of Income Data of the
Company, expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Revenues......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................................. 62.9 61.0 59.7 57.1 60.5
----- ----- ----- ----- -----
Gross profit................................ 37.1 39.0 40.3 42.9 39.5
Selling, general and administrative expenses..... 27.4 23.4 20.3 20.8 19.8
Incentive compensation........................... 6.1 9.2 8.4 8.8 7.2
Acquisition compensation......................... -- -- -- -- 1.6
Depreciation and amortization.................... 0.2 0.1 0.1 0.1 0.8
----- ----- ----- ----- -----
Income from operations...................... 3.4 6.3 11.5 13.2 10.1
Interest income.................................. 0.0 0.0 0.1 0.0 0.0
Interest expense................................. (0.3) (0.5) (0.4) (0.4) (0.6)
----- ----- ----- ----- -----
Income before provision for income taxes.... 3.1 5.8 11.2 12.8 9.5
Provision for income taxes....................... 1.6 2.6 4.6 5.3 4.1
----- ----- ----- ----- -----
Net income.................................. 1.5% 3.2% 6.6% 7.5% 5.4%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues. Revenues increased 53.6% to $22.0 million for the six months
ended June 30, 1998 from $14.3 million for the six months ended June 30, 1997.
This increase was predominantly due to the increase in ERP implementation
services provided to clients and an increase in the average billing rate. The
increase in services was made possible through the increase in the number of
consultants to 245 at June 30, 1998 from 167 at June 30, 1997.
Gross Profit. Gross profit increased 41.6% to $8.7 million for the six
months ended June 30, 1998 from $6.1 million for the six months ended June 30,
1997. Gross margin decreased to 39.5% for the six months ended June 30, 1998
from 42.9% for the six months ended June 30, 1997. The dollar increase was the
result of increased revenues, partially offset by increased cost of revenues.
The decrease in gross margin was primarily due to lower consultant utilization
in the six months ended June 30, 1998 resulting from the time devoted to the KLA
acquisition.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 46.2% to $4.4 million for the six months ended
June 30, 1998 from $3.0 million for the six months ended June 30, 1997. As a
percentage of revenues, such expenses decreased to 19.8% for the six months
ended June 30, 1998 from 20.8% for the six months ended June 30, 1997. The
dollar increase was predominantly due to the increased salaries, benefits and
training and travel expenses needed to support the increase in revenues. The
decrease in selling, general and administrative expenses as a percentage of
revenues was primarily due to an increase in revenues.
Incentive Compensation. Incentive compensation increased 26.3% to $1.6
million for the six months ended June 30, 1998 from $1.3 million for the six
months ended June 30, 1997. As a percentage of revenues, such expenses decreased
to 7.2% for the six months ended June 30, 1998 from 8.8% for the six months
ended June 30, 1997. The dollar increase in incentive compensation was due to
the increase in revenues. The decrease in
23
<PAGE> 23
incentive compensation as a percent of revenues was primarily related to reduced
incentive compensation payable to the Founders since October 1997.
Acquisition Compensation. Acquisition compensation in the six months ended
June 30, 1998 includes $0.3 million related to the KLA retention pool and
$63,500 for compensation amortization related to the KLA Options. The KLA
acquisition was completed in April 1998.
Depreciation and Amortization. Depreciation and amortization increased to
$0.2 million for the six months ended June 30, 1998 from $16,400 for the six
months ended June 30, 1997. The increase was primarily due to $93,200 of
goodwill amortization related to the KLA acquisition. The remaining increase was
the result of depreciation associated with furniture, equipment and leasehold
improvements acquired in conjunction with the Company's relocation to new
corporate facilities in January 1998.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues increased 79.1% to $32.2 million for the year ended
December 31, 1997 from $18.0 million for the year ended December 31, 1996. This
increase was predominantly due to the increase in ERP implementation services
provided to clients and an increase in the average billing rate. The increase in
services was made possible through the increase of consultants to 191 at
December 31, 1997 from 122 at December 31, 1996.
Gross Profit. Gross profit increased 85.3% to $13.0 million for the year
ended December 31, 1997 from $7.0 million for the year ended December 31, 1996.
Gross margin increased to 40.3% for the year ended December 31, 1997 from 39.0%
for the year ended December 31, 1996. Both the dollar and percentage increases
were the result of increased revenues, partially offset by increased cost of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 55.9% to $6.6 million for the year ended
December 31, 1997 from $4.2 million for the year ended December 31, 1996. As a
percentage of revenues, such expenses decreased to 20.3% for the year ended
December 31, 1997 from 23.4% for the year ended December 31, 1996. The dollar
increase was predominantly due to the increased salaries, benefits and training
and travel expenses needed to support the increase in revenues. The decrease in
selling, general and administrative expenses as a percentage of revenues was
primarily due to an increase in revenues.
Incentive Compensation. Incentive compensation increased 63.9% to $2.7
million for the year ended December 31, 1997 from $1.6 million for the year
ended December 31, 1996. As a percentage of revenues, such expenses decreased to
8.4% for the year ended December 31, 1997 from 9.2% for the year ended December
31, 1996. The dollar increase in incentive compensation was due to the increase
in revenues. The decrease in incentive compensation as a percentage of revenues
was primarily due to the increase in revenues and to a lesser extent the reduced
compensation payable to the Founders.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues. Revenues increased 62.0% to $18.0 million for the year ended
December 31, 1996 from $11.1 million for the year ended December 31, 1995. This
increase was predominantly due to the increase in ERP implementation services
provided to clients and an increase in the average billing rate. The increase in
services was made possible through the increase of consultants to 122 at
December 31, 1996 from 100 at December 31, 1995.
Gross Profit. Gross profit increased 70.2% to $7.0 million in the year
ended December 31, 1996 from $4.1 million for the year ended December 31, 1995.
Gross margin increased to 39.0% for the year ended December 31, 1996 from 37.1%
for the year ended December 31, 1995. Both the dollar and percentage increases
were the result of increased revenues, partially offset by increased cost of
revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 38.4% to $4.2 million for the year ended
December 31, 1996 from $3.0 million for the year ended December 31, 1995. As a
percentage of revenues, such expenses decreased to 23.4% for the year ended
December 31, 1996
24
<PAGE> 24
from 27.4% for the year ended December 31, 1995. The dollar increase was
predominantly due to increased salaries, benefits and training and travel
expenses needed to support the increase in revenues. The decrease in selling,
general and administrative expenses as a percentage of revenues was primarily
due to an increase in revenues.
Incentive Compensation. Incentive compensation increased 142.9% to $1.6
million for the year ended December 31, 1996 from $0.7 million for the year
ended December 31, 1995. As a percentage of revenues, such expenses increased to
9.2% for the year ended December 31, 1996 from 6.1% for the year ended December
31, 1995. Both the dollar and percentage increases were the result of increased
revenues.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly operating
results for each of the quarters for the years ended December 31, 1996 and 1997
and for the six months ended June 30, 1998. In management's opinion, this
unaudited information has been prepared on the same basis as the audited
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented when read in conjunction with the financial statements
and Notes thereto included elsewhere in this Prospectus. The Company believes
that quarter-to-quarter comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. $3,926 $3,943 $4,822 $5,302 $6,535 $7,799 $8,871 $9,013
Cost of revenues..... 2,255 2,550 2,826 3,347 3,548 4,643 5,181 5,850
------ ------ ------ ------ ------ ------ ------ ------
Gross profit......... 1,671 1,393 1,996 1,955 2,987 3,156 3,690 3,163
Selling, general and
administrative
expenses........... 838 936 1,194 1,236 1,380 1,600 1,949 1,626
Incentive
compensation....... 433 286 337 591 601 658 932 509
Acquisition
compensation....... -- -- -- -- -- -- -- --
Depreciation and
amortization....... 7 7 7 9 8 8 9 10
------ ------ ------ ------ ------ ------ ------ ------
Income from
operations......... 393 164 458 119 998 890 800 1,018
Interest income...... 1 1 2 2 4 4 5 7
Interest expense..... (18) (26) (23) (21) (35) (21) (31) (20)
------ ------ ------ ------ ------ ------ ------ ------
Income before
provisions for
income taxes....... 376 139 437 100 967 873 774 1,005
------ ------ ------ ------ ------ ------ ------ ------
Provision for income
taxes.............. 165 61 192 43 399 361 320 415
------ ------ ------ ------ ------ ------ ------ ------
Net income........... $ 211 $ 78 $ 245 $ 57 $ 568 $ 512 $ 454 $ 590
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
QUARTERS ENDED
-------------------
MAR. 31, JUNE 30,
1998 1998
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Revenues............. $9,902 $12,122
Cost of revenues..... 5,762 7,565
------ -------
Gross profit......... 4,140 4,557
Selling, general and
administrative
expenses........... 2,017 2,340
Incentive
compensation....... 984 607
Acquisition
compensation....... -- 362
Depreciation and
amortization....... 24 151
------ -------
Income from
operations......... 1,115 1,097
Interest income...... 7 8
Interest expense..... (12) (120)
------ -------
Income before
provisions for
income taxes....... 1,110 985
------ -------
Provision for income
taxes.............. 471 434
------ -------
Net income........... $ 639 $ 551
====== =======
</TABLE>
25
<PAGE> 25
The following table sets forth certain unaudited quarterly operating
results as a percentage of revenues, as applicable, for each of the quarters for
the years ended December 31, 1996 and 1997 and for the six months ended June 30,
1998:
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues..... 57.4 64.7 58.6 63.1 54.3 59.5 58.4 64.9
----- ----- ----- ----- ----- ----- ----- -----
Gross profit......... 42.6 35.3 41.4 36.9 45.7 40.5 41.6 35.1
Selling, general and
administrative
expenses........... 21.4 23.7 24.8 23.3 21.1 20.5 22.0 18.0
Incentive
compensation....... 11.0 7.3 7.0 11.1 9.2 8.4 10.5 5.7
Acquisition
compensation....... -- -- -- -- -- -- -- --
Depreciation and
amortization....... 0.2 0.1 0.1 0.2 0.1 0.2 0.1 0.1
----- ----- ----- ----- ----- ----- ----- -----
Income from
operations......... 10.0 4.2 9.5 2.3 15.3 11.4 9.0 11.3
Interest income...... 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1
Interest expense..... (0.4) (0.7) (0.4) (0.4) (0.5) (0.3) (0.3) (0.3)
----- ----- ----- ----- ----- ----- ----- -----
Income before
provisions for
income taxes....... 9.6 3.5 9.1 1.9 14.8 11.2 8.8 11.1
Provision for income
taxes.............. 4.2 1.5 4.0 0.8 6.1 4.6 3.7 4.6
----- ----- ----- ----- ----- ----- ----- -----
Net income........... 5.4% 2.0% 5.1% 1.1% 8.7% 6.6% 5.1% 6.5%
===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
QUARTERS ENDED
-------------------
MAR. 31, JUNE 30,
1998 1998
(UNAUDITED)
<S> <C> <C>
Revenues............. 100.0% 100.0%
Cost of revenues..... 58.2 62.4
----- -----
Gross profit......... 41.8 37.6
Selling, general and
administrative
expenses........... 20.4 19.3
Incentive
compensation....... 9.9 5.0
Acquisition
compensation....... -- 3.0
Depreciation and
amortization....... 0.2 1.3
----- -----
Income from
operations......... 11.3 9.0
Interest income...... 0.0 0.1
Interest expense..... (0.1) (1.0)
----- -----
Income before
provisions for
income taxes....... 11.2 8.1
Provision for income
taxes.............. 4.8 3.6
----- -----
Net income........... 6.4% 4.5%
===== =====
</TABLE>
The Company's quarter-to-quarter increase in revenues was primarily due to
increased business activity. This increase was predominantly due to the increase
in ERP implementation services provided to clients and an increase in the
average billing rate. Cost of revenues increased due to the growing number of
consultants needed to support the growing demand for the Company's services.
Variable utilization rates and average billing rates cause quarterly
fluctuations in cost of revenues as a percent of revenues. For the quarters
ended June 30, 1996, December 31, 1996, June 30, 1997, December 31, 1997 and
June 30, 1998, gross margins were adversely affected by lower utilization rates.
Lower utilization rates during the second and fourth quarters are primarily due
to a lower number of billable days resulting from training schedules and the
number of vacations and holidays in those quarters. Utilization rates may
continue to cause gross margins to vary in the future based on factors such as
training schedules, vacations, sick days, holiday schedules, recruiting
requirements, start-up of new engagements and administrative requirements of the
Company's employees.
Selling, general and administrative expenses have increased in absolute
dollars over the quarters presented due to increased salaries, benefits,
training and travel expenses and other promotional costs. Selling, general and
administrative expenses have varied from quarter-to-quarter as a percent of
revenues primarily due to the timing of training or promotional conferences
attended by Company personnel.
CCAi's revenues and operating results are subject to significant variation
from quarter-to-quarter as a result of a number of factors, including employee
hiring, consultant billing and utilization rates, the mix, size and timing of
engagements commenced and completed during a quarter, the number of billable
days in a quarter, the timing of office and service expansion, training
schedules and the timing of expenditures. Because a high percentage of CCAi's
expenses are relatively fixed, a variation in the number of engagements or the
timing of the initiation or the completion of engagements, particularly at or
near the end of any quarter, can cause significant
26
<PAGE> 26
variations in operating results from quarter-to-quarter and could result in
losses to the Company. In addition, CCAi's engagements are generally terminable
by the client without penalty.
Unanticipated termination of an engagement, a client's decision not to
proceed to the next phase of an engagement as anticipated by the Company,
completion during a quarter of several client engagements without the deployment
of consultants to new engagements or expansion of existing engagements could
result in the Company's underutilization of employees and could, therefore,
materially adversely affect the Company's business, operating results and
financial condition. To the extent that increases in the number of consultants
do not result in corresponding increases in revenues, the Company's business,
operating results and financial condition could be materially adversely
affected. Further, it is difficult for the Company to forecast the timing of
revenues because engagement cycles depend on factors such as the size and scope
of assignments and circumstances specific to particular clients. Because the
Company derives revenues only when its consultants are billing on engagements,
its business, operating results and financial condition are materially adversely
affected due to vacations, training schedules, holidays, inclement weather or
other similar events. For example, the Company has generated lower operating
margins during the second and fourth quarters of the year due to a lower number
of billable days resulting from training schedules and the number of vacations
and holidays in those quarters. Given all of the foregoing, the Company believes
that quarter-to-quarter comparisons of its operating results of preceding
quarters are not necessarily meaningful, and that such results for one quarter
should not be relied upon as an indication of future performance.
Demand for IT consulting services is also significantly affected by the
general level of economic activity. When economic activity slows, clients may
delay or cancel plans that involve the hiring of IT consultants. The Company is
unable to predict the level of economic activity at any particular time, and
fluctuations in the general economy could materially adversely affect the
Company's business, operating results and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations primarily through internally
generated funds. Working capital needs have been periodically supplemented by
borrowings under the Company's revolving credit facilities. Working capital
(deficit) was $0.4 million, $2.1 million and ($3.2) million at December 31, 1996
and 1997 and June 30, 1998, respectively. Excluding the amount outstanding under
the Company's revolving credit facility, working capital at June 30, 1998 was
$5.1 million.
Net cash provided by (used in) operating activities was $0.2 million, $2.1
million and ($1.6) million for the years ended December 31, 1996 and 1997 and
for the six months ended June 30, 1998, respectively. The increase in cash
provided by operating activities in 1997 compared to 1996 was primarily the
result of the $1.5 million increase in net income and due to increases in
accruals and other current liabilities, partially offset by an increase in
accounts receivable. The decrease in net cash provided by operating activities
for the six months ended June 30, 1998 was primarily the result of a decrease in
accounts payable and an increase in accounts receivable.
Net cash used in investing activities was $51,700, $0.4 million and $4.9
million for the years ended December 31, 1996 and 1997 and for the six months
ended June 30, 1998, respectively. In April 1998, the Company completed the KLA
acquisition with a net cash outlay of $3.9 million. See Note 12 of Notes to
Financial Statements. During the year ended December 31, 1997 and the six months
ended June 30, 1998, net cash used in investing activities reflected the
Company's use of $0.4 million and $0.9 million, respectively, of funds for
furniture, equipment and leasehold improvements in a new corporate facility.
In April 1998, in order to finance the KLA acquisition, the Company
refinanced its then existing revolving credit facility with a line of credit
from Fleet National Bank ("Fleet Bank"). The Fleet Bank line of credit permits
the Company to borrow up to $15 million and is collateralized by substantially
all of CCAi's assets. Borrowings under the line of credit are limited to two and
one-half times the Company's latest aggregated four quarters' earnings before
interest, taxes, depreciation, amortization and other non-cash expenses. The
interest rate is LIBOR to the extent the Company borrows funds for a certain
period of time, and the bank's prime rate (8.5% at June 30, 1998) plus up to
0.75%, on the remaining outstanding balance. The line of credit contains various
financial and operating covenants and restricts, among other things, the
Company's ability to incur additional indebtedness, sell or transfer assets or
make investments and pay dividends. At June 30, 1998, $8.3 million was
27
<PAGE> 27
outstanding under the Fleet Bank line of credit. The Company intends to use a
portion of the net proceeds of the Offering to repay amounts outstanding under
the line of credit. See "Use of Proceeds" and Note 4 of Notes to Financial
Statements.
Net cash provided by financing activities totaled $0.1 million, $0.1
million and $6.3 million for the years ended December 31, 1996 and 1997 and for
the six months ended June 30, 1998, respectively. In October 1997, the Company
sold certain shares of Common Stock and Convertible Preferred Stock for an
aggregate purchase price of $17.5 million ($15.9 million, net of $1.6 million of
transaction expenses). Contemporaneously with such sale, the Company paid $15.9
million to purchase shares of Common Stock from affiliates of the Founders. See
"Certain Transactions" and Note 9 of Notes to Financial Statements
The Company believes that the proceeds from the sale of the Shares offered
hereby together with the cash provided from the operations will be sufficient to
meet the Company's working capital and capital expenditure requirements for at
least the next 12 months. At June 30, 1998, the Company had no material
commitments for capital expenditures. To the extent the Company is unable to
fund its operations from cash flows, the Company may need to obtain financing
from external sources in the form of either additional equity or indebtedness.
There can be no assurance that additional financing will be available at all, or
that, if available, such financing will be obtainable on terms favorable to the
Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128 ("SFAS 128") Earnings per Share, which changes the method of
calculating earnings per share. SFAS 128 requires the presentation of "basic"
earnings per share and "diluted' earnings per share on the face of the income
statement. Basic earnings per share is computed by dividing the net income
available to common shareholders by the weighted average shares of outstanding
common stock. The calculation of diluted earnings per share is similar to basic
earnings per share except that the denominator includes dilutive common stock
equivalents such as stock options and warrants. The statement is effective for
financial statements for periods ending after December 15, 1997 and has been
adopted by the Company in the quarter ended December 31, 1997. The Company
adopted SFAS No. 128 for all periods reported herein.
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), Reporting
Comprehensive Income, and No. 131 ("SFAS 131"), Disclosures about Segments of an
Enterprise and Related Information. SFAS 130 establishes standards for reporting
comprehensive income and SFAS 131 establishes standards for reporting
information about operating segments. In February 1998, the FASB issued
Statement No. 132 ("SFAS 132"), Employers' Disclosures about Pension and Other
Postretirement Benefits. SFAS 132 establishes standards for reporting
information regarding disclosures about pensions and other postretirement
benefits. The Company is required to adopt these statements in 1998. In June
1998, the FASB issued Statement No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes standards for reporting
derivative instruments and hedging activities. The Company does not believe the
adoption of the above SFAS statements will have a significant impact on the
Company's financial statements or related disclosures.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date code field, and were not
designed to account for the upcoming change in the century. As a result, such
systems and applications could fail or create erroneous results unless corrected
so that they can process dates in the Year 2000 and beyond. The Company and its
clients rely on their systems, applications and devices in operating and
monitoring all major aspects of their businesses, including financial systems
(such as general ledger, accounts payable and accounts receivable modules),
customer services, infrastructure, embedded computer chips, networks and
telecommunications equipment and end products. The Company and its clients also
rely directly and indirectly, on external systems of business enterprises such
as customers, suppliers, creditors, financial organizations, and of governmental
entities, both domestic and international, for accurate exchange of data.
Despite the Company's efforts to address the Year 2000 impact on its internal
systems and the systems of its clients, the Company has not fully identified
such impact or whether it can resolve such impact
28
<PAGE> 28
without disruption of its business or without incurring significant expense.
Based on the information currently available, the Company believes that the
costs associated with the Year 2000 issue, and the consequences of incomplete or
untimely resolution of the Year 2000 issue, will not have a material adverse
effect on its business, operating results and financial condition in any given
year. However, there can be no assurance that the Company, or its clients, will
not encounter unexpected costs or disruption in their businesses as a result of
the Year 2000 issue. In addition, even if the internal system of the Company are
not materially affected by the Year 2000 issue, the Company's business,
operating results and financial condition could be materially adversely affected
through disruption in the operation of the enterprises with which the Company
interacts.
29
<PAGE> 29
BUSINESS
CCAi is a leading provider of rapid implementations of ERP applications.
CCAi also offers its clients a comprehensive range of related services,
including post-implementation and platform independent services, such as network
and Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance and remote support. The Company's
services are primarily targeted at middle market organizations, or divisions of
larger organizations, with annual revenues between $200 million and $2.5
billion. The Company's rapid ERP implementation services enable its clients to
reduce the length and risks of implementations, lower overall costs and achieve
early realization of ERP-related benefits.
CCAi has established numerous strategic relationships with leading software
application vendors, hardware vendors and other IT service providers, including
multinational consulting firms. The Company has a relationship with SAP dating
from 1989 and has been an SAP National Implementation Partner since 1994. In
addition, the Company is a member of SAP's National Advisory Board and was
involved in the development of ASAP, which has become an industry standard for
rapid SAP implementations. In 1997, the Company became one of SAP's first ASAP
Partners and has since become one of the first organizations to certify 100
consultants in SAP's ASAP methodology. Also, CCAi has been an Oracle Alliance
Member since 1997 and utilizes its own rapid implementation methodology, known
as FIRM, for Oracle ERP applications. In addition, the Company has been an
integral member of implementation teams managed by Andersen Consulting, EDS,
Ernst & Young and SAP. In 1998, the Company was one of the first organizations
named by Compaq as a regional configuration support center to provide rapid
implementation and related services in connection with R/3PAQ, a preconfigured
ERP solution jointly developed by Compaq and SAP.
CCAi is a "company of employees" and has adopted a business model focused
on establishing and maintaining long-term relationships with its employees. The
Company believes, in a resource constrained industry, it distinguishes itself
from its competitors by recruiting and retaining consultants with practical
business and relevant IT experience, which enhance the Company's ability to
identify industry-specific business issues and develop practical IT solutions to
address such issues. CCAi's consultants who perform ERP implementations
generally have 10 to 15 years of business or IT experience, including three to
five years of ERP implementation experience.
INDUSTRY BACKGROUND
Today's global business environment is rapidly changing due to increased
competition, deregulation and technological advances. In this environment,
organizations are constantly assessing the need for fundamental improvements in
such core business functions as product development, service delivery,
manufacturing, human resources, finance and accounting. To meet this need and
succeed in the marketplace, organizations are increasingly turning to IT
solutions that can be easily adapted to changing business requirements in order
to improve the quality of products and services, shorten time to market and
reduce costs. As a result, IT-related decisions have become mission critical
within an organization's overall strategy.
Recent technological advancements have caused many organizations to migrate
from legacy mainframe systems running proprietary software to open systems and
scalable client/server architectures based on personal computers using local and
wide area networks, running shared databases and packaged software applications.
For many organizations, an integral part of this migration is the implementation
of complementary, fully-integrated, enterprise-wide applications developed and
marketed by leading vendors such as SAP and Oracle. ERP applications address
enterprise-wide management needs, including product development, distribution
and logistics, finance and accounting, human resources and electronic data
interchange. ERP applications greatly enhance operational efficiencies by
enabling an organization to access and utilize information across the
enterprise. Moreover, when implemented successfully, ERP applications enable the
cost-effective redesign of critical business processes.
According to International Data Corp., a market research company, the
worldwide market for IT services is estimated to be $250 billion in 1997 and is
projected to increase to over $370 billion by 2000. According to industry
sources, the demand for ERP applications and services represent two of the
fastest growing segments of
30
<PAGE> 30
this market. According to Forrester Research, Inc., a market research company,
the worldwide market for ERP applications and services totaled approximately $15
billion in 1997 and is projected to grow to approximately
30.1
<PAGE> 31
$32 billion by 2000, representing a compound annual growth rate of approximately
29%. In addition, according to industry sources, for every dollar spent on ERP
applications, four to six dollars are spent on ERP implementation and related
services. The Company believes that a large portion of this growth is
represented by middle market companies.
The successful implementation of ERP applications requires extensive
resources, specific software expertise, end-user training and significant
ongoing modifications to support an organization's evolving business processes.
In addition, ERP implementations and related services typically require a large
number of highly specialized consultants with industry and ERP application
knowledge necessary to successfully configure the application to the
organization's needs. Implementations also require ongoing modifications to
continuously support an organization's evolving business processes. Generally,
internal IT departments do not have the resources required to successfully
manage the complex task of implementing and supporting such industry specific IT
solutions. Moreover, external competitive pressures are driving many
organizations to focus on their critical business processes and to control
expenses, including those associated with IT. As a result, organizations are
increasingly using third-party service providers to implement ERP applications
in order to reduce the length and risks of implementations, lower overall costs
and achieve early realization of ERP-related benefits.
The Company believes the need for third-party ERP implementation and
related services is particularly acute among middle market organizations. Such
organizations are directing substantial resources to their ERP implementations
and are particularly sensitive to the risk of cost overruns and delays
associated with poorly managed ERP implementations. Such organizations expect
timely and substantial economic returns from their ERP investments in the form
of lower costs and early realization of ERP-related benefits. In addition, these
organizations are under growing pressure from their Fortune 500 customers to
rapidly implement compatible ERP solutions. As a result, middle market
organizations are selective in identifying third-party ERP implementation
partners. Large IT service providers, such as multinational consulting firms,
however, typically do not target middle market organizations, but instead focus
on system implementations and related consulting engagements with Fortune 500
companies and other large organizations. Conversely, most small IT service
providers lack sufficient breadth of services, ERP implementation expertise,
financial resources or industry knowledge to adequately address the needs of
middle market organizations.
THE CCAI SOLUTION
CCAi provides its clients with a broad range of highly specialized IT
solutions that enable the rapid and cost-effective implementation of ERP
applications and facilitate the early realization of ERP-related benefits. Key
elements of the CCAi solution include the following:
Rapid, Cost-Effective Implementations. The Company uses rapid SAP
implementation methodologies and experienced consultants to deliver on-time and
on-budget implementations. The Company's consultants combine both ERP
implementation expertise and industry knowledge to deliver rapid configurations
and implementations that address each client's particular needs. The Company has
focused on providing ERP implementation services since 1994 when it developed
its own rapid implementation methodology. More recently, CCAi was involved in
the development of SAP's ASAP methodology, which has become an industry standard
for rapid SAP implementations. CCAi utilizes the ASAP methodology for
predominantly all of the SAP implementations it manages, and the Company
believes, among SAP's National Implementation Partners, it has one of the
largest groups of certified ASAP implementation consultants. In addition, in
1997, the Company became an Oracle Alliance Member and now utilizes its own
rapid implementation methodology, known as FIRM, for Oracle ERP implementations.
Highly Skilled Functional and Technical Consultants. The Company provides
value-added ERP implementation and related services through a combination of
highly skilled functional and technical consultants. CCAi's functional
consultants typically have 10 to 15 years of business experience in areas such
as finance, accounting, logistics, manufacturing, operations and engineering,
including three to five years of ERP implementation experience. CCAi's technical
consultants typically have 10 to 15 years of IT experience, including IT
management, programming, systems analysis, application development and ERP
implementation. The Company
31
<PAGE> 32
assigns its consultants to engagements that leverage their industry,
implementation and technical experience to reduce ERP implementation times,
lower overall engagement costs and increase returns on ERP investments.
Strong Strategic Relationships. CCAi has strong strategic relationships
with some of the world's leading developers of software applications, hardware
vendors, and other IT service providers, such as multinational consulting firms.
The Company's relationships with organizations such as SAP, Oracle, Microsoft
Corporation ("Microsoft"), Compaq and Data General Corp. ("Data General")
provide it with early exposure to new products, services and enhancements in
implementation methodologies and enable the Company to offer its clients a
greater variety of services. For example, the Company was named by Compaq as one
of its first regional configuration support centers to provide rapid
implementation services in connection with R/3PAQ, a preconfigured ERP solution
jointly developed by Compaq and SAP. In addition, the Company's relationships
with other IT service providers offer the Company early exposure to evolving
business processes as tested and adopted in the Fortune 500 marketplace, which
in turn allows the Company to offer such services on a more cost-effective basis
to its middle market clients.
Employee Focused, Scalable Business Model. CCAi is a "company of employees"
and has adopted a scalable business model focused on supporting long-term
relationships with its employees. The Company has developed a flat, flexible and
scalable management organization designed to provide each CCAi consultant with
access to substantial administrative and practice support resources and training
and career development guidance. The Company believes it has a lower consultant
turnover rate than the industry average and accordingly is able to offer its
clients a stable team of consultants that provide superior services and greatly
enhance client satisfaction. As a result, the Company rarely utilizes
independent contractors.
Broad Range of Complementary Services. CCAi provides a broad range of
complementary services. The Company's consultants have expertise in IT services
ranging from the implementations of SAP and Oracle applications, including
interface design and development and process re-engineering, to an array of
post-implementation and platform independent services, such as network and
Windows NT support, custom application development, mainframe and legacy
application support, Year 2000 compliance, on-site knowledge transfer, systems
level technical support, network level technical and installation support and
remote support.
GROWTH STRATEGY
CCAi's objective is to be a leading provider of IT solutions to the middle
market by continuing to deliver rapid ERP implementations and related services.
CCAi's growth strategy emphasizes the following key elements:
Expand Base of Highly Skilled Employees. The Company believes significant
demand exists for its ERP implementation and related services. In order to meet
such demand, CCAi intends to continue to invest significant financial and
management resources to expand its base of highly skilled employees. By
continuing to promote and enhance a corporate culture that rewards creativity
and an entrepreneurial spirit, the Company believes it can recruit and retain
the employees required to meet its clients' growing demands. Key elements of the
Company's recruiting and retention package include competitive base salary and
incentive compensation. In addition, the Company's flexible and scalable
management organization is designed to provide consultants with administrative
and practice support resources as well as training and career development
guidance.
Leverage Strategic Relationships. The Company intends to leverage its
strategic relationships with its clients and leading software and hardware
vendors to maximize marketing and sales opportunities, refine rapid
implementation and pre-configured ERP methodologies and enhance its consultants'
relevant technical knowledge. For example, CCAi often participates with software
vendors such as SAP and Oracle in pre-sale activities and in the design of
appropriate ERP solutions. The Company intends to form similar relationships
with other software developers of complementary enterprise-wide applications,
including supply chain management, sales force automation and process control
automation. In addition, the Company intends to continue to leverage its
relationships with other IT service providers to pursue opportunities within
market segments that may not otherwise be available to the Company on its own.
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<PAGE> 33
Broaden Geographic Presence. The Company intends to establish offices in
targeted geographic regions where CCAi has established a significant local
presence in terms of consultants, clients, or both. The Company has recently
opened offices in Dallas and Cincinnati and plans to open additional offices
over the next 12 months, including an office in San Francisco. CCAi believes
that establishing and maintaining local offices will help the Company recruit
and retain consultants with strong ties to local markets, as well as attracting
clients who prefer to engage a services firm with a local presence. The Company
also believes a local presence in these markets will enable it to strengthen
relationships with local representatives of SAP, Oracle and other software
application vendors, as well as hardware vendors. The Company's new offices will
be organized to provide sales, marketing and recruiting support services for its
consultants in the targeted regions.
Expand Service Offerings. The Company believes it can increase revenues
from existing clients and attract new clients by selectively expanding its
service offerings. In order to capitalize on the full advantages of
enterprise-wide capabilities, organizations are seeking complementary
applications with customer interfaces such as supply chain management, sales
force automation, customer asset management and process control automation. The
Company intends to offer additional value-added services to assist its clients
in adopting such applications. The Company also believes it can leverage its
relationships with industry-leading companies in the automotive, aerospace and
financial services industries to provide implementation and related services to
such companies' supply chain. For example, CCAi believes that its experience in
assisting in the implementation of SAP at GM provides CCAi with a competitive
advantage in obtaining implementations for GM's direct and indirect vendors. The
Company intends to offer prospective clients in such industries, particularly
suppliers of its clients, the latest in pre-configured ERP applications and
standardized implementation services for such industries.
Pursue Strategic Acquisitions. The Company intends to continue to pursue
strategic acquisitions that will provide additional well-trained, high-quality
professionals, new service offerings, additional industry expertise, a broader
client base and an expanded geographic presence. The Company recently completed
the acquisition of KLA, which enabled the Company to acquire a staff of highly
skilled ERP consultants, obtain additional recruiting and sales and marketing
opportunities, gain SAP implementation expertise in the automotive and financial
services industries, and enhance its presence in the Cincinnati market.
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<PAGE> 34
SERVICES
CCAi's services are focused on reducing the time and cost associated with
implementing and integrating IT solutions. CCAi undertakes engagements in a
variety of roles including: (i) as the lead consulting firm on its own
engagements, (ii) as the lead consulting firm on a part of larger engagements
undertaken by multinational IT consulting firms or other large service providers
or (iii) as an integral member of a joint engagement team on such engagements.
In almost all cases, the Company provides its services on a time and materials
basis. The Company's services include:
<TABLE>
<CAPTION>
CCAI SERVICES DESCRIPTION
<S> <C> <C> <C>
Engagement Management - Develop engagement scope and budget
- Manage implementation engagements and budgets
Process Re-engineering - Analyze and prioritize current business
processes
- Focus clients on processes yielding greatest
business benefits
- Map to proven solutions and best business
practices
- Provide functional consulting expertise
Interface Design and Development - Analyze existing legacy applications
- Design database conversion interfaces
On-site Knowledge Transfer and Training - Create knowledge transfer programs for clients'
employees
- Develop customized training programs
- Provide product training
Systems Level Technical Support - Coordinate hardware and operating system
installations
- Provide system upgrades and configurations
- Integrate back-office products with ERP
solutions
Network Level Technical Support - Install and configure networks
- Manage installed networks
Programming Services - Provide services for full range of programming
languages, including Visual Basic, C, C++ and
COBOL
- Provide experts in use of various tools and
database products, including Access,
PowerBuilder, Developer 2000 and COOL:Gen
- Develop Internet-based applications utilizing
HTML, ActiveX and Java
- Support legacy applications
Outsourced/Remote Support - Offer support center based implementation teams
- Offer help-desk and upgrade support
- Provide platform outsourcing
</TABLE>
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<PAGE> 35
CCAi offers its clients ERP implementation and platform independent
services. The following is a description of such services:
ERP Implementation Services. The Company provides a full range of ERP
implementation services in both rapid and traditional ERP engagements. The
Company has a relationship with SAP dating from 1989 and has been an SAP
National Implementation Partner since 1994. In addition, the Company is a member
of SAP's National Advisory Board and was involved in the development of SAP's
ASAP methodology, which has become an industry standard for rapid SAP
implementations. In 1997, the Company became one of SAP's first ASAP Partners
and has since become one of the first organizations to certify 100 consultants
in the ASAP methodology. In addition to rapid implementations, the Company also
performs traditional ERP implementation engagements, which typically are
conducted over a more extended period of time, with larger teams of consultants
and greater customization.
Rapid ERP implementation has become a central focus of CCAi's service
offerings and has been a growing part of its business since 1994. Because of the
importance of rapid ERP implementations to the Company's middle market clients,
CCAi has consultants with expertise in Oracle's FastForward methodology and
SAP's ASAP methodology. The Company utilizes its own rapid implementation
methodology, known as FIRM, for Oracle ERP applications. CCAi utilizes the ASAP
methodology for predominantly all the SAP implementations it manages and
believes that, among SAP's National Implementation Partners, it has one of the
largest groups of certified ASAP consultants.
CCAi's ASAP implementations utilize SAP's five-phased ASAP approach. The
first phase, Project Preparation, provides initial planning and preparation for
SAP's R/3 implementation. The second phase, Business Blueprint, involves the
detailed documentation of the business process requirements of the client. In
the third phase, Realization, all of the business and process requirements are
implemented in two work packages. The fourth phase, Final Preparation, entails
complete testing, end-user training, system management and cut over activities
and resolution of all critical open issues. In phase five, Go Live and Support,
the project is transitioned to a live, productive operation.
Platform Independent Services. The Company provides platform independent
services both on a stand-alone basis and in conjunction with ERP
implementations. These services are designed to assist organizations in software
application design, development and maintenance across a broad spectrum of
computing environments. These services span client/server, midrange, mainframe
and Internet-based solutions. The Company's consultants and software developers
typically are engaged for part or all of the lifecycle of application
development, from requirements analysis and systems planning through coding,
testing, deployment and maintenance. The Company uses rapid prototyping and
application development tools, commercially available database software and
other standard development tools.
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<PAGE> 36
The following chart details the Company's platform independent services:
<TABLE>
<CAPTION>
CCAI SERVICES DESCRIPTION
<S> <C> <C> <C>
IT Consulting - Assist organizations in reengineering business
processes
- Plan migration of clients' legacy systems to
networked, distributed, client/server
architectures
- Model core systems, including architecture,
design, gap analysis, testing and engagement
management functions
Application Development - Develop software applications in a full range
of programming languages including Visual
Basic, C, C++ and COBOL
- Design systems using rapid prototyping and
application development tools (Developer 2000
and COOL:Gen), database software (Access and
SQL Server) and standard development tools
(PowerBuilder)
- Upgrade and maintain software applications
Outsourcing, Training and Remote Support - Augment clients' internal resources with
skilled IT professionals
- Provide outsourced IT support
- Provide consulting services for Year 2000
compliance
- Support databases and operating systems
- Train clients' personnel in packaged and custom
software applications
</TABLE>
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<PAGE> 37
CLIENTS AND REPRESENTATIVE ENGAGEMENTS
CCAi provides its services to a diverse group of organizations across a
broad spectrum of industries. These clients generally have substantial recurring
requirements for IT services and products and have typically maintained ongoing,
long-term relationships with the Company. The Company had no client that
represented more than 10% of its annual revenues in each of the three years
ended December 31, 1995, 1996 and 1997, and for the six months ended June 30,
1998, one of the Company's clients accounted for 12% of the Company's revenues.
The following table presents a representative list of clients that have directly
engaged CCAi to perform a variety of IT services:
<TABLE>
<CAPTION>
AEROSPACE AND AUTOMOTIVE CHEMICAL PROCESS COMMUNICATIONS
------------------------ ---------------- --------------
<S> <C> <C>
Adam Opel AG Akzo Nobel N.V. GTE Corp.
Aircraft Braking Systems Corp. Dow Chemical Co. Reltec Corp.
Aluminum Company of America Henkel Corp. Voice-Tel Enterprises, Inc.
General Motors Corporation
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL AND PROFESSIONAL
CONSUMER PRODUCTS ENERGY SERVICES
----------------- ------ --------------------------
<S> <C> <C>
American Greetings Corp. BP America Inc. Andersen Consulting LLP
ChemRex, Inc. Lockheed Martin Energy Electronic Data Systems
Master Builders, Inc. Systems, Inc. Corporation
Ernst & Young LLP
KeyCorp
</TABLE>
<TABLE>
<CAPTION>
HEALTH CARE INDUSTRIAL PUBLISHING
----------- ---------- ----------
<S> <C> <C>
Medical Mutual of Ohio Aluminum Company of Antioch Publishing Co.
University Hospitals of Cleveland America Simon & Schuster Inc.
Brush Wellman Inc. Bantam Doubleday Dell Publishing
Continental General Tire Group Inc.
Inc.
Eaton Corporation
Goodyear Tire & Rubber Co.
OwensCorning
Tremco, Inc.
USS/Kobe Steel Co.
</TABLE>
<TABLE>
<CAPTION>
RETAIL TECHNOLOGY
------ ----------
<S> <C> <C>
Cole National Corp. Compaq Computer
OfficeMax, Inc. Corporation
SAP America, Inc.
</TABLE>
Three examples of the Company's engagements include the following:
ASAP Implementation and Platform Independent Services. A manufacturer of
specialty metals and alloys, with approximately $400 million in annual revenues,
engaged CCAi to revitalize its implementation initiative. The SAP implementation
was complex because of the involvement of four service centers, two large
manufacturing plants, four specialty division sites, a mining operation and the
corporate headquarters. CCAi was engaged because of its implementation plan
using SAP's ASAP methodology and its stable team of highly-skilled consultants.
The initial implementation phase included traditional financials and logistics
modules along with more complex modules such as variant configuration, product
costing and process industry production. The client currently has five of its
facilities live on SAP and is on-time and on-budget to complete the
implementation for the entire organization by the end of 1998. CCAi also
provided the client with Year 2000 compliance services with respect to the
client's AS400 legacy system. The Company has been engaged to implement SAP in
the client's European and Asian operations and to implement additional modules
for the client's North American operations.
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<PAGE> 38
SAP Implementation. CCAi successfully implemented SAP in one of the first
ASAP implementations in the Midwest. The client is a manufacturer of concrete
add mixtures and specialty sealants with approximately $250 million in annual
revenues. To support its growth strategy, the client needed to replace a
customized legacy system. CCAi was engaged to implement SAP's R/3 on a new
HP-Unix platform. Besides the standard suite of applications, this
implementation included the new environmental, health and safety module as well
as plant maintenance, quality management and process industry production
modules. Over an eight month period, eight to 10 CCAi consultants implemented
the applications on-time and on-budget, earning a performance bonus.
Oracle Implementation. An international manufacturer, with approximately
$8.7 billion in annual revenues, retained CCAi to implement their Oracle human
resource and payroll system as part of one of the largest implementation of
Oracle applications in North America. The client has 145 divisions in 28
countries and an employee base of over 49,000. The client instituted a global
ERP project to develop a "service center" concept to provide operations
consolidation, standardization and cost reductions. CCAi provided the strategy
and frame-work to design, convert and implement human resource and payroll
systems from a legacy base to a reengineered ERP process. CCAi consultants used
an innovative translation system to match and convert payroll and taxing
procedures while creating a foundation for rapid installations for successive
implementations. CCAi also developed and performed a strategic volume and stress
process to scope the impact of scaling the client's full HR/Payroll system. To
date, the implementation team has successfully integrated the ERP service center
process for more than 20 divisions and 7,000 employees.
HUMAN RESOURCES
CCAi's success depends in large part upon its ability to recruit, motivate
and retain highly skilled IT professionals. These professionals are in great
demand and are likely to remain a limited resource for the foreseeable future.
As of June 30, 1998, the Company had 289 employees, 245 of whom were
consultants. The Company believes that its employee-focused culture and
organization, including its recruiting, training, compensation, support and
mentoring programs, are directly related to its ability to recruit, train,
motivate and retain its consultants.
Recruiting. CCAi dedicates significant resources to recruiting highly
motivated and skilled consultants with functional, consulting and technology
business experience. The Company recruits and employs consultants with a range
of diverse business backgrounds, including accounting, finance, engineering,
logistics, manufacturing and operations. The technical experience of the
Company's consultants is equally wide ranging, covering areas such as IT
management, programming, systems analysis and application development. CCAi
maintains a rigorous hiring program administered by its in-house recruiters.
Before employment determinations are made, applicants are screened in a highly
selective process by several levels of management for technical skills,
functional business expertise and cultural fit.
Compensation. The Company offers competitive base salary and incentive
compensation packages. As part of their compensation package, the Company's
consultants are eligible for monthly and quarterly cash bonuses and participate
in the 1997 Equity and Performance Plan. The cash bonuses earned by the
Company's consultants are based on a percentage of the revenue the individual
consultant contributes to the Company. See "Management -- Employee Benefit
Plans."
Career Development, Support and Training. The Company focuses significant
resources on the career development of its consultants. The Company has
developed a flat, flexible and scalable management organization designed to
provide each CCAi consultant with access to substantial administrative and
practice support resources and training and career development guidance. The
Company is organized so that each consultant is mentored and supervised by two
senior consultants: a Managing Associate, who focuses on the consultant's
performance and administrative needs, and an Advisory Associate, who provides
technical expertise and guidance and focuses on the consultant's training and
career development needs. Each CCAi consultant is also assigned an Advocate
responsible for assisting the consultant with travel arrangements, time and
expense reports and other administrative matters. The Company provides an
extensive training program for its consultants focused on "best of breed"
technologies and practices. The program includes in-house instruction and
external
38
<PAGE> 39
training often offered in conjunction with one of the software application
vendors with whom the Company maintains a strategic relationship.
Quality Assurance. CCAi has developed a formal quality assurance program
led by a full-time quality program manager. The program, which is fully
automated, measures both client and employee satisfaction and is a tool used for
employee and manager performance reviews. The quality assurance process
commences at the beginning of an engagement. The Account Executives and project
managers assigned to a particular engagement work closely with the client to
document the clients' expectations for the engagement. Subsequently, performance
audits of each consultant assigned to such engagement are conducted every 90
days. These audits are then used in each consultant's annual performance review.
SALES AND MARKETING
CCAi markets and sells its ERP implementation and related services
predominantly in the U.S. and Canada through its network of strategic
relationships and its direct sales force. The Company's sales organization
leverages CCAi's referenceable client portfolio to acquire new clients. Multiple
engagements from current or prior clients, and the reputation of CCAi's
consultants and management, are also meaningful sources of new business for the
Company.
Strategic Relationships. The Company has established a number of formal and
informal marketing relationships with leading software and hardware vendors.
CCAi derives a substantial number of leads for new engagements from such
relationships. In addition, its strategic relationships with SAP and Oracle
involve coordinated sales and marketing efforts, as well as trade show
activities specifically targeted to the ERP implementation industry. The
Company's other strategic relationships with Compaq, Data General and Microsoft
also offer opportunities for joint marketing activities. The Company also has
strategic relationships with multinational consulting firms and other IT service
providers. These relationships give CCAi access to engagement opportunities in
geographic locations and within certain market segments that might otherwise be
unavailable to the Company.
Direct Sales. The Company's direct sales force includes account executives
who are responsible for developing, maintaining and managing long-term client
and strategic relationships. The account executives are also responsible for
identifying new engagement opportunities directly with clients or through
strategic relationships. Account executives rely on continual communications
with clients, prospective clients and the organizations with which the Company
maintains strategic relationships to build CCAi's relationships and also work
with CCAi's consultants to analyze prospective client needs and demonstrate the
Company's services.
Marketing. The Company supports its sales efforts with a comprehensive
marketing program that features its alliances with SAP, Oracle and Microsoft and
includes trade shows, contributing articles to industry publications, public
relations, ERP industry meetings and conferences, the creation of collateral
marketing materials and the Company's Internet site. The program is designed to
strengthen the CCAi brand name and generate new client and strategic
relationships.
COMPETITION
The market for CCAi's services is highly competitive. CCAi believes that
its principal competitors include the internal information systems groups of its
prospective clients, IT consulting companies, systems integration firms and the
consulting divisions of software applications vendors, some of which are also
clients of the Company. Many of CCAi's competitors have longer operating
histories, possess greater industry and name recognition and have significantly
greater financial, technical and marketing resources than the Company. In
addition, there are relatively low barriers to entry into CCAi's market, and the
Company has faced, and expects to continue to face, additional competition from
new entrants into its market, including new entrants offshore who may have lower
fixed operating costs than the Company and new entrants who may develop new or
innovative means of delivering IT services.
39
<PAGE> 40
CCAi believes that the principal competitive factors in its market include
quality of service speed of development and implementation, price, engagement
management capability, technical and business expertise and reputation. The
Company believes it competes favorably with respect to such factors. The Company
believes its ability to compete also depends in part on a number of competitive
factors outside its control. These include the ability of its competitors to
recruit, motivate and retain project managers and other senior professionals,
develop services competitive with the Company's services and respond to customer
needs. There can be no assurance that the Company will be able to compete
successfully with its competitors. See "Business -- The CCAi Solution" and "Risk
Factors -- Highly Competitive Information Technology Services Industry."
INTELLECTUAL PROPERTY RIGHTS
CCAi's success is dependent upon certain methodologies and other
proprietary intellectual property rights. Software developed by the Company for
a client is typically assigned to the client. CCAi also independently develops
certain foundation and application software products, or software "tools," that
remain the property of the Company. CCAi relies upon a combination of
nondisclosure and other contractual arrangements and trade secret, copyright and
trademark laws to protect its proprietary rights and the proprietary rights of
third parties from whom the Company licenses intellectual property. CCAi enters
into confidentiality agreements with its employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by CCAi
in this regard will be adequate to deter misappropriation of the Company's
proprietary information, that the Company will be able to detect unauthorized
use and take appropriate steps to enforce its intellectual property rights or
that such steps will prevent the Company's employees from using intellectual
property belonging to others. Although CCAi believes that its services do not
infringe on the intellectual property rights of others and it has all rights
necessary to utilize the intellectual property employed in its business, the
Company is subject to the risk of claims alleging infringement of third-party
intellectual property rights, including the rights of its clients. Any such
claims could require CCAi to expend significant resources in litigation, pay
damages, cease using infringing intellectual property, develop non-infringing
intellectual property or acquire licenses to the intellectual property that is
the subject of asserted infringement. See "Risk Factors -- Dependence on
Intellectual Property Rights."
PROPERTY
The Company's corporate headquarters is located in Mayfield Heights, Ohio.
Currently, the Company's lease on these premises covers approximately 27,000
square feet and expires in January, 2003, with three renewal options for five
years each. The lease provides for payments of approximately $412,000 annually.
The Founders have a 30% ownership interest in the entity that owns the Company's
corporate headquarters. The Company believes that its properties are adequate
for its needs and suitable additional or replacement space will be available
when required on terms acceptable to the Company. See "Certain
Transactions -- Corporate Headquarters Lease."
LEGAL PROCEEDINGS
The Company is not involved in any legal proceeding that the Company's
management believes is likely to have a material adverse effect on the Company.
40
<PAGE> 41
MANAGEMENT
The directors, executive officers and other senior managers of the Company
and their respective ages as of June 30, 1998, and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Directors and Executive Officers
Nicholas A. Canitano (1)(3)............... 50 Chairman of the Board and Chief Executive
Officer
Kenneth L. Conley (2)(3).................. 54 President, Chief Operating Officer and Director
Karen M. Conley........................... 43 Executive Vice President, Treasurer and
Director
Annette M. Canitano....................... 48 Executive Vice President, Secretary and
Director
Paul A. Farmer............................ 40 Chief Financial Officer and Vice President
A. Bruce Johnston (1)(2).................. 38 Director
Kenneth T. Schiciano (1)(2)............... 35 Director
Other Senior Managers
Jack L. Rhyne............................. 51 Vice President of SAP Enterprise Systems
Ronnie K. Crumpler........................ 49 Vice President of Vertical Market Development
Timothy S. Flowers........................ 42 Vice President of Sales and Marketing
Susan V. Lebas............................ 37 Vice President of Recruiting
Timothy M. May............................ 38 Vice President of Sales and Marketing
</TABLE>
- ---------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
(3) Prior to the consummation of the Offering, the Company's Board of Directors
anticipates that it will appoint one, and possibly two, additional Directors
not affiliated with the Company. These directors would serve on either or
both the Audit Committee and the Compensation Committee and would replace
Messrs. Canitano and Conley, respectively, on such committees.
DIRECTORS AND EXECUTIVE OFFICERS
Nicholas A. Canitano is currently serving in the capacity of Chairman and
Chief Executive Officer of the Company and has held various management positions
with the Company since its inception in 1983. Prior to founding CCAi, he was
employed in a variety of information systems managerial positions.
Kenneth L. Conley is currently serving in the capacity of President and
Chief Operating Officer of the Company and has held various management positions
with the Company since its inception. Prior to founding CCAi, he was employed by
International Business Machines Corporation ("IBM") in a variety of sales and
marketing positions.
Karen M. Conley is currently serving in the capacity of Executive Vice
President and Treasurer and has held various management positions with the
Company since its inception. Prior to founding CCAi, she was employed by IBM as
a Marketing Representative.
Annette M. Canitano is currently serving in the capacity of Executive Vice
President and Secretary and has held various management positions with the
Company since its inception. Prior to founding CCAi, she was employed by a
financial services company.
Paul A. Farmer joined the Company in April 1998 as the Chief Financial
Officer and also currently serves as Vice President, Assistant Secretary and
Assistant Treasurer. Mr. Farmer is a certified public accountant and, prior to
joining CCAi, held various positions, including Chief Financial Officer, Chief
Administrative Officer, Treasurer and Secretary with TCSI Corporation, a
telecommunications software service provider, from 1993 to 1997; Vice President,
Secretary, Treasurer and Corporate Controller with Technology Solutions Company,
an IT consulting firm, from 1990 to 1993; and Senior Audit Manager with Price
Waterhouse from 1982 to 1990.
A. Bruce Johnston has served as a Director of the Company since October
1997 and has been a principal of TA Associates since January 1996. Mr. Johnston
was a Vice President of TA Associates, a venture capital firm,
41
<PAGE> 42
from June 1992 to December 1995. Mr. Johnston serves as Director of Expert
Software Inc., a software company, Restrac Inc., a software company, and several
privately-held companies.
Kenneth T. Schiciano has served as a Director of the Company since October
1997 and has been a principal of TA Associates since January 1995. Mr. Schiciano
was a Vice President of TA Associates, a venture capital firm, from August 1989
to December 1994. Mr. Schiciano serves as a Director of Galaxy Telecom LP, a
cable television multi-systems operator and several privately held companies.
Jack L. Rhyne joined CCAi in 1994 as the Manager of SAP Enterprise Systems
and is currently Vice President of such group. Prior to joining CCAi, Mr. Rhyne
was employed by ICI Explosives Environmental Co., a chemical and explosives
company, from 1990 to 1994 in a variety of positions including as a Technical
Project Manager implementing SAP solutions at various sites in the U.S. and
Canada. Prior to 1990, Mr. Rhyne held a variety of executive positions in
IT-related companies, OEM distributors and software development organizations.
Ronnie K. Crumpler joined CCAi in April 1998 as part of the acquisition of
KLA and is currently the Company's Vice President of Vertical Market
Development. Prior to joining CCAi, Mr. Crumpler was Chairman of the Board and
Chief Operating Officer of KLA from November 1996 to April 1998. Prior to his
employment with KLA, Mr. Crumpler held a variety of positions with several
management consulting firms, including A.T. Kearney from January 1996 to
November 1996, Enterprise Solutions Management Consulting from June 1995 to
January 1996 and Ernst & Young from June 1993 to June 1995. Prior to this, Mr.
Crumpler served as president of a private consulting firm and held a variety of
positions with Dow Chemical Co. for 19 years.
Timothy S. Flowers joined CCAi in 1990 and is currently a Vice President of
Sales and Marketing. Prior to joining CCAi, Mr. Flowers was employed by
Automated Data Processing, Inc., a payroll services provider, from 1982 to 1989
in a variety of management and marketing positions, including Technical Support
and Implementation Manager for a variety of accounting software products.
Susan V. Lebas joined CCAi in 1987 and is currently the Vice President of
Recruiting. Prior to joining CCAi, Ms. Lebas served in a variety of industries
in an administrative capacity.
Timothy M. May joined CCAi in 1995 and is currently a Vice President of
Sales and Marketing for the Company. From 1994 to 1995, Mr. May was the Vice
President of Marketing for Enterprise Network Services, Inc., network management
provider. From 1992 to 1994, Mr. May was employed as an Area Sales Manager by
Global Software, Inc., a software company. Prior to 1992, Mr. May was employed
by IBM for 10 years in a variety of marketing positions.
BOARD OF DIRECTORS
The Company's Articles of Incorporation and Code of Regulations provide
that the Company's Board of Directors be comprised of not less than six and not
more than 16 directors. The Board is currently comprised of six members; the
Company's Board of Directors anticipates that it will appoint at least one, and
possibly two, Directors not affiliated with the Company prior to the
consummation of the Offering. The Company's Board of Directors is divided into
two classes and the Company intends to designate the terms of each of the
Directors prior to the consummation of the Offering. Each director holds office
until his or her successor is duly elected and qualified, or until such
Director's earlier death, resignation or removal.
Two of the Company's current directors, Messrs. Johnston and Schiciano,
were nominated and elected to the Company's Board of Directors as designees of
TA Associates in accordance with a voting agreement contained in the Stock
Purchase and Shareholders Agreement dated October 15, 1997. The voting
provisions of this agreement terminate upon consummation of the Offering.
Executive officers of the Company are appointed by, and serve at the discretion
of, the Board of Directors. Nicholas A. Canitano and Annette M. Canitano are
husband and wife, and Kenneth L. Conley and Karen M. Conley are husband and
wife. See "Certain Transactions."
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<PAGE> 43
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, consisting of Messrs. Canitano,
Johnston and Schiciano, makes recommendations concerning the engagement of
independent public accountants, reviews the scope and results of the audit with
the independent public accountants, reviews the Company's annual operating
results with management and the independent accountants, considers the adequacy
of the internal accounting procedures and considers the effect of such
procedures on the accountants' independence.
The Compensation Committee, consisting of Messrs. Conley, Johnston and
Schiciano, reviews and recommends the compensation arrangements for officers and
other employees, determines the options or stock to be granted to eligible
persons under the 1997 Equity and Performance Plan and takes such other actions
as may be required in connection with the Company's compensation and incentive
plans.
Prior to the consummation of the Offering, the Company's Board of Directors
anticipates that it will appoint one, and possibly two, additional Directors not
affiliated with the Company. This director will serve on both the Audit
Committee and the Compensation Committee and will replace Messrs. Canitano and
Conley, respectively, on such committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Conley, Johnston and Schiciano. Mr. Conley is President and Chief
Operating Officer of the Company.
DIRECTOR COMPENSATION
The Code of Regulations provide that the non-employee directors may receive
compensation and expense reimbursement for serving on the Company's Board of
Directors, including committees thereof, and for other services related to a
director's membership.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation earned for the year ended December 31, 1997
for the Company's Chief Executive Officer and the Company's three other
executive officers during 1997 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
-------------------- OPTIONS (# OF ALL OTHER
NAME AND POSITION SALARY BONUS SHARES) COMPENSATION (1)
<S> <C> <C> <C> <C>
Nicholas A. Canitano..................... $224,200 $465,935 -- $4,750
Chairman of the Board and Chief Executive
Officer
Kenneth L. Conley........................ 198,539 476,486 -- 4,750
President and Chief Operating Officer
Karen M. Conley.......................... 211,382 93,959 -- 4,750
Executive Vice President and Treasurer
Annette M. Canitano...................... 185,720 103,362 -- 4,750
Executive Vice President and Secretary
</TABLE>
- ---------------
(1) Represents matching payments under the Company's 401(k) Plan.
EMPLOYEE BENEFIT PLANS
1997 Equity and Performance Incentive Plan. Upon the consummation of the
Offering, the Company will have an aggregate of 1,420,000 shares of Common Stock
reserved for issuance under the 1997 Equity and Performance Plan, which may be
granted to directors, consultants, key employees and officers of the Company.
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<PAGE> 44
The 1997 Equity and Performance Plan is administered by the Compensation
Committee and provides for awards, including restricted shares of Common Stock,
deferred shares of Common Stock and options to purchase shares of Common Stock,
including Incentive Stock Options ("ISOs") (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")).
The exercise price for options may be paid as follows: (i) in cash or check
payable to the Company; (ii) by actual or constructive transfer to the Company
of Common Stock owned by the optionee having a value at the time of exercise
equal to the option price and which have been held by the optionee for at least
six months; or (iii) by a combination of such methods of payment. In the case of
a stock option that is not an ISO, the exercise price per share of Common Stock
may be less than the fair market value per share of Common Stock on the date of
the grant. Any grant may provide for payment of the option price in
installments, upon terms determined by the Board of Directors, including,
without limitation, pursuant to a promissory note. ISOs to be granted under the
1997 Equity and Performance Plan must be exercised within 10 years from the date
of grant. Each option will become exercisable over a period of time as the
optionee provides services to the Company; provided, however, that each option
will accelerate in the event of a sale of a majority of the outstanding Common
Stock of the Company, a sale of substantially all of the Company's assets or
other similar transactions and events as determined by the Board of Directors of
the Company (a "Change in Control"). Each grant or sale of restricted stock will
vest over a period of not less than two years to be determined by the Board of
Directors at the date of the grant or issuance; provided, however, that the
Board of Directors of the Company may accelerate vesting upon a Change in
Control or public offering. Each grant or sale of deferred shares of Common
Stock entitles the recipient to receive Common Stock (or equivalent in other
property, including cash) upon the fulfillment of specified objectives over a
period of not less than one year, except, if the Board of Directors so
determines, each payment may be accelerated in the event of a Change in Control
or public offering.
The Board of Directors can amend or terminate the 1997 Equity and
Performance Plan at any time. In the event of any change in the capital
structure of the Company, such as a stock dividend or stock split, the Board of
Directors may make equitable adjustments to outstanding unexercised awards and
to the provisions of the 1997 Equity and Performance Plan so that the net value
of the award is not changed. If the Company becomes a party to a merger,
reorganization, liquidation or similar transaction, the Board of Directors may
make such arrangements it deems advisable regarding outstanding awards, such as
substituting new awards for outstanding awards, assuming outstanding awards or
terminating or paying for outstanding awards.
No awards were made under the 1997 Equity and Performance Plan in 1997, and
none were outstanding at December 31, 1997. At June 30, 1998, options for
320,200 shares were outstanding under the 1997 Equity and Performance Plan.
Currently, no grants or issuances under the 1997 Equity and Performance
Plan have been made to executive officers other than Paul A. Farmer. On May 11,
1998, Mr. Farmer was issued 76,950 shares of restricted Common Stock under the
1997 Equity and Performance Plan for a purchase price of $4.67 per share. See
"Certain Transactions."
401(k) Plan. The Company maintains a 401(k) profit sharing and defined
contribution plan (the "401(k) Plan"). All employees of the Company who have
reached 21 years of age and have completed six months of service are eligible to
participate in the 401(k) Plan, pursuant to which each participant may
contribute up to 15% of eligible compensation (up to a statutorily prescribed
annual limit of $10,000 in 1998). The Company currently matches contributions
made by employees to the 401(k) Plan. The amount of the match is determined at
the discretion of the Company. A profit sharing contribution may also be made
each year at the discretion of the Company. All amounts contributed by employee
participants and earnings on these contributions are fully vested at all times.
Employee participants may elect to invest their account balances in various
established funds. During 1997, each of the Named Executive Officers
participated in the 401(k) Plan as indicated in the Summary Compensation Table.
1998 Employee Stock Purchase Plan. Prior to the consummation of the
Offering, the Company intends to adopt the Purchase Plan and reserve an
aggregate of shares of Common Stock for issuance under the
Purchase Plan. Such shares may be authorized but unissued Common Stock, treasury
shares or shares of
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<PAGE> 45
Common Stock purchased in the open market. The Purchase Plan will be intended to
qualify under Section 423 of the Code and will permit eligible employees of the
Company whose customary employment is a minimum of 20 hours per week to purchase
shares of Common Stock through payroll deductions of up to 10% of the employee's
gross regular earnings, provided that no employee may purchase more than
$ worth of stock in any calendar year, with the first offering period
commencing on , 1998. The price of shares of Common Stock purchased
under the Purchase Plan will be 85% of the fair market value of the Common Stock
(as calculated in the Purchase Plan). The Purchase Plan will be administered by
the Compensation Committee. The Board of Directors will be able to amend or
terminate the Purchase Plan at any time.
Other. The Company maintains customary health and benefit plans for its
employees. The Company does not maintain any defined benefit pension plans.
BONUSES
The Company grants annual bonuses to its executive officers. These bonuses
are determined by the Compensation Committee of the Board of Directors of the
Company and are based on the attainment of individual performance targets and
the financial performance of the Company.
CERTAIN TRANSACTIONS
The 1997 Transactions. In July 1997, the Company repurchased 509,130 shares
of Common Stock owned by Joseph Minadeo for an aggregate amount of $171,429. Mr.
Minadeo is the brother of Annette M. Canitano, the Company's Executive Vice
President, Secretary and a Director, and was an original investor in the
Company.
In October 1997, the Company entered into a series of transactions
(collectively, the "1997 Transactions") wherein TA Associates, including the
following affiliated groups: TA/Advent VIII L.P. and TA Venture Investors
Limited Partnership (collectively, the "TA Investors"), and McDonald & Company
Securities, Inc., including the following affiliated groups: McD Venture Capital
Fund, L.P. and GHK Investments, L.L.C. (collectively, the "McDonald Investors")
purchased a total of 250,400 shares of Convertible Preferred Stock and 1,350,000
shares of Common Stock from the Company for an aggregate purchase price of $17.5
million ($15.9 million, net of $1.6 million of transaction expenses).
Immediately prior to the consummation of the Offering, the Convertible Preferred
Stock sold by the Company in the 1997 Transactions will be converted into
2,504,000 shares of Common Stock and 250,400 shares of Redeemable Preferred
Stock. Upon consummation of the Offering, the Redeemable Preferred Stock will be
redeemed for $15.8 million, using a portion of the net proceeds from the
Offering. See "Use of Proceeds."
As part of the 1997 Transactions and under the terms of the Stock Purchase
and Shareholders Agreement, dated October 15, 1997 (the "1997 Agreement"), among
TA Investors, McDonald Investors, the Founders, NAC Enterprises, Inc., CKCK
Enterprises, Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M. Conley
Charitable Remainder Trust and the Company, each of TA Investors and McDonald
Investors was granted certain demand and "piggyback" registration rights and
certain other preferential rights, including: (i) rights to participate in sales
of additional shares; and (ii) rights of first refusal and co-sale involving the
Company's securities. In addition, TA Investors, McDonald Investors, the Company
and the Founders entered into a voting agreement whereby the parties agreed to
vote all shares of the Company's capital stock held by them (and any other
securities over which the Founders exercise voting control) as to cause the
Board of Directors of the Company to include Messrs. Johnston and Schiciano (so
long as each remains in the employ of TA Associates) and one independent
director nominated by TA Associates. Except for the registration rights granted
to each of TA Investors and McDonald Investors, the preferential rights
contained in the 1997 Agreement terminate upon consummation of the Offering.
Also as part of the 1997 Transactions, the Company repurchased an aggregate
of 1,350,000 shares of Common Stock for $15.9 million from the Founders,
including: (i) 675,000 shares of Common Stock from NAC Enterprises, Inc., of
which the Annette M. Canitano Trust and the Nicholas A. Canitano Trust,
affiliates of Mr. and Mrs. Canitano, directors of the Company, are the sole
shareholders; (ii) 610,000 shares of Common Stock from CKCK Enterprises, Inc.,
of which the Karen M. Conley Trust and the Kenneth L. Conley Trust, affiliates
of
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<PAGE> 46
Mr. and Mrs. Conley, directors of the Company, are the sole shareholders; (iii)
32,500 shares of Common Stock from the Kenneth L. Conley Charitable Remainder
Trust, a charitable remainder trust established by Kenneth L. Conley, a director
of the Company; and (iv) 32,500 shares of Common Stock from the Karen M. Conley
Charitable Remainder Trust, a charitable remainder trust established by Karen M.
Conley, a director of the Company.
Upon the consummation of the 1997 Transactions, the Company paid Mr.
Minadeo an additional $205,000 in accordance with the terms of certain change of
control provisions contained in the documentation of the July 1997 repurchase of
shares of Common Stock from Mr. Minadeo.
Employment Agreement. The Company is party to an "at will" employment
agreement with Paul A. Farmer, pursuant to which Mr. Farmer serves as Chief
Financial Officer and Vice President of the Company. The agreement provides for
an annual base salary of $165,000, an annual bonus up to a maximum of 50% of
base salary to be determined by the Compensation Committee, benefits under the
Company's benefit plans and payment of all reasonable relocation costs incurred
by Mr. Farmer. The agreement also provides that upon the termination of Mr.
Farmer's employment with the Company, other than for cause or retirement, the
Company shall pay Mr. Farmer an amount equal to the greater of six months'
salary, or the value of his unvested restricted stock at the time of the
termination. Mr. Farmer is also subject to noncompetition, nondisclosure and
nonsolicitation covenants.
In May 1998, Mr. Farmer was issued 76,950 shares of restricted Common Stock
under the 1997 Equity and Performance Plan. Mr. Farmer paid the purchase price
for the restricted stock by executing and delivering to the Company a promissory
note (the "Note") in the principal amount of $359,356. The Note is due and
payable on June 30, 2004, and accrues interest on the unpaid principal amount at
6% per annum until the Note is paid in full. Accrued interest is payable in June
and December of each year during the term of the Note, including June 30, 2004.
The Note also becomes due and payable six months after any date on which Mr.
Farmer ceases to be employed for any reason by the Company. See
"Management -- Employee Benefit Plans."
Loans. Various other loans have periodically been made by the Company to
the Founders. In April 1997, the Company made loans to Nicholas A. and Annette
M. Canitano and Kenneth L. and Karen M. Conley each in an amount of $44,500. In
March 1998, the Company made loans to Mmes. Canitano and Conley, each in an
amount of $64,092. Each such loan bore interest at 10% and such loans have been
repaid in full.
Corporate Headquarters Lease. The Company leases its corporate headquarters
in Mayfield Heights, Ohio, from an entity that is 30% owned by the Founders with
rental payments of approximately $412,000 annually. The term of the lease, which
commenced in January 1998, expires in January 2003 and includes three five-year
renewal options. The Company believes that the terms of the lease are no less
favorable to the Company than those that could have been obtained from an
independent third party lessor at the time the lease was executed. See
"Business -- Property."
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<PAGE> 47
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of July 24,
1998, after giving effect to the conversion of Convertible Preferred Stock into
shares of Common Stock, by (i) each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock; (ii) each
of the Company's executive officers; (iii) each director of the Company; and
(iv) all directors and executive officers of the Company as a group. The address
of each of the officers and directors of the Company is c/o Conley, Canitano &
Associates, Inc., CCAi Renaissance Centre, 5800 Landerbrook Drive, Mayfield
Heights, Ohio 44124.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING (1) NUMBER AFTER OFFERING
--------------------- OF SHARES --------------------
NUMBER BEING NUMBER
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES PERCENT OFFERED OF SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Nicholas A. Canitano (2)................ 1,749,000 17.8% %
Kenneth L. Conley (3)................... 1,697,750 17.3
Karen M. Conley (4)..................... 1,397,750 14.2
Annette M. Canitano (5)................. 1,349,000 13.7
Paul A. Farmer (6)...................... 76,950 *
A. Bruce Johnston (7)................... 8,960 *
Kenneth A. Schiciano (8)................ 10,560 *
TA Associates, Inc. (9)................. 3,743,890 38.1
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
McDonald & Company Securities,
Inc.(10).............................. 110,110 1.1
Other Selling Shareholders as a group
( persons)(11)....................... [ ] * [ ]
All executive officers and directors as
a group (7 persons)................... 9,822,950 64.0%
</TABLE>
- ---------------
* Indicates beneficial ownership of less than 1.0% of the outstanding Common
Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Shares of Common Stock issuable upon the
exercise of stock options or exercisable within 60 days hereof are deemed
outstanding and to be beneficially owned by the person holding such option
for purposes of computing such person's percentage ownership, but are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Except for shares held jointly with a person's spouse
or subject to applicable community property laws, or as indicated in the
footnotes to this table, each shareholder identified in the table possesses
the sole voting and disposition power with respect to all shares of Common
Stock shown as beneficially owned by such shareholder.
(2) Nicholas A. Canitano has beneficial ownership of 400,000 shares of Common
Stock held in trusts for which he is trustee and has sole power of voting
and for which Annette M. Canitano, his wife, has sole power of disposition
and 400,000 shares held in trusts for which he is trustee and has sole
power of disposition. Except as noted, the shares shown do not include
shares owned by Annette M. Canitano.
(3) Kenneth L. Conley has beneficial ownership of 300,000 shares of Common
Stock held in trust for which he is trustee and has sole power of voting
and for which Karen M. Conley, his wife, has sole power of disposition,
400,000 shares held in trusts for which he has sole power of disposition
and 125,000 shares held in trust for which he has shared power of
disposition with Karen M. Conley. Except as noted, the shares shown do not
include shares owned by Karen M. Conley.
(4) Karen M. Conley has beneficial ownership of 300,000 shares of Common Stock
held in trust for which she is trustee and has sole power of disposition
and 125,000 shares held in trusts for which she has shared power of
disposition with Kenneth L. Conley. Except as noted, the shares shown do
not include shares owned by Kenneth L. Conley.
(5) Annette M. Canitano has beneficial ownership of 400,000 shares of Common
Stock held in trusts for which she is trustee and has sole power of
disposition and for which Nicholas A. Canitano, her husband, has sole power
of voting. Except as noted, the shares shown do not include shares owned by
Nicholas A. Canitano.
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<PAGE> 48
(6) All shares owned by Mr. Farmer are restricted Common Stock issued pursuant
to the Company's 1997 Equity and Performance Plan. See "Certain
Transactions."
(7) Includes 8,960 shares of Common Stock beneficially owned by Mr. Johnston
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,743,890 shares described in footnote (9) below and does
not include any shares beneficially owned by TA Associates, TA/Advent VIII
L.P. or Advent Atlantic and Pacific III, L.P., of which Mr. Johnston
disclaims beneficial ownership.
(8) Includes 10,560 shares of Common Stock beneficially owned by Mr. Schiciano
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,743,890 shares described in footnote (9) below and does
not include any shares beneficially owned by TA Associates, TA/Advent VIII
L.P. or Advent Atlantic and Pacific III, L.P., of which Mr. Schiciano
disclaims beneficial ownership.
(9) Includes shares of Common Stock beneficially owned by affiliates of TA
Associates as follows: (i) 61,980 shares held by TA Venture Investors
Limited Partnership; (ii) 3,100,070 shares held by TA/Advent VIII L.P.; and
(iii) 581,840 shares held by Advent Atlantic and Pacific III, L.P.
(10) Includes (i) 77,090 shares of Common Stock held by McDonald & Company
Securities, Inc.; (ii) 22,020 shares held by McD Venture Capital Fund,
L.P., an affiliate of McDonald & Company Securities, Inc.; and (iii) 11,000
shares held by GHK Investments, L.L.C., an affiliate of McDonald & Company
Securities, Inc.
(11) Each other Selling Shareholder beneficially owns less than 1% of the
outstanding shares of Common Stock.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the consummation of the Offering, the Articles of Incorporation will
provide that the Company may issue up to 45,000,000 shares of Common Stock, and
(i) 500,800 shares of preferred stock, par value $.01 per share, (ii) 5,000,000
shares of non-voting "preferred stock", no par value, and (iii) 5,000,000 shares
of voting preferred stock, no par value (collectively, the "Preferred Stock").
As of June 30, 1998, there were 9,822,950 shares of Common Stock issued and
outstanding which were held by 32 shareholders of record, and there were 250,400
shares of Convertible Preferred Stock issued and outstanding which were held by
six shareholders of record.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the shareholders and do not
have preemptive rights. The Articles of Incorporation do not provide for
cumulative voting for the election of directors. Subject to preferences that may
be applicable to any outstanding shares of Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors of the Company out of funds legally
available therefor. All outstanding shares of Common Stock are, and the Common
Stock to be sold in the Offering, when issued and paid for, will be, fully paid
and nonassessable. In the event of any liquidation, dissolution or winding-up of
the affairs of the Company, holders of Common Stock are entitled to share
ratably in the assets of the Company remaining after payment or provision for
payment of all of the Company's debts and obligations and liquidation payments
to holders of outstanding shares of Preferred Stock. See "Dividend Policy" and
"Description of Capital Stock -- Ohio Law and Certain Articles of Incorporation
and Code of Regulations Provisions; Anti-Takeover Effects."
PREFERRED STOCK
Shares of Preferred Stock may be issued by the Company in series with such
preferences and designations as the Board of Directors of the Company may from
time to time determine. The Board of Directors of the Company can, without
shareholder approval, issue Preferred Stock with voting, dividend, liquidation
and conversion rights, which could dilute the voting strength of the holders of
the Common Stock and may assist management in impeding a takeover or attempted
change in control. In connection with the 1997 Transactions, the Board of
Directors of the Company created the Convertible Preferred Stock. Immediately
prior to consummation of the Offering, the 250,400 issued and outstanding shares
of Convertible Preferred Stock will automatically convert into 2,504,000 shares
of Common Stock and 250,400 shares of Redeemable Preferred Stock. Upon
consummation of the Offering, all 250,400 then issued and outstanding shares of
Redeemable Preferred Stock will immediately be redeemed by the Company for
approximately $15.8 million using a portion
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<PAGE> 49
of the net proceeds of the Offering. As a result, subsequent to the Offering,
there will be no shares of Preferred Stock outstanding. See "Use of Proceeds."
CERTAIN ARTICLES OF INCORPORATION AND CODE OF REGULATIONS PROVISIONS AND OHIO
LAW; ANTI-TAKEOVER EFFECTS
Certain Articles of Incorporation and Code of Regulations Provisions. The
Articles of Incorporation provide for a classified Board of Directors. Other
than those who may be expressly elected by virtue of the terms of any preferred
stock designation, the directors are divided into two classes. The directors are
elected for terms that are staggered so that the terms of one-half of the
directors expire each year. Except as may be provided in any preferred stock
designation, the Code of Regulations do not permit the shareholders to remove a
director.
The above-described provisions of the Articles of Incorporation and Code of
Regulations may have certain anti-takeover effects. Such provisions, in addition
to the provisions described below and the possible issuance of Preferred Stock
discussed above, may make it more difficult for other persons, without the
approval of the Company's Board of Directors, to make a tender offer or
acquisitions of substantial amounts of the Common Stock or to launch other
takeover attempts that a shareholder might consider to be in such shareholder's
best interests.
Ohio Law. The Company is subject to several anti-takeover provisions under
Ohio law that apply to Ohio public corporations. These provisions make it more
difficult for other persons, without the approval of the Company's Board of
Directors, to make a tender offer or acquisitions of substantial amounts of the
Common Stock or to launch other takeover attempts that a shareholder might
consider in such shareholder's best interests.
Ohio Control Share Acquisition Act. Under Ohio's Control Share Acquisition
Act (the "Acquisition Act"), any "control share acquisition" of an Ohio public
corporation may be made only with the prior authorization of the shareholders of
the corporation in accordance with the provisions of the Acquisition Act. A
"control share acquisition" is defined under the Acquisition Act to mean the
acquisition, directly or indirectly, by any person of shares of a public
corporation that, when added to all other shares of the corporation such person
owns, would entitle such person, directly or indirectly, to exercise voting
power in the election of directors within the following ranges: more than 20%,
more than 33% and a majority.
The Acquisition Act further specifies that the shareholders of the
corporation must approve the proposed control share acquisition by certain
percentages at a special meeting of shareholders at which a quorum is present.
In order to comply with the Acquisition Act, the acquiring person may only
acquire the stock of the Ohio public corporation upon the affirmative vote of:
(i) a majority of the voting power of the corporation that is represented in
person or by proxy at the special meeting; and (ii) a majority of the voting
power of the corporation that is represented in person or by proxy at the
special meeting, excluding those shares of the corporation deemed to be
"interested shares" for purposes of the Securities Act.
"Interested shares" are defined under the Securities Act to mean shares in
respect of which the voting power is controlled by any of the following persons:
(i) an acquiring person; (ii) any officer of the Ohio public corporation; and
(iii) any employee who is also a director of the corporation. "Interested
shares" also include shares of the corporation that are acquired by any person
after the date of the first public disclosure of the proposed acquisition and
prior to the record date for the applicable special meeting, if either (i) the
aggregate consideration paid by such person, and any person acting in concert
with him or her, for such shares of the Ohio public corporation exceeds $250,000
or (ii) the number of shares acquired by such person, and any person acting in
concert with him or her, exceeds 1.5% of the outstanding shares of the
corporation, or if shares are acquired after the record date for the applicable
special meeting accompanied by the voting power for such special meeting.
Ohio Merger Moratorium Act. The Company is also subject to Ohio's Merger
Moratorium Act. The Merger Moratorium Act generally prohibits a wide range of
business combinations and other transactions (including mergers, consolidations,
asset sales, loans, disproportionate distributions of property and
disproportionate issuances or transfers of shares or rights to acquire shares)
between an Ohio corporation and a person that owns beneficially (within the
meaning of the Securities Act), alone or with other related parties, shares
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<PAGE> 50
representing at least 10% of the voting power of the corporation (an "Interested
Shareholder") for a period of three years after such person becomes an
Interested Shareholder, unless, prior to the date that the Interested
Shareholder became such, the directors approve either the transaction or the
acquisition of the corporation's shares that resulted in the person becoming an
Interested Shareholder. Following the three-year moratorium period, the
corporation may engage in covered transactions with an Interested Shareholder
only if, among other things, (i) the transaction receives the approval of the
holders of two-thirds of all the voting shares and the approval of the holders
of a majority of the voting shares held by persons other than an Interested
Shareholder or (ii) the remaining shareholders receive an amount for their
shares equal to the higher of the highest amount paid in the past by the
Interested Shareholder for the corporation's shares or the amount that would be
due the shareholders if the corporation were to dissolve.
Ohio Control Bid Statute. The Company is also subject to Ohio's Control Bid
Statute. Ohio's Control Bid Statute provides that no offeror may make a "control
bid" pursuant to a tender offer or a request or invitation for tenders unless,
on the day the offeror commences a control bid, it files with the Ohio Division
of Securities (the "Securities Division") and the target company certain
information in respect of the offeror, his or her ownership of the corporation's
shares and his or her plans for the corporation (including, among other things,
plans to terminate employee benefits plans, close any plant or facility or
reduce the work force). If the Securities Division determines that the offeror's
disclosures are inadequate, it must act within three calendar days from the date
of the offeror's filing to issue a suspension order. If a bid is suspended, a
hearing must be held within 10 calendar days from the date of the Securities
Division's suspension order. The hearing procedure must be completed no later
than 16 calendar days after the date on which the suspension was imposed.
A "control bid" under Ohio's Control Bid Statute is defined as the purchase
of or an offer to purchase an equity security of an issuer with certain
connections to Ohio from a resident of Ohio if (i) after the purchase of such
security, the offeror would directly or indirectly be the beneficial owner of
more than 10% of any class of the issued and outstanding equity securities of
the issuer or (ii) the offeror as the issuer, there is a pending control bid by
a person other than the issuer and the number of issued and outstanding shares
of the corporation will be reduced by more than 10%.
Fiduciary Duty Statute. Ohio law also provides for the right of the Board
of Directors to consider the interests of various constituencies, including
employees, customers, suppliers and creditors of the Company, as well as the
communities in which the Company is located, in addition to the interest of the
Company and its shareholders, in discharging their duties in determining what is
in the Company's best interests.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Generally, a director of an Ohio corporation will not be found to have
violated his fiduciary duties unless there is proof by clear and convincing
evidence that the director has not acted in good faith, in a manner such
director reasonably believes to be in or not opposed to the best interests of
the corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In general, a director is liable
for monetary damages for any action or omission as a director only if it is
approved by clear and convincing evidence that such act or omission was
undertaken either with deliberate intent to cause injury to the corporation or
with reckless disregard for the best interests of the corporation.
Under Ohio law, a corporation must indemnify its directors, as well as its
offices, employees and agents, against expenses where any such person is
successful on the merits or otherwise in defense of an action, suit or
proceeding. A corporation may indemnify such persons in actions, suits and
proceedings (including derivative suits) if the individual has acted in good
faith and in a manner that such director believes to be in or not opposed to the
best interests of the corporation. In the case of a criminal proceeding, the
individual must also have no reasonable cause to believe that his or her conduct
was unlawful. Indemnification may be made only if ordered by a court or if
authorized in a specific case upon a determination that the applicable standard
of conduct has been met. Such a determination may be made by a majority of the
disinterested directors, by independent legal counsel or by the shareholders. In
order to obtain reimbursement for expenses in advance of the final disposition
of any action, the individual must provide an undertaking to repay the amount if
it is ultimately determined that such director is not entitled to be
indemnified.
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In general, Ohio law requires that all expenses, including attorneys fees,
incurred by a director in defending any action, suit or proceeding to be paid by
the corporation as they are incurred in advance of final disposition if the
director agrees to repay such amounts if it is proved by clear and convincing
evidence that his action or omission was undertaken with deliberate intent to
cause injury to the corporation or with reckless disregard for the best
interests of the corporation and if the director reasonably cooperates with the
corporation concerning the action, suit or proceeding.
The Code of Regulations provides for indemnification, which is coextensive
with that permitted under Ohio law. These provisions do not alter a director's
liability under federal securities laws. The Code of Regulations authorizes the
Company to enter into indemnification agreements with each present and future
director and such officers, employees or agents as specified in the Code of
Regulations. The Code of Regulations also authorizes the Company to enter into
agreements to indemnify such persons to the maximum extent permitted by
applicable law.
REGISTRATION RIGHTS
Under the terms of the 1997 Agreement, at any time after the earlier of
December 31, 1998 or the effective date of an initial public offering by the
Company, the holders of at least 50% of registrable securities (as defined in
the 1997 Agreement), including any shares of Common Stock or any securities
convertible into shares of Common Stock, have the right to require the Company
to register under the Securities Act any or all of such registrable securities,
subject to the conditions and limitations contained in the 1997 Agreement. In
addition, under the terms of the 1997 Agreement, each of TA Investors and
McDonald Investors was granted demand registration rights once the Company
becomes eligible to register securities on Form S-3 under the Securities Act,
subject to conditions and limitations contained in the 1997 Agreement. Also,
each of TA Investors and McDonald Investors was granted certain "piggyback"
registration rights, subject to the conditions and limitations contained in the
1997 Agreement, at any time that the Company undertakes a public offering.
In connection with the KLA acquisition, the Company entered into Warrant
Agreements, dated April 3, 1998 (the "1998 Warrant Agreements") with each of
Ronnie Crumpler, Gary Levey and Anthony Kelly (individually, a "Warrant Holder"
and collectively, the "Warrant Holders") granting the Warrant Holders the right
to purchase an aggregate of 195,266 shares of Common Stock at $0.001 per share.
Upon consummation of the Offering, the Warrants will be exercisable until April
2008. In addition, under the 1998 Warrant Agreements, each Warrant Holder was
granted certain "piggyback" registration rights, subject to the conditions and
limitations contained in the 1998 Warrant Agreements, at any time the Company
undertakes a public offering.
Subsequent to the KLA acquisition, the Company granted the KLA Options to
certain employees of the Company formerly employed by KLA (individually, an
"Option Holder" and collectively, the "Option Holders"). Pursuant to the Option
Agreements (the "Option Agreements" and together with the 1997 Agreement and the
1998 Warrant Agreements, the "Registration Agreements"), the Option Holders were
granted options to purchase an aggregate of 64,734 shares of Common Stock at a
price of $0.001 per share. Upon the consummation of the Offering, the options
will be exercisable. In addition, each Option Holder was granted certain
"piggyback" registration rights, subject to the conditions and limitations
contained in the Option Agreements, at any time the Company undertakes a public
offering.
Pursuant to the Registration Agreements, but subject to the conditions and
limitations set forth in such agreements, the Company is required to: (i) pay
registration expenses (exclusive of underwriting discounts and commissions) in
connection with certain registrations of the Company's securities; (ii) use its
best efforts to effect such registrations; and (iii) indemnify TA Investors,
McDonald Investors, the Warrant Holders and the Option Holders, including
certain of their affiliates, against certain liabilities, including liabilities
under the Securities Act, in connection with the registration of their shares of
Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is National
City Bank in Cleveland, Ohio.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have an aggregate of
shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants to purchase shares of Common Stock. Of these shares of Common Stock,
the shares sold in the Offering are freely tradeable without
restriction or further registration under the Securities Act, except that any
Shares held by "affiliates" of the Company, as that term is defined in Rule 144,
may generally be sold only in compliance with the limitations of Rule 144
described below.
SALES OF RESTRICTED SHARES
The remaining shares of Common Stock are deemed "restricted
securities" as defined under Rule 144. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act. Subject to the Lock-Up Agreements
described below, additional shares of Common Stock will be available for sale in
the public market (subject in the case of shares held by affiliates to
compliance with certain volume restrictions) as follows: (i)
shares will be available for immediate sale in the public market on the date of
this Prospectus, (ii) shares will be eligible for sale 90 days
after the date of this Prospectus, (iii) shares will be eligible
for sale upon the expiration of the Lock-up Agreements 180 days after the date
of this Prospectus, and (iv) shares will be eligible for sale
under Rule 144 upon the expiration of the applicable one-year holding periods.
In general, under Rule 144, a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares of Common Stock that
does not exceed the greater of (i) 1% of the then outstanding shares of Common
Stock (approximately shares immediately after the Offering) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding the date on which notice of such sale is filed, subject
to certain restrictions. In addition, a person, who is not deemed to have been
an affiliate of the Company at any time during the 90 days preceding a sale and
who has beneficially owned the shares proposed to be sold for at least two
years, would be entitled to sell such shares under Rule 144(k) without regard to
the volume limitations described above.
An employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701 under the Securities
Act, which permits non-affiliates to sell their Rule 701 shares without having
to comply with the public information, holding period, volume limitation or
notice provisions of Rule 144 and permits affiliates to sell their Rule 701
shares without having to comply with Rule 144's holding period restrictions, in
each case commencing 90 days after the date of this Prospectus.
EFFECT OF SALES OF SHARES
Prior to the Offering, there has been no public market for the Common
Stock, and no precise prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares of Common
Stock for sale will have on the market price of the Common Stock prevailing from
time to time. Nevertheless, sale of substantial amounts of Common Stock in the
public market could adversely effect prevailing market prices and could impair
the Company's future ability to raise capital through the sale of its equity
securities.
LOCK-UP AGREEMENTS
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to
52
<PAGE> 53
be settled by the delivery of Common Stock, or such other securities, in cash or
otherwise) for a period of 180 days after the date of this Prospectus without
the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, during such period, the Company has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and certain shareholders of Company (including the Selling
Shareholders) has agreed not to make any demand for, or exercise any right with
respect to, the registration of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock without
Donaldson, Lufkin & Jenrette Securities Corporation's prior written consent.
53
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), BancAmerica Robertson Stephens, Lehman Brothers Inc. and McDonald &
Company Securities, Inc. (collectively, the "Representatives"), have severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
BancAmerica Robertson Stephens..............................
Lehman Brothers Inc.........................................
McDonald & Company Securities, Inc..........................
Total.............................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company and certain shareholders of the Company have granted to the
Underwriters an option, exercisable within 30 days after the date of this
Prospectus, to purchase, from time to time, in whole or in part, up to an
aggregate of additional shares of Common Stock at the initial public
offering price less underwriting discounts and commissions. The Underwriters may
exercise such option solely to cover overallotments, if any, made in connection
with the Offering. To the extent that the Underwriters exercise such option,
each Underwriter will become obligated, subject to certain conditions, to
purchase its pro rata portion of such additional shares based on such
Underwriter's percentage underwriting commitment as indicated in the preceding
table.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise) for a period of 180 days after the date of this Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, during such period, the Company has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and certain shareholders of Company
54
<PAGE> 55
(including the Selling Shareholders) has agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the prospects for future earnings of the Company,
the recent market prices of securities of generally comparable companies and the
general condition of the securities markets at the time of the Offering.
Other than in the United States, no action has been taken by the Company,
the Selling Shareholders or the Underwriters that would permit a public offering
of the shares of Common Stock offered hereby in any jurisdiction where action
for that purpose is required. The shares of Common Stock offered hereby may not
be offered or sold, directly or indirectly, nor may this Prospectus or any other
offering material or advertisements in connection with the offer and sale of any
such shares of Common Stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of such jurisdiction. Persons into whose possession this
Prospectus comes are advised to inform themselves about and to observe any
restrictions relating to the Offering and the distribution of this Prospectus.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of Common Stock offered hereby in any jurisdiction in
which such an offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
LEGAL MATTERS
The legality of the issuance of the Shares offered hereby will be passed
upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio. Certain
legal matters will be passed upon for the Underwriters by Brobeck, Phleger &
Harrison LLP, New York, New York.
EXPERTS
The Financial Statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997
included herein and elsewhere in the Registration Statement and the Financial
Statements of KLA as of December 31, 1996 and 1997, and for each of the years in
the two-year period ended December 31, 1997 included herein and elsewhere in the
Registration Statement, have been included herein in reliance upon the reports
of PricewaterhouseCoopers LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission Registration Statements on Form
S-1 under the Securities Act, with respect to the Shares. This Prospectus does
not contain all of the information set forth in the Registration Statements,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is made to
55
<PAGE> 56
the Registration Statements, including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract,
agreement or any other document referred to herein are not necessarily complete;
with respect to each such contract, agreement or document filed as an exhibit to
the Registration Statements, reference is made to such exhibit for a more
complete description of the matters involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statements,
including the exhibits and schedules thereto, may be inspected without charge at
the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of either of them or any part thereof may be obtained from such
office, upon payment of the fees prescribed by the Commission. The Registration
Statements, including the exhibits and schedules thereto, are also available on
the Commission's Web site at http://www.sec.gov.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy materials and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Company's Common Stock is listed in the Nasdaq
National Market, and such reports, proxy materials and other information can
also be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20549.
Copies of reports, proxy and information statements and other information
regarding registrants that file electronically are available on the Commission's
Web site.
56
<PAGE> 57
CONLEY, CANITANO & ASSOCIATES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
REGISTRANT
Conley, Canitano & Associates, Inc.
Report of Independent Certified Public Accountants........ F-2
Balance Sheets -- December 31, 1996 and 1997, June 30,
1998 (unaudited) and pro forma June 30, 1998
(unaudited)............................................ F-3
Statements of Income -- For the years ended December 31,
1995, 1996 and 1997 and for the six months ended June
30, 1997 and 1998 (unaudited).......................... F-4
Statements of Shareholders' Equity (Deficit) -- For the
years ended December 31, 1995, 1996 and 1997 and for
the six months ended June 30, 1998 (unaudited)......... F-5
Statements of Cash Flows -- For the years ended December
31, 1995, 1996 and 1997 and for the six months ended
June 30, 1997 and 1998 (unaudited)..................... F-6
Notes to Financial Statements............................. F-7
BUSINESS ACQUIRED IN 1998
Kelly-Levey & Associates, Inc.
Report of Independent Certified Public Accountants........ F-16
Balance Sheets -- December 31, 1996 and 1997 and March 31,
1998 (unaudited)....................................... F-17
Statements of Operations -- For the years ended December
31, 1996 and 1997 and for the three months ended March
31, 1997 and 1998 (unaudited).......................... F-18
Statements of Shareholders' Equity (Deficit) -- For the
years ended December 31, 1996 and 1997 and for the
three months ended March 31, 1998 (unaudited).......... F-19
Statements of Cash Flows -- For the years ended December
31, 1996 and 1997 and for the three months ended March
31, 1997 and 1998 (unaudited).......................... F-20
Notes to Financial Statements............................. F-21
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
CONLEY, CANITANO & ASSOCIATES, INC.
We have audited the accompanying balance sheets of Conley, Canitano &
Associates, Inc. as of December 31, 1996 and 1997, and the related statements of
income, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended 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 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 Conley, Canitano &
Associates, Inc. as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
Cleveland, Ohio
July 24, 1998
F-2
<PAGE> 59
CONLEY, CANITANO & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1998
------------------------- --------------------------
1996 1997 ACTUAL PRO FORMA
(NOTE 1)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 361,692 $ 2,174,331 $ 2,009,140 $ 2,009,140
Accounts receivable, less allowance for doubtful
accounts of $110,000 in 1996, $175,000 in 1997
and $330,000 in 1998........................... 2,793,583 4,281,130 8,483,070 8,483,070
Deferred taxes................................... 154,335 383,877 520,804 520,804
Other............................................ 67,969 87,556 180,991 180,991
---------- ------------ ------------ -----------
Total current assets........................... 3,377,579 6,926,894 11,194,005 11,194,005
Goodwill, net...................................... -- -- 7,431,122 7,431,122
Property and equipment, net........................ 151,035 549,351 1,689,172 1,689,172
Other.............................................. 168,145 235,717 687,806 250,306
---------- ------------ ------------ -----------
Total assets................................... $3,696,759 $ 7,711,962 $ 21,002,105 $20,564,605
========== ============ ============ ===========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Line of credit................................... $ 704,417 $ 697,616 $ 8,285,000 $ 8,285,000
Current portion of long-term obligations......... -- 100,000 374,400 374,400
Accounts payable................................. 237,354 456,519 746,320 746,320
Accrued payroll, taxes and benefits.............. 1,746,630 2,773,389 4,053,806 4,053,806
Income taxes payable............................. 236,570 468,514 55,670 55,670
Other............................................ 23,819 312,306 835,695 835,695
---------- ------------ ------------ -----------
Total current liabilities...................... 2,948,790 4,808,344 14,350,891 14,350,891
Deferred taxes..................................... 24,714 31,593 35,643 35,643
Long-term obligations, less current portion........ -- 196,303 748,800 748,800
---------- ------------ ------------ -----------
Total liabilities.............................. 2,973,504 5,036,240 15,135,334 15,135,334
---------- ------------ ------------ -----------
Commitments and contingencies...................... -- -- -- --
Redeemable securities (Note 9)..................... -- 15,969,707 18,197,382 15,750,160
---------- ------------ ------------ -----------
Shareholders' equity (deficit):
Preferred stock (Note 14)........................ -- -- -- --
Common stock (Note 14)........................... 8,168 7,595 8,364 10,868
Additional paid-in capital....................... -- -- 358,587 358,587
Retained earnings (accumulated deficit).......... 715,087 (13,301,580) (12,338,206) (10,330,988)
---------- ------------ ------------ -----------
723,255 (13,293,985) (11,971,255) (9,961,533)
Less: note receivable from shareholder........... -- -- (359,356) (359,356)
---------- ------------ ------------ -----------
Total shareholders' equity (deficit)........... 723,255 (13,293,985) (12,330,611) (10,320,889)
---------- ------------ ------------ -----------
Total liabilities and shareholders' equity
(deficit).................................... $3,696,759 $ 7,711,962 $ 21,002,105 $20,564,605
========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 60
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................... $11,106,864 $17,993,647 $32,218,405 $14,334,382 $22,023,760
Cost of revenues............ 6,984,763 10,978,124 19,222,072 8,190,510 13,327,091
----------- ----------- ----------- ----------- -----------
Gross profit........... 4,122,101 7,015,523 12,996,333 6,143,872 8,696,669
Selling, general and
administrative expenses... 3,037,741 4,204,124 6,554,681 2,980,208 4,357,075
Incentive compensation...... 678,000 1,647,000 2,700,000 1,259,000 1,590,579
Acquisition compensation.... -- -- -- -- 362,500
Depreciation and
amortization.............. 26,307 30,166 35,190 16,369 175,007
----------- ----------- ----------- ----------- -----------
Income from
operations........... 380,053 1,134,233 3,706,462 1,888,295 2,211,508
Interest income............. 2,745 5,809 19,532 7,543 15,262
Interest expense............ (37,408) (88,310) (107,422) (55,744) (131,446)
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes..... 345,390 1,051,732 3,618,572 1,840,094 2,095,324
Provision for income
taxes..................... 180,419 460,629 1,494,676 760,000 904,913
----------- ----------- ----------- ----------- -----------
Net income............. $ 164,971 $ 591,103 $ 2,123,896 $ 1,080,094 $ 1,190,411
=========== =========== =========== =========== ===========
Accretion to redemption
value of redeemable
securities................ -- -- (92,423) -- (227,037)
----------- ----------- ----------- ----------- -----------
Net income available to
common
shareholders......... $ 164,971 $ 591,103 $ 2,031,473 $ 1,080,094 $ 963,374
=========== =========== =========== =========== ===========
Net income per share:
Basic..................... $ $ $ $ $
Diluted................... $ $ $ $ $
Weighted average shares
outstanding:
Basic.....................
Diluted...................
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 61
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK NOTE
(AT STATED VALUE) ADDITIONAL RETAINED RECEIVABLE TREASURY STOCK
-------------------- PAID-IN EARNINGS FROM ------------------------
SHARES AMOUNT CAPITAL (DEFICIT) SHAREHOLDER SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994......... 7,255,130 $ 8,168 $ -- $ (40,987) $ -- -- $ --
Net income......................... 164,971
--------- -------- -------- ------------ --------- ---------- -----------
Balance, December 31, 1995......... 7,255,130 8,168 -- 123,984 -- -- --
Net income......................... 591,103
--------- -------- -------- ------------ --------- ---------- -----------
Balance, December 31, 1996......... 7,255,130 8,168 -- 715,087 -- -- --
Purchase and retirement of common
stock............................ (509,130) (573) (170,856)
Treasury shares purchased.......... (1,350,000) (15,877,284)
Redeemable securities issued....... (15,877,284) 1,350,000 15,877,284
Accretion to redemption value of
redeemable securities............ (92,423)
Net income......................... 2,123,896
--------- -------- -------- ------------ --------- ---------- -----------
Balance, December 31, 1997......... 6,746,000 7,595 -- (13,301,580) -- -- --
Sale of shares to officer
(unaudited)...................... 76,950 769 358,587
Note receivable from shareholder
(unaudited)...................... (359,356)
Accretion to redemption value of
redeemable securities
(unaudited)...................... (227,037)
Net income (unaudited)............. 1,190,411
--------- -------- -------- ------------ --------- ---------- -----------
Balance, June 30, 1998
(unaudited)...................... 6,822,950 $ 8,364 $358,587 $(12,338,206) $(359,356) -- $ --
========= ======== ======== ============ ========= ========== ===========
Pro forma balance, June 30, 1998
(Note 1) (unaudited)............. 9,326,950 $ 10,868 $358,587 $(10,330,988) $(359,356) -- $ --
========= ======== ======== ============ ========= ========== ===========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
(DEFICIT)
<S> <C>
Balance, December 31, 1994......... $ (32,819)
Net income......................... 164,971
------------
Balance, December 31, 1995......... 132,152
Net income......................... 591,103
------------
Balance, December 31, 1996......... 723,255
Purchase and retirement of common
stock............................ (171,429)
Treasury shares purchased.......... (15,877,284)
Redeemable securities issued....... --
Accretion to redemption value of
redeemable securities............ (92,423)
Net income......................... 2,123,896
------------
Balance, December 31, 1997......... (13,293,985)
Sale of shares to officer
(unaudited)...................... 359,356
Note receivable from shareholder
(unaudited)...................... (359,356)
Accretion to redemption value of
redeemable securities
(unaudited)...................... (227,037)
Net income (unaudited)............. 1,190,411
------------
Balance, June 30, 1998
(unaudited)...................... $(12,330,611)
============
Pro forma balance, June 30, 1998
(Note 1) (unaudited)............. $(10,320,889)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 62
CONLEY, CANITANO & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................... $ 164,971 $ 591,103 $ 2,123,896 $ 1,080,094 $ 1,190,411
Adjustments to reconcile net
income to net cash (used in)
provided by operating
activities:
Depreciation and
amortization.............. 26,307 30,166 35,190 16,369 175,007
Deferred taxes.............. (170,899) (82,556) (222,663) (56,000) (132,877)
Incentive option
amortization.............. -- -- -- -- 62,500
Change in assets and
liabilities:
Accounts receivable....... (907,218) (1,147,063) (1,487,547) (1,244,810) (2,039,983)
Other assets.............. 60,649 (58,534) (87,066) (284,630) (102,386)
Accounts payable.......... 132,139 (66,563) 219,165 322,634 (697,008)
Accrued payroll, taxes and
benefits............... 575,076 789,965 1,026,759 108,874 (193,316)
Income taxes payable...... 76,312 139,023 231,944 442,324 (314,144)
Other liabilities......... (76,498) 4,175 288,487 71,067 448,389
----------- ------------ ------------ ------------ ------------
Net cash (used in)
provided by operating
activities........... (119,161) 199,716 2,128,165 455,922 (1,603,407)
----------- ------------ ------------ ------------ ------------
Cash flows from investing
activities:
Purchase of property and
equipment................... (78,708) (51,704) (433,506) (30,876) (947,606)
Acquisition of KLA............ -- -- -- -- (3,905,259)
----------- ------------ ------------ ------------ ------------
Net cash used in
investing
activities........... (78,708) (51,704) (433,506) (30,876) (4,852,865)
----------- ------------ ------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from line of
credit...................... 7,920,000 18,680,695 28,785,000 14,915,300 19,785,490
Payments on line of credit.... (7,707,688) (18,462,829) (28,791,801) (14,642,523) (13,198,106)
(Payments on) proceeds from
long-term obligations....... -- -- 296,303 -- (296,303)
Net proceeds from sale of
redeemable securities....... -- -- 15,877,284 -- --
Purchase of common stock...... -- -- (16,048,713) -- --
Other......................... (24,000) (104,104) (93) (88,999) --
----------- ------------ ------------ ------------ ------------
Net cash provided by
financing
activities........... 188,312 113,762 117,980 183,778 6,291,081
----------- ------------ ------------ ------------ ------------
Net (decrease) increase in cash
and cash equivalents.......... (9,557) 261,774 1,812,639 608,824 (165,191)
Cash and cash equivalents, at
beginning of period........... 109,475 99,918 361,692 361,692 2,174,331
----------- ------------ ------------ ------------ ------------
Cash and cash equivalents, at
end of period................. $ 99,918 $ 361,692 $ 2,174,331 $ 970,516 $ 2,009,140
=========== ============ ============ ============ ============
Supplemental disclosure of cash
flow information:
Cash paid during the period
for:
Interest.................... $ 37,711 $ 92,520 $ 108,616 $ 37,711 $ 81,446
=========== ============ ============ ============ ============
Taxes....................... $ 270,446 $ 431,009 $ 1,485,395 $ 270,446 $ 1,346,934
=========== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 63
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at and for the Six Months
Ended June 30, 1997 and 1998 and for Pro Forma Information are Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Conley, Canitano & Associates, Inc. (the "Company") is a provider of rapid
implementations of Enterprise Resource Planning applications. The Company also
offers its clients a comprehensive range of related services. The Company
provides its services predominately in the United States and Canada. For the
years ended December 31, 1995, 1996 and 1997, approximately 55%, 69% and 75%,
respectively, of the Company's revenues were derived from engagements in which
the Company implemented SAP applications. For the six months ended June 30, 1997
and 1998, revenues derived from SAP implementations approximated 76% and 77%,
respectively. During the six months ended June 30, 1998, one of the Company's
clients accounted for approximately 12% of the Company's revenues. The Company's
results of operations include those of Kelly-Levey & Associates, Inc. ("KLA")
since April 8, 1998 (See Note 12).
Interim Unaudited Financial Information
The interim financial statements of the Company as of June 30, 1998 and for
the six month periods ended June 30, 1997 and 1998 have been prepared without
audit. These interim financial statements reflect all normal and recurring
adjustments, which in the opinion of Company management, are necessary for a
fair presentation of the financial position of the Company and its results of
operations for the interim periods set forth herein. The results for the six
months ended June 30, 1998 are not necessarily indicative of the results to be
expected for the full year.
Revenue Recognition
Revenues are primarily recognized as services are performed. Accounts
receivable includes services performed but not yet billed of $184,507 and
$417,996 as of December 31, 1996 and 1997, respectively, and $1,100,830 as of
June 30, 1998.
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 may differ from those estimates.
Cash and Cash Equivalents
The Company considers all restricted cash and money market funds with an
original maturity of three months or less to be cash equivalents. The carrying
amount of these instruments approximates fair value as of December 31, 1996 and
1997 and June 30, 1998.
All lockbox receipts are deposited in a restricted bank account and are
applied the following banking day to the asset based operating line of credit.
If no balance exists on the line of credit, the restricted cash is transferred
to the Company's unrestricted bank account the following banking day. Restricted
cash was $20,524 and $143,692 as of December 31, 1996 and 1997, respectively.
Effective April 8, 1998, there were no restrictive cash requirements.
Since 1997, the Company maintains a bank account, in accordance with a
contractual agreement with a payroll service company, to provide funding for its
current payroll wages and taxes. As of December 31, 1997 and June 30, 1998, the
restricted balance in this account was $851,819 and $714,009, respectively.
F-7
<PAGE> 64
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding accounts receivable.
Amounts related to doubtful accounts that were charged to expense for the
years ended December 31, 1995, 1996 and 1997 totaled $48,835, $40,000 and
$108,577, respectively, and for the six months ended June 30, 1997 and 1998
totaled $50,000 and $30,000, respectively.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
Depreciation is provided using accelerated and straight-line methods over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures........................ 10 years
Computer equipment and software............... 3 to 6 years
Leasehold improvements........................ 10 years
</TABLE>
Goodwill
Goodwill resulting from the acquisition of KLA is amortized over 20 years
using the straight-line method. For the quarter ended June 30, 1998,
amortization expense was $93,212. The Company will continually evaluate whether
later events and circumstances have occurred that indicate the remaining
goodwill may warrant revision.
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of the Company's
assets and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws. Valuation allowances have been established when
necessary to reduce tax assets to the amount expected to be realized.
Earnings Per Share
Computations of basic and diluted earnings per share of common stock have
been made in accordance with the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings
Per Share. Under SFAS No. 128, basic earnings per share excludes dilution and is
computed by dividing net income available to common shareholders by the weighted
average number of common shares outstanding for the period. The weighted average
number of common shares for the basic earnings per common share calculation
includes (i) all Common Stock outstanding during each period presented, (ii) all
Common Stock options and warrants issued within one year prior to the initial
public filing with a price below the estimated initial public offering price,
reduced by the number of shares which could be purchased with proceeds from the
exercise of the options and warrants and (iii) the Common Stock issuable upon
the conversion of the Company's Convertible Preferred Stock. Diluted earnings
per share assumes conversion of the Convertible Preferred Stock, the elimination
of any Preferred Stock dividend requirement and the issuance of Common Stock for
all other potentially dilutive equivalent shares outstanding.
F-8
<PAGE> 65
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Earnings per common share ("EPS") were computed as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Net income................................. $ 164,971 $ 591,103 $ 2,123,896 $ 1,080,094 $ 1,190,411
Accretion to redemption value.............. -- -- (92,423) -- (227,037)
----------- ----------- ----------- ----------- -----------
Net income available to common
shareholders............................. $ 164,971 $ 591,103 $ 2,031,473 $ 1,080,094 $ 963,374
=========== =========== =========== =========== ===========
Basic EPS:
Weighted average common shares
outstanding............................
=========== =========== =========== =========== ===========
Earnings per share....................... $ $ $ $ $
=========== =========== =========== =========== ===========
Diluted EPS:
Weighted average common shares
outstanding............................
Shares applicable to dilutive options and
warrants...............................
----------- ----------- ----------- ----------- -----------
Shares applicable to diluted earnings....
=========== =========== =========== =========== ===========
Earnings per share....................... $ $ $ $ $
=========== =========== =========== =========== ===========
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and other
liabilities, a line of credit, and long-term debt. The fair value of these
financial instruments approximates their carrying value.
Accretion to Redemption Value of the Redeemable Securities
As more fully discussed in Note 9, redeemable securities includes 250,400
shares of Convertible Preferred Stock and 1,350,000 shares of Common Stock with
put rights. The 250,400 shares of Convertible Preferred Stock are convertible
into 250,400 shares of Redeemable Preferred Stock and 2,504,000 shares of Common
Stock with put rights, which can be exercised at various times after 2001, 2002
and 2003. All such rights terminate upon the consummation of the proposed
initial public offering of the Company's Common Stock (the "Offering").
Accretion to redemption value represents accretion to the redemption dates
utilizing the interest method from October 1997 (See Note 9).
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). These warrants and compensatory options may be put to
the Company for an aggregate of $2,000,000. All such put rights terminate upon
the consummation of the Offering. The warrants are exercisable 24 months after
the closing of the KLA acquisition or upon the consummation of the Offering. The
acquisition compensation expense related to the compensatory options is being
amortized over a 24 month vesting period. The compensatory options vest upon the
consummation of the Offering.
Total accretion for the year ended December 31, 1997 and for the six months
ended June 30, 1998 was $92,423 and $227,037, respectively.
Unaudited Pro Forma Balance Sheet
In conjunction with the Offering, all of the 250,400 shares of Convertible
Preferred Stock will convert into 2,504,000 shares of Common Stock and 250,400
shares of Redeemable Preferred Stock (See Note 9). The unaudited pro forma
balance sheet as of June 30, 1998 reflects the reclassification of the 1,350,000
shares of Common Stock included in the redeemable securities to shareholders
equity as a result of the termination of the
F-9
<PAGE> 66
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
put rights and as a result of the conversion of the Convertible Preferred Stock
into 2,504,000 shares of Common Stock and 250,400 shares of Redeemable Preferred
Stock. The unaudited pro forma balance sheet assumes the redemption of the
250,400 shares of the Redeemable Preferred Stock to be redeemed upon the
consummation of the Offering for $62.90 per share.
2. NOTES RECEIVABLE
The Company has a $359,356 promissory note receivable due from an officer
of the Company. The note was issued in exchange for Restricted Stock (See Note
11) and is treated as a non-cash item for purposes of the statements of cash
flow. Interest at 6% per annum and principal are due and payable on June 30,
2004. The note provides for accelerated payment if the officer ceases to be
employed by the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------- JUNE 30,
1996 1997 1998
<S> <C> <C> <C>
Furniture and fixtures.......................... $198,682 $ 382,130 $ 871,434
Computer equipment.............................. 452,389 491,871 715,030
Leasehold improvements.......................... 12,334 222,910 295,796
-------- ---------- ----------
663,405 1,096,911 1,882,260
Less: accumulated depreciation.................. 512,370 547,560 193,088
-------- ---------- ----------
Property and equipment, net..................... $151,035 $ 549,351 $1,689,172
======== ========== ==========
</TABLE>
4. LINE OF CREDIT
Prior to April 8, 1998, the Company had a $2,500,000 bank line of credit
expiring May 31, 1998. Interest was payable monthly at the bank's prime rate
(8.25% and 8.5% at December 31, 1996 and 1997, respectively) plus 1.75% through
December 31, 1996 and 1.5% thereafter.
On April 8, 1998, the Company refinanced the line of credit with a line of
credit/term note from another bank simultaneously with the acquisition of KLA
(See Note 12). The line of credit/term note is collateralized by substantially
all the Company's assets. The borrowings are limited to the lessor of
$15,000,000 or a multiple of 2.5 times the latest aggregated four quarters'
EBITDA as defined in the agreement. The interest rate is LIBOR (5.6875% at June
30, 1998) plus 2.25% or the bank's prime rate (8.5% at June 30, 1998) plus up to
0.75%. The line of credit/term note contains various covenants that restrict,
among other things, the Company's ability to incur additional indebtedness, sell
or transfer assets, make investments and pay dividends and requires the Company
to meet various financial covenants. The line of credit/term note converts to a
term note to the extent the balance exceeds $5,000,000 on June 30, 1999. The
term portion then matures as follows: 5% quarterly on September 30, 1999 through
June 30, 2000; 5.83% quarterly on September 30, 2000 through June 30, 2001;
6.66% quarterly on September 30, 2001 through June 30, 2002; 7.51% quarterly on
September 30, 2002 through March 31, 2003; and the remainder on June 30, 2003.
5. LONG-TERM OBLIGATIONS
On September 25, 1997, the Company entered into a variable rate note
agreement with a bank for up to $700,000 at the bank's prime rate (8.5% at
December 31, 1997). Interest only was paid on this note through March 31, 1998
in accordance with the terms of the note. The Company repaid the note in April
1998.
F-10
<PAGE> 67
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As part of the KLA acquisition, the Company agreed to pay $1,123,200 to one
of the KLA majority shareholders in three equal annual installments of $374,400
beginning on April 3, 1999.
6. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- -------------------------
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $ 274,915 $425,378 $1,331,956 $636,000 $ 846,255
State and local....... 76,403 117,807 385,383 180,000 191,535
--------- -------- ---------- -------- -----------
351,318 543,185 1,717,339 816,000 1,037,790
Deferred................ (170,899) (82,556) (222,663) (56,000) (132,877)
--------- -------- ---------- -------- -----------
$ 180,419 $460,629 $1,494,676 $760,000 $ 904,913
========= ======== ========== ======== ===========
</TABLE>
The Company estimates the effective income tax rate quarterly using
annualized estimated financial data. The estimated effective income tax rate for
the six months ended June 30, 1997 and 1998 was 41.3% and 43.2%, respectively.
The effective income tax rate for the six months ended June 30, 1998 reflects
nondeductible goodwill amortization. A reconciliation of the provision for
income taxes at the federal statutory rate to that included in the Statements of
Income is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------
1995 1996 1997
<S> <C> <C> <C>
Tax at federal statutory rate............................... 34.0% 34.0% 34.0%
Increases in taxes resulting from:
State income taxes, net of federal benefit................ 6.8 6.2 6.1
Meals and entertainment................................... 7.3 3.6 1.1
Other..................................................... 4.1 0.0 0.1
---- ---- ----
52.2% 43.8% 41.3%
==== ==== ====
</TABLE>
The components of the net deferred tax asset are comprised of the
following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------- JUNE 30,
1996 1997 1998
<S> <C> <C> <C>
Gross deferred tax assets:
Allowance for doubtful accounts.................. $ 44,550 $ 70,875 $ 133,025
Accrued compensation and benefits................ 107,112 232,002 294,802
Other............................................ 2,673 81,000 92,977
-------- -------- ---------
Deferred tax assets...................... 154,335 383,877 520,804
-------- -------- ---------
Gross deferred tax liability:
Depreciation..................................... (24,714) (31,593) (35,643)
-------- -------- ---------
Deferred tax liability................... (24,714) (31,593) (35,643)
-------- -------- ---------
Deferred tax asset, net............................ $129,621 $352,284 $ 485,161
======== ======== =========
</TABLE>
F-11
<PAGE> 68
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. PROFIT SHARING AND 401(k) SAVINGS PLAN
The Company maintains a qualified cash or deferred compensation plan under
section 401(k) of the Internal Revenue Code (the "401(k) Plan") that covers
substantially all the employees of the Company. Under the 401(k) Plan, the
Company may make a matching contribution as well as a discretionary
contribution. The Company's contributions totaled $84,250, $303,124 and
$596,121, for the years ended December 31, 1995, 1996 and 1997, respectively,
and totaled $140,555 and $317,502 for the six months ended June 30, 1997 and
1998, respectively.
8. COMMITMENTS AND CONTINGENCIES
As of June 30, 1998, the Company leased office space and certain equipment
under various noncancelable operating leases. Lease payments for the years ended
December 31, 1995, 1996 and 1997, were $175,154, $253,132 and $357,608,
respectively, and $185,942 and $299,826 for the six months ended June 30, 1997
and 1998, respectively. On January 3, 1997, the Company entered into an
additional office lease, with a leasing company partially owned by affiliates of
the Company's management and principal shareholders. This lease extends through
December 31, 2002. The lease provides for three successive renewal periods of 60
months each at the Company's option. The monthly lease payment will be adjusted
prior to each annual anniversary date of the lease based on increases in the
consumer price index. The maximum annual increase is 2%. Future minimum lease
payments required under all operating leases are as follows:
<TABLE>
<S> <C>
1998 (6 months)................................ $ 293,359
1999........................................... 573,432
2000........................................... 550,554
2001........................................... 558,950
2002........................................... 567,514
----------
$2,543,809
==========
</TABLE>
9. REDEEMABLE SECURITIES
On October 15, 1997, the Company's Amended and Restated Articles of
Incorporation ("Articles") were amended to authorize 500,800 shares of $0.01 par
value Preferred Stock.
On October 15, 1997, the Company purchased 1,350,000 shares of its Common
Stock from certain shareholders for $15,877,284. These shares and 250,400 shares
of Convertible Preferred Stock were then simultaneously issued for $17,501,806
($15,877,284, net of $1,624,522 of related expenses). The Company accounted for
this transaction using the cost method.
The 250,400 shares of Convertible Preferred Stock have certain voting and
other rights and privileges set forth in the Company's Articles. On or after
October 15, 2001 and October 15, 2002, 50% and 100% of the shares, respectively,
can be redeemed by the Company at the option of the holders for the greater of
$69.89 per share or their fair market value as provided for in the Articles.
Holders of Convertible Preferred Stock are entitled to receive dividends, if
declared by the Board of Directors, on an equal basis with the holders of Common
Stock. In connection with the Offering, the 250,400 shares of Convertible
Preferred Stock automatically convert into 2,504,000 shares of Common Stock and
250,400 shares of Redeemable Preferred Stock, and the Redeemable Preferred Stock
will be redeemed for $62.90 per share.
The 1,350,000 shares of Common Stock may be put back to the Company on or
after October 15, 2003, if the Company has not completed an offering, for the
greater of $0.4541 per share or fair market value.
The authorized Preferred Stock also includes 250,400 shares of Redeemable
Preferred Stock that contain similar voting and liquidation preferences as the
Convertible Preferred Stock. The Redeemable Preferred Stock
F-12
<PAGE> 69
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
will pay cumulative dividends at the per share rate per annum of 7% of $62.90.
None of the Redeemable Preferred Stock has been issued.
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). These warrants and compensatory options may be put to
the Company for an aggregate of $2,000,000. All such put rights terminate upon
the consummation of the Offering. The warrants are exercisable 24 months after
the closing of the KLA acquisition or upon the consummation of the Offering. The
acquisition compensation expense related to the compensatory options is being
amortized over a 24 month vesting period. The compensatory options vest upon the
consummation of the Offering.
10. COMMON STOCK
In July 1997, the Company purchased 509,130 shares of its Common Stock from
a shareholder for $171,429. The Company subsequently retired these shares.
In October 1997, the Company effected a 6,364.151-for-1 common stock split.
In addition, in July 1998, the Company effected a 10-for-1 common stock split.
All share and per share amounts herein have been restated to reflect such stock
splits (See Note 14).
11. STOCK OPTIONS AND WARRANTS
During October 1997, the Company and its shareholders adopted the 1997
Equity and Performance Incentive Plan (the "Plan") to attract and retain
directors, officers, employees and consultants. Under the terms of the Plan,
1,420,000 shares of the Company's Common Stock are available for grant. Future
grants, and the provisions thereof, are at the discretion of the Company's Board
of Directors.
On May 11, 1998 options were granted under the Plan to purchase 320,200
shares of Common Stock. Options vest evenly over a five-year period. On each
anniversary date of the grant 20% of the options may be exercised.
In May 1998, an officer of the Company was granted 76,950 shares of
Restricted Stock under the Plan at a purchase price of $4.67 per share. The
officer paid for the shares with a promissory note (See Note 2).
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations in accounting for its
stock option plan and has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock-
Based Compensation. Had compensation cost been determined based on the estimated
fair value at the grant date consistently with the provisions of SFAS No. 123,
net income and net income per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
JUNE 30, 1998
----------------
<S> <C>
Net income available to common shareholders -- as
reported.................................................. $963,374
Net income available to common shareholders -- pro forma.... $943,335
Net income per share -- as reported:
Basic..................................................... $
Diluted................................................... $
Net income per share -- pro forma:
Basic..................................................... $
Diluted................................................... $
</TABLE>
F-13
<PAGE> 70
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant and restricted share is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for the grant: dividend yield of 0%;
expected volatility of 47%; risk-free interest rate of 6%; and expected lives of
the options of five years from the date of vesting.
All options had an exercise price of $4.67 per share on the date of grant.
A summary of the status of stock options is presented below:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, 1998
-----------------------------
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding, beginning of period...................... -- $ --
Granted............................................... 320,200 4.67
Exercised and converted............................... -- --
Forfeited............................................. -- --
--------- -----
Outstanding, end of period............................ 320,200 4.67
Options available for grant, end of period............ 1,022,850 --
--------- -----
Options exercisable, end of period.................... -- --
========= =====
</TABLE>
Redeemable securities also includes warrants exercisable into 195,265.98
shares of Common Stock and compensatory options exercisable into 64,734.02
shares of Common Stock issued by the Company in connection with the KLA
acquisition (See Note 12). The warrants and compensatory options are exercisable
at $0.001 per share of Common Stock 24 months after the closing of the KLA
acquisition or upon the consummation of the Offering. The acquisition
compensation expense related to the compensatory options is being amortized over
a 24 month vesting period. The compensatory options vest upon the consummation
of the Offering.
12. KLA ACQUISITION
On April 8, 1998, the Company purchased all of the outstanding capital
stock of KLA for a purchase price consisting of $3,551,812 in cash, the issuance
of warrants to purchase 195,265.98 shares of Common Stock and certain other
consideration. Of the total consideration, $3,376,800 is subject to certain
revenue targets and contribution margins during the two-year period following
April 8, 1998 and $1,123,200 is payable in three equal annual installments
beginning April 3, 1999. In addition, the Company agreed to grant the KLA
compensatory options and to pay $3,500,000 in retention bonuses at certain
intervals to an escrow account which benefits former KLA employees who remain
employees of the Company at such intervals. The purchase price has been
allocated as follows:
<TABLE>
<S> <C>
Assets acquired............................................. $2,377,840
Liabilities assumed......................................... (3,373,715)
Goodwill.................................................... 7,524,334
Compensatory options........................................ 500,000
Earn-out liability.......................................... (1,123,200)
----------
5,905,259
Less: non-cash warrants and options......................... 2,000,000
----------
Cash paid for acquisition................................... $3,905,259
==========
</TABLE>
Compensatory options are amortized on a straight-line basis over their 24
month vesting period. Amortization expense for the quarter ended June 30, 1998
was $62,500 and is included in acquisition compensation. In
F-14
<PAGE> 71
CONLEY, CANITANO & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
connection with the Offering, the compensatory options will fully vest, and the
unamortized balance will be included in acquisition compensation.
The Company is obligated to make the $3,500,000 retention bonus payments to
the escrow account as follows:
<TABLE>
<S> <C>
October 3, 1998............................................. $ 700,000
April 3, 1999............................................... 875,000
April 3, 2000............................................... 875,000
October 3, 2000............................................. 1,050,000
----------
$3,500,000
==========
</TABLE>
Compensation expense for these retention bonuses is recorded as the bonuses
are earned. Compensation expense for the six months ended June 30, 1998 was
$300,000 and is included in acquisition compensation.
13. RELATED PARTY TRANSACTIONS
The Company has a $359,356 promissory note receivable due from an officer
of the Company (See Note 2).
In July 1997, the Company purchased 509,130 shares of its Common Stock from
a related party (See Note 10).
On October 15, 1997, the Company purchased 1,350,000 shares of its Common
Stock from certain majority shareholders. Simultaneously, the Company issued
1,350,000 shares of its Common Stock and 250,400 shares of Convertible Preferred
Stock (See Note 9).
The Company leases office space from a company owned partially by the
Company's management and principal shareholders (See Note 8).
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company's Board of Directors
authorized management of the Company to file a Registration Statement with the
Securities and Exchange Commission to sell up to shares of the
Company's Common Stock in the Offering. CCAi expects to use the net proceeds
from the Offering to redeem all outstanding shares of Redeemable Preferred Stock
(See Note 9), to repay in full existing indebtedness (See Note 4) and for
general corporate purposes, including working capital. The Company may also use
a portion of the net proceeds to fund acquisitions of complementary businesses
and service offerings. Although the Company may periodically review potential
acquisition opportunities, there are no current agreements with respect to any
such transactions. Pending their application as described above, the proceeds
will be invested in short-term, investment grade, interest-bearing securities.
In July 1998, the Company effected a 10-for-1 stock split of its Common
Stock (See Note 10).
In July 1998, the Company's shareholders granted approval to increase
authorized shares of stock as follows:
<TABLE>
<S> <C>
Preferred Stock, voting, $.01 par value..................... 500,800
Preferred Stock, non-voting, no par value................... 5,000,000
Preferred Stock, voting, no par value....................... 5,000,000
Common Stock, no par value.................................. 45,000,000
</TABLE>
F-15
<PAGE> 72
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE OWNERS
KELLY-LEVEY & ASSOCIATES, INC.
We have audited the accompanying balance sheets of Kelly-Levey &
Associates, Inc. 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 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 financial position of Kelly-Levey & Associates,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
On April 8, 1998, all of the Kelly-Levey & Associates, Inc. common stock
was acquired by Conley, Canitano & Associates, Inc. (See Note 8).
PricewaterhouseCoopers LLP
Cleveland, Ohio
June 8, 1998
F-16
<PAGE> 73
KELLY-LEVEY & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------- AS OF MARCH 31,
1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 53,997 $ 175,647 $ --
Accounts receivable, less allowance for doubtful
accounts of $125,000 in 1998..................... 881,861 1,764,297 2,424,880
Deferred taxes...................................... 50,000
Other............................................... -- 12,219 39,515
-------- ---------- ----------
Total current assets........................ 935,858 1,952,163 2,514,395
Property and equipment, net........................... 32,652 262,125 266,481
Deferred taxes........................................ -- 16,000 48,700
Other................................................. 4,009 10,951 1,914
-------- ---------- ----------
Total assets................................ $972,519 $2,241,239 $2,831,490
======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit...................................... $ -- $ 298,491 $1,000,000
Accounts payable.................................... 40,799 447,223 1,012,287
Accrued payroll, taxes and benefits................. 676,205 1,418,802 878,225
Income taxes payable................................ 47,699 -- --
Other............................................... -- 1,134 --
-------- ---------- ----------
Total current liabilities................... 764,703 2,165,650 2,890,512
Shareholders' equity (deficit):
Common stock, no par value, authorized 1,000,000
shares, issued and outstanding 321,200 shares at
December 31, 1996, issued 329,550 and outstanding
322,850 shares at December 31, 1997 and issued
331,900 shares and outstanding 325,200 shares at
March 31, 1998................................... 2,000 23,787 28,487
Retained earnings (deficit)......................... 205,816 66,189 (73,122)
Treasury stock, 6,700 shares at cost................ -- (14,387) (14,387)
-------- ---------- ----------
Total shareholders' equity (deficit)........ 207,816 75,589 (59,022)
-------- ---------- ----------
Total liabilities and shareholders' equity
(deficit)................................. $972,519 $2,241,239 $2,831,490
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE> 74
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE THREE
ENDED DECEMBER 31, MONTHS ENDED MARCH 31,
------------------------ --------------------------
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.................................. $3,950,547 $8,725,687 $1,818,648 $2,569,778
Cost of revenues.......................... 2,726,417 6,589,101 1,433,534 1,542,057
---------- ---------- ---------- ----------
Gross profit............................ 1,224,130 2,136,586 385,114 1,027,721
Selling, general and administrative
expenses................................ 838,618 2,238,370 428,926 924,843
Depreciation.............................. 26,663 73,649 17,500 18,780
---------- ---------- ---------- ----------
Income (loss) from operations........... 358,849 (175,433) (61,312) 84,098
Transaction costs......................... -- -- -- 301,991
Interest expense.......................... -- 28,163 15,901 4,118
---------- ---------- ---------- ----------
Income (loss) before provision for
(benefit from) income taxes.......... 358,849 (203,596) (77,213) (222,011)
Provision for (benefit from) income
taxes................................... 153,063 (63,969) (28,500) (82,700)
---------- ---------- ---------- ----------
Net income (loss)....................... $ 205,786 $ (139,627) $ (48,713) $ (139,311)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 75
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
(AT STATED VALUE) RETAINED TREASURY STOCK TOTAL
----------------- EARNINGS ----------------- SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) SHARES AMOUNT EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... 321,200 $ 2,000 $ 52,530 -- $ -- $ 54,530
Dividends...................... (52,500) (52,500)
Net income..................... 205,786 205,786
------- ------- --------- ----- -------- ---------
Balance, December 31, 1996..... 321,200 2,000 205,816 -- -- 207,816
Sale of common shares to
employees.................... 8,350 21,787 21,787
Treasury shares purchased from
employees.................... 6,700 (14,387) (14,387)
Net loss....................... (139,627) (139,627)
------- ------- --------- ----- -------- ---------
Balance, December 31, 1997..... 329,550 23,787 66,189 6,700 (14,387) 75,589
Sale of common shares to
employees (unaudited)........ 2,350 4,700 4,700
Net loss (unaudited)........... (139,311) (139,311)
------- ------- --------- ----- -------- ---------
Balance, March 31, 1998
(unaudited).................. 331,900 $28,487 $ (73,122) 6,700 $(14,387) $ (59,022)
======= ======= ========= ===== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 76
KELLY-LEVEY & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
----------------------- --------------------------
1996 1997 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................ $205,786 $ (139,627) $(48,713) $ (139,311)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation.......................... 26,663 73,649 17,500 18,780
Deferred taxes........................ -- (16,000) (28,500) (82,700)
Change in assets and liabilities:
Accounts receivable................. (762,402) (882,436) (254,299) (660,583)
Other assets........................ (1,057) (19,161) 2,000 (18,259)
Accounts payable.................... (3,846) 406,424 314,030 565,064
Accrued payroll, taxes and
benefits......................... 587,814 742,597 79,852 (540,577)
Income taxes payable................ 47,699 (47,699) (47,699) --
Other liabilities................... -- 1,134 -- (1,134)
-------- ----------- -------- -----------
Net cash provided by (used in)
operating activities........... 100,657 118,881 34,171 (858,720)
-------- ----------- -------- -----------
Cash flows from investing activities:
Purchase of property and equipment....... (59,315) (303,122) (55,667) (23,136)
-------- ----------- -------- -----------
Net cash used in investing
activities..................... (59,315) (303,122) (55,667) (23,136)
-------- ----------- -------- -----------
Cash flows from financing activities:
Proceeds from line of credit............. -- 5,079,300 350,000 1,867,539
Payments on line of credit............... -- (4,780,809) (350,000) (1,166,030)
Purchase of common stock................. -- (14,387) -- --
Proceeds from sale of common stock....... -- 21,787 -- 4,700
Dividends paid........................... (52,500) -- -- --
-------- ----------- -------- -----------
Net cash (used in) provided by
financing activities........... (52,500) 305,891 -- 706,209
-------- ----------- -------- -----------
Net (decrease) increase in cash............ (11,158) 121,650 (21,496) (175,647)
Cash, at beginning of period............... 65,155 53,997 53,997 175,647
-------- ----------- -------- -----------
Cash, at end of period..................... $ 53,997 $ 175,647 $ 32,501 $ --
======== =========== ======== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest.............................. $ -- $ 26,024 $ 15,901 $ 4,263
======== =========== ======== ===========
Taxes................................. $ 57,048 $ 4,730 $ 47,699 $ --
======== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 77
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
(Amounts and Disclosures at March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 are Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Kelly-Levey & Associates, Inc. ("KLA") is a Kentucky-based provider of
Enterprise Resource Planning implementation services. KLA provides services to
clients predominately in the United States. Substantially all of KLA's revenues
are derived from services provided as a contractor or a subcontractor to
Electronic Data Systems Corporation ("EDS") and its affiliates for the years
ended December 31, 1996 and 1997 and for the three months ended March 31, 1997
and 1998.
Interim Unaudited Financial Information
The interim statements of operations, shareholders' equity (deficit) and
cash flows of KLA for the three month periods ended March 31, 1997 and 1998 have
been prepared without audit. These interim financial statements reflect all
normal and recurring adjustments, which in the opinion of KLA management, are
necessary for a fair presentation of the financial position of KLA and its
results of operations for the interim periods set forth herein. The results for
the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
Revenue Recognition
Revenues are primarily recognized as services are performed. Accounts
receivable includes services performed but not yet billed of $354,460 and
$43,325 as of December 31, 1996 and 1997, respectively, and $331,804 as of March
31, 1998.
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 may differ from those estimates.
Allowance for Doubtful Accounts
Management provides an allowance for doubtful accounts based on historical
experience and management's evaluation of outstanding receivables.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repair which extend the useful life of the property and equipment are
capitalized.
Depreciation is provided using accelerated and straight-line methods over
the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and fixtures............................ 5 years
Equipment......................................... 3 years
</TABLE>
F-21
<PAGE> 78
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred income tax assets and liabilities are provided for temporary
differences between the financial reporting and the tax basis of KLA's assets
and liabilities. These deferred taxes are measured by the provisions of
currently enacted tax laws. Valuation allowances have been established when
necessary to reduce tax assets to the amount expected to be realized.
Fair Value of Financial Instruments
KLA's financial instruments consist principally of cash, accounts
receivable, accounts payable, accrued expenses and other liabilities, a line of
credit and long-term debt. The fair value of these financial instruments
approximates their carrying value.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------- MARCH 31,
1996 1997 1998
<S> <C> <C> <C>
Furniture and fixtures.............................. $10,764 $ 32,062 $ 32,063
Equipment........................................... 52,551 334,375 357,510
------- -------- --------
63,315 366,437 389,573
Less: accumulated depreciation...................... 30,663 104,312 123,092
------- -------- --------
Property and equipment, net......................... $32,652 $262,125 $266,481
======= ======== ========
</TABLE>
3. LINE OF CREDIT
As of March 31, 1998, KLA had a $1,000,000 bank line of credit. Interest
was payable monthly at the lending bank's prime rate (8.5% at December 31, 1997
and March 31, 1998), plus 0.75%. Borrowings under the line of credit were due on
demand, were personally guaranteed by the shareholders and were collateralized
by substantially all assets of KLA. The line of credit contained restrictive
terms and covenants which imposed certain maintenance of asset requirements.
This line of credit was repaid and cancelled (See Note 8).
4. INCOME TAXES
The provision for (benefit from) income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1996 1997 1997 1998
<S> <C> <C> <C> <C>
Current:
Federal................................ $125,966 $(38,721) $ -- $ --
State and Local........................ 27,097 (9,248) -- --
-------- -------- -------- --------
153,063 (47,969) -- --
Deferred................................. -- (16,000) (28,500) (82,700)
-------- -------- -------- --------
$153,063 $(63,969) $(28,500) $(82,700)
======== ======== ======== ========
</TABLE>
KLA estimates the effective income tax rate quarterly using annualized
estimated financial data. The estimated effective income tax rate for the three
months ended March 31, 1997 and 1998 was 37.3% and 32.6%,
F-22
<PAGE> 79
KELLY-LEVEY & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively. A reconciliation of the provision for (benefit from) income taxes
at the federal statutory rate to that included in the Statements of Operations
is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED
DECEMBER 31,
---------------
1996 1997
<S> <C> <C>
Tax (benefit) at federal statutory rate..................... 34.0% (34.0)%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal benefit................ 4.9 (4.5)
Meals and entertainment................................... 3.6 5.6
Other..................................................... .2 1.4
----- ------
42.7% (31.5)%
===== ======
</TABLE>
The components of deferred tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
------------------ MARCH 31,
1996 1997 1998
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts..................... $ -- $ -- $50,000
Operating loss carryforwards........................ -- 14,600 47,300
Other............................................... -- 1,400 1,400
------- ------- -------
Deferred tax assets......................... $ -- $16,000 $98,700
======= ======= =======
</TABLE>
Operating loss carryforwards are available through December 2017.
5. PROFIT SHARING AND 401(K) SAVINGS PLAN
KLA maintains a qualified cash or deferred compensation plan under section
401(k) of the Internal Revenue Code that covers substantially all the employees
of KLA. Under the Plan, KLA may make a matching contribution as well as a
discretionary contribution. KLA's contributions totaled $46,263 and $344,285 for
the years ended December 31, 1996 and 1997, respectively, and $75,000 for the
three months ended March 31, 1997. No contributions were made during the three
months ended March 31, 1998.
6. COMMITMENTS AND CONTINGENCIES
As of March 31, 1998, KLA leased office space and certain equipment under
various noncancelable operating leases. Lease expense for the years ended
December 31, 1996 and 1997 was $7,931 and $37,510, respectively, and for the
three months ended March 31, 1997 and 1998 was $6,171 and $14,250, respectively.
Future minimum lease payments required under all operating leases are as
follows:
<TABLE>
<S> <C>
1998 (9 months)................................. $ 71,052
1999............................................ 68,126
2000............................................ 55,088
2001............................................ 17,459
--------
$211,725
========
</TABLE>
8. SUBSEQUENT EVENT
On April 8, 1998, Conley, Canitano & Associates, Inc. purchased all of the
capital stock of KLA.
F-23
<PAGE> 80
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 5
Risk Factors.............................. 8
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Financial Data................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 21
Business.................................. 30
Management................................ 41
Certain Transactions...................... 45
Principal and Selling Shareholders........ 47
Description of Capital Stock.............. 48
Shares Eligible for Future Sale........... 52
Underwriting.............................. 54
Legal Matters............................. 55
Experts................................... 55
Additional Information.................... 55
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
____________SHARES
[CCAI LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
BANCAMERICA ROBERTSON STEPHENS
LEHMAN BROTHERS
MCDONALD & COMPANY
SECURITIES, INC.
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 81
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of estimated expenses to be incurred by the Company
in connection with the issuance and distribution of the Common Shares being
registered hereby.
<TABLE>
<S> <C>
SEC registration fee........................................ $
NASD filing fee.............................................
NASDAQ National Market listing fee..........................
Printing engraving, postage and mailing costs...............
Accounting fees and expenses................................
Legal fees and expenses.....................................
Transfer agent fees and expenses............................
Miscellaneous expenses......................................
--------
Total............................................. $
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Code of Regulations, consistent with that permitted by the General
Corporation Law of the State of Ohio, as the same may be amended from time to
time, contains provisions eliminating a director's personal liability for
monetary damages resulting from certain breaches of fiduciary duty. These
provisions do not limit or eliminate the rights of the Company or any
shareholder to seek non-monetary relief, such as an injunction or recision, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors.
Section 1701.13(E) of the Ohio Revised Code provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any person who was
or is a party or is threatened to be made a party, to any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, trustee, officer, employee, member, manager, or
agent of another corporation, domestic or foreign, nonprofit or for profit,
limited liability company, or a partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgments, fines, and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit, or proceeding, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, if he had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgement, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of it self, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person who was or
is a party, or is threatened to be made a party, to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor, by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit or for
profit, limited liability company, or a partnership, joint venture, trust, or
other enterprise, against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit, if he
II-1
<PAGE> 82
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is adjudged to
be liable for negligence or misconduct in the performance of his duty to
the corporation unless, and only to the extent that, the court of common
pleas or the court in which such action or suit was brought determines,
upon application, that, despite the adjudication of liability, but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court of common pleas or
such other court shall deem proper;
(b) Any action or suit in which the only liability asserted against a
director is pursuant to section 1701.95 of the Revised Code.
(3) To the extent that a director, trustee, officer, employee, member,
manager, or agent has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in division (E)(1) or (2) of this
section, or in defense of any claim, issue, or matter therein, he shall be
indemnified against expenses, including attorney's fees, actually and reasonably
incurred by him in connection with the Securities Action, suit, or proceeding.
(4) Any indemnification under division (E)(1) or (2) of this section,
unless ordered by a court, shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
trustee, officer, employee, member, manager, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
division (E)(1) or (2) of this section. Such determination shall be made as
follows:
(a) By a majority vote of a quorum consisting of directors of the
indemnifying corporation who were not and are not parties to or threatened
with any such action, suit, or proceeding referred to in division (E)(1) or
(2) of this section;
(b) If the quorum described in division (E)(4) (a) of this section is
not obtainable or if a majority vote of a quorum of disinterested directors
so directs, in a written opinion by independent legal counsel other than an
attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation or any person
to be indemnified within the past five years;
(c) By the shareholders;
(d) By the court of common pleas or the court in which the Securities
Action, suit, or proceeding referred to in division (E)(1) or (2) of this
section was brought.
Any determination made by the disinterested directors under division (E)(4)
(a) or by independent legal counsel under division (E)(4)(b) of this section
shall be promptly communicated to the person who threatened or brought the
Securities Action or suit by or in the right of the corporation under division
(E)(2) of this section, and within ten days after receipt of such notification,
such person shall have the right to petition the court of common pleas or the
court in which such action or suit was brought to review the reasonableness of
such determination.
(5)(a) Unless at the time of a director's act or omission that is the
subject of an action, suit, or proceeding refereed to in division (E)(1) or (2)
of this section, the articles or the regulations of a corporation state, by
specific reference to this division, that the provisions of this division do not
apply to the corporation and unless the only liability asserted against a
director in an action, suit, or proceeding referred to in divisions (E)(1) and
(2) of this section is pursuant to section 1701.95 of the Revised Code,
expenses, including attorney's fees, incurred by a director in defending the
Securities Action, suit, or proceeding shall be paid by the corporation as they
are incurred, in advance of the final disposition of the Securities Action,
suit, or proceeding upon receipt of an undertaking by or on behalf of the
director in which be agrees to do both of the following:
(i) Repay such amount if it is proved by clear and convincing evidence
in a court of competent jurisdiction that his action or failure to act
involved an act or omission undertaken with deliberate intent to cause
injury to the corporation or undertaken with reckless disregard for the
best interests of the corporation;
(ii) Reasonably cooperate with the corporation concerning the
Securities Action, suit, or proceeding.
II-2
<PAGE> 83
(b) Expenses, including attorney's fees, incurred by a director, trustee,
officer, employee, member, manager, or agent in defending any action, suit, or
proceeding referred to in division (E)(1) or (2) of this section, may be paid by
the corporation as they are incurred, in advance of the final disposition of the
Securities Action, suit, or proceeding, as authorized by the directors in the
specific case, upon receipt of an undertaking by or on behalf of the director,
trustee, officer, employee, member, manager, or agent to repay such amount, if
it ultimately is determined that he is not entitled to be indemnified by the
corporation.
(6) The indemnification authorized by this section shall not be exclusive
of, and shall be in addition to any other rights granted to those seeking
indemnification under the articles or the regulations, any agreement, a vote of
shareholders or disinterested directors, or otherwise, both as to action in
their official capacities and as to action in another capacity while holding
their offices or positions, and shall continue as to a person who has ceased to
be a director, trustee, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish similar
protection, including, but not limited to, trust funds, letters of credit, or
self-insurance, on behalf of or for any person who is or was a director,
officer, employee, member, manager, or agent of the corporation, or is or was
serving at the request of the corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign, nonprofit or for
profit, limited liability company, or a partnership, joint venture, trust, or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
this section. Insurance may be purchased from or maintained with a person in
which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant to
division (E)(1) or (2) of this section does not limit the payment of expenses as
they are incurred, indemnification, insurance, or other protection that may be
provided pursuant to divisions (E)(5), (6), and (7) of this section. Divisions
(E) (1) and (2) of this section do not create any obligation to repay or return
payments made by the corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation" includes all
constituent entities in a consolidation or merger and the new or surviving
corporation, so that any person who is or was a director, officer, employee,
trustee, member, manager, or agent of such a constituent entities, or is or was
serving at the request of such constituent entity as a director, trustee,
officer, employee, trustee, member, manager, or agent of another corporation,
domestic or foreign, nonprofit or for profit, limited liability company, or
partnership, joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving corporation as
would if he had served the new or surviving corporation in the same capacity.
Prior to the consummation of the Offering, the Company anticipates it will
obtain directors' and officers' liability insurance that covers certain
liabilities and expenses of the Company's directors and officers.
In addition, Section 30 of the Code of Regulations provides that expenses
incurred in defending a civil, criminal or administrative action, suit or
proceeding will be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director, officer, employee or agent to repay such amount.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
No securities of the Company, which were not registered under the
Securities Act, have been issued or sold by the Company within the past three
years, except as follows:
(a) On October 15, 1997 the Company sold to TA Investors 243,246
shares of Convertible Preferred Stock for an aggregate purchase price of
approximately $17 million, and 1,311,430 shares of Common Stock for an
aggregate purchase price of approximately $1,311. These transactions were
undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Section 4(2) of the
Securities Act.
(b) On October 15, 1997 the Company sold to McDonald Investors 7,154
shares of Convertible Preferred Stock for an aggregate purchase price of
approximately $500,000, and 38,570 shares of Common
II-3
<PAGE> 84
Stock for an aggregate purchase price of approximately $38. These
transactions were undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of
the Securities Act.
(c) Pursuant to the terms of the 1998 Warrant Agreements, on April 3,
1998 the Company granted the Warrant Holders the right to purchase an
aggregate of 195,264 shares of Common Stock at an exercise price of $0.001
per share. Upon consummation of the Offering, the KLA Warrants will be
exercisable. These transactions were undertaken in reliance upon the
exemption from the registration requirements of the Securities Act afforded
by Section 4(2) of the Securities Act.
(d) Pursuant to the terms of the Option Agreements , on April 3, 1998
the Company granted employees of the Company previously employed by KLA
options to purchase an aggregate of 64,700 shares of Common Stock at an
exercise price of $0.001 per share. Upon the consummation of the Offering,
the KLA Options will be exercisable. These transactions were undertaken in
reliance upon the exemption from the registration requirements of the
Securities Act afforded by Rule 701 promulgated under the Securities Act.
(e) On May 11, 1998, the Company issued Paul A. Farmer 76,950 shares
of restricted Common Stock under the 1997 Equity and Performance Plan. Mr.
Farmer paid the purchase price for the restricted stock by executing and
delivering to the Company a promissory note in the principal amount of
$359,356. The note is due and payable on June 30, 2004, and accrues
interest on unpaid principal at 6% per annum until paid in full. These
transactions were undertaken in reliance upon the exemption from the
registration requirements of the Securities Act afforded by Rule 701
promulgated under the Securities Act.
(f) On May 11, 1998, the Company granted options to purchase 320,200
shares of Common Stock under the 1997 Equity and Performance Plan. These
options vest 20% each year over a five-year period. These transactions were
undertaken in reliance upon the exemption from the registration
requirements of the Securities Act afforded by Rule 701 promulgated under
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1* Form of Underwriting Agreement between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc., BancAmerica Robertson Stephens and McDonald &
Co. Securities, Inc.
3.1 Second Amended and Restated Articles of Incorporation of the
Company.
3.2 Amended and Restated Code of Regulations of the Company.
5* Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1 Employment Agreement, dated April 3, 1998, between the
Company and Ronnie Crumpler.
10.2 Employment Agreement, dated April 3, 1998, between the
Company and Gary Levey.
10.3 Form of Employment Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.4 Noncompetition Agreement, dated April 3, 1998, between the
Company and Anthony Kelly.
10.5 Employment Agreement, dated April 23, 1998, between the
Company and Paul A. Farmer.
10.6 Restricted Stock Agreement, dated May 11, 1998, between the
Company and Paul A. Farmer.
10.7 Form of Warrant Agreement, between the Company and Ronnie
Crumpler.
10.8 Form of Warrant Agreement, between the Company and Gary
Levey.
10.9 Form of Warrant Agreement, between the Company and Anthony
Kelly.
10.10 Warrant Escrow Agreement, dated April 3, 1998, among the
Company and Ronnie Crumpler, Gary Levey and Anthony Kelly.
</TABLE>
II-4
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.11 Form of Option Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.12 Kelly-Levey & Assoc., Inc. Retention Incentive Bonus Plan,
dated April 3, 1998.
10.13 Form of Retention Incentive Bonus Plan Agreement 1998, among
certain former employees, Kelly-Levey & Assoc., Inc. and the
Company.
10.14 Retention Incentive Bonus Plan Escrow Agreement, dated April
3, 1998, among the Company and Kelly-Levey & Assoc., Inc,
Burke & Company, P.L.L., Anthony Kelly, Gary Levey, Ronnie
Crumpler, Trevor Montgomery, Rob Petersen and Don Kirby.
10.15 Earnout Agreement, dated April 3, 1998, among the Company,
Kelly-Levey & Assoc., Inc., Anthony Kelly, Gary Levey and
Ronnie Crumpler.
10.16* Earnout Escrow Agreement, dated April 3, 1998, among the
Company, Kelly-Levey & Assoc., Burke & Company, P.L.L. (as
representative of the shareholders), Anthony Kelly, Gary
Levey and Ronnie Crumpler.
10.17 1997 Stock Purchase and Shareholders Agreement, dated
October 15, 1997, among the Company, Annette M. Canitano,
Nicholas A. Canitano, Karen M. Conley, Kenneth L. Conley,
NAC Enterprises, Inc., CKCK Enterprises, Inc., Kenneth L.
Conley Charitable Remainder Trust, Karen M. Conley
Charitable Remainder Trust, TA/Advent VIII L.P., Advent
Atlantic and Pacific III L.P., TA Venture Investors Limited
Partnership, Kenneth T. Schiciano, A. Bruce Johnston,
McDonald & Company Securities, Inc., McD Venture Capital
Fund, L.P. and GHK Investments, L.L.C.
10.18 Form of the Company's Incentive Stock Option Agreement.
10.19* Amended and Restated Share Redemption and Purchase
Agreement, dated July 1, 1997, among the Company, Karen M.
Conley, Nicholas A. Canitano, Annette Canitano and Joseph
Minadeo.
10.20 Agreement, dated October 15, 1997, among the Company,
Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley,
Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises,
Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M.
Conley Charitable Remainder Trust, TA/Advent VIII, L.P.,
Advent Atlantic and Pacific L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce
Johnston, McDonald & Company Securities, Inc., McD Venture
Capital Fund, L.P., GHK Investments, L.L.C. and Joseph
Minadeo.
10.21 Stock Redemption Agreement, dated October 15, 1997, between
the Company and NAC Enterprises, Inc.
10.22 Stock Redemption Agreement, dated October 15, 1997, between
the Company and CKCK Enterprises, Inc.
10.23 Stock Redemption Agreement, dated October 15, 1997, between
the Company and Kenneth L. Conley Charitable Remainder
Trust.
10.24 Stock Redemption Agreement, dated October 15, 1997, between
the Company and Karen M. Conley Charitable Remainder Trust.
10.25 The Company's 1997 Equity and Performance Incentive Plan,
dated October 15, 1997.
10.26 First Amendment to the Company's Equity and Performance
Incentive Plan, dated July 21, 1998.
10.27* The Company's 401(k) Plan and Trust, dated December 2, 1996.
10.28* First Amendment to the Company's 401(k) Plan and Trust,
dated April 3, 1998.
10.29* Amendment No. 2 to the Company's 401(k) Plan and Trust,
dated April 3, 1998.
10.30 Form of the Company's Employee Stock Purchase Plan.
10.31 Loan Agreement, dated April 7, 1998, between the Company and
Fleet National Bank.
10.32* Lease Agreement, dated January 3, 1997, between the Company
and Place Renaissance, Ltd.
</TABLE>
II-5
<PAGE> 86
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.33 R-3 National Implementation Partner Agreement, dated April
2, 1996, between the Company and SAP America, Inc.
10.34* Oracle Alliance Agreement, dated , 1997,
between the Company and Oracle Corp.
10.35 Form of Indemnification Agreement for directors and
officers.
10.36 Amendment to Amended and Restated Share Redemption and
Purchase Agreement, among the Company, Karen M. Conley,
Nicholas A. Canitano, Annette M. Canitano and Joseph
Minadeo.
11* Statement regarding computation of per share earnings.
23.1* Consent of Jones, Day, Reavis & Pogue (included with Exhibit
5).
23.2 Consent of PricewaterhouseCoopers LLP
24 Powers of Attorney.
27* Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the financial statements
or notes thereto appearing elsewhere in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the Closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
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 foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as a part of this
registration statement in reliance upon Rule 430A and contained in form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE> 87
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunder duly authorized, in the City of Cleveland, State of
Ohio, on July 24, 1998.
CONLEY, CANITANO & ASSOCIATES, INC.
By: /s/ PAUL A. FARMER*
------------------------------------
Paul A. Farmer
Chief Financial Officer and Vice
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President, Chief Operating Officer and July 24, 1998
- --------------------------------------------- Director
Kenneth L. Conley
/s/ PAUL A. FARMER Chief Financial Officer and Vice July 24, 1998
- --------------------------------------------- President
Paul A. Farmer
* Executive Vice President, Treasurer and July 24, 1998
- --------------------------------------------- Director
Karen M. Conley
* Executive Vice President, Secretary and July 24, 1998
- --------------------------------------------- Director
Annette M. Canitano
/s/ NICHOLAS A. CANITANO Chief Executive Officer, Chairman of the July 24, 1998
- --------------------------------------------- Board and Director
Nicholas A. Canitano
/s/ KENNETH T. SCHICIANO Director July 24, 1998
- ---------------------------------------------
Kenneth T. Schiciano
/s/ A. BRUCE JOHNSTON Director July 24, 1998
- ---------------------------------------------
A. Bruce Johnston
</TABLE>
* The undersigned by signing his name hereto, does sign and execute this
Registration Statement pursuant to the Powers of Attorney executed by the
above-named officers and directors of the Company and which have been filed
with the Securities and Exchange Commission on behalf of such officers and
directors.
By: /s/ PAUL A. FARMER
---------------------------------------------------------
Paul A. Farmer
as Attorney-in-Fact
II-7
<PAGE> 88
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<C> <S> <C>
1* Form of Underwriting Agreement between the Company and
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman
Brothers Inc., BancAmerica Robertson Stephens and McDonald &
Co. Securities, Inc.
3.1 Second Amended and Restated Articles of Incorporation of the
Company.
3.2 Amended and Restated Code of Regulations of the Company.
5* Opinion of Jones, Day, Reavis & Pogue as to the validity of
the securities being offered.
10.1 Employment Agreement, dated April 3, 1998, between the
Company and Ronnie Crumpler.
10.2 Employment Agreement, dated April 3, 1998, between the
Company and Gary Levey.
10.3 Form of Employment Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.4 Noncompetition Agreement, dated April 3, 1998, between the
Company and Anthony Kelly.
10.5 Employment Agreement, dated April 23, 1998, between the
Company and Paul A. Farmer.
10.6 Restricted Stock Agreement, dated May 11, 1998, between the
Company and Paul A. Farmer.
10.7 Form of Warrant Agreement, between the Company and Ronnie
Crumpler.
10.8 Form of Warrant Agreement, between the Company and Gary
Levey.
10.9 Form of Warrant Agreement, between the Company and Anthony
Kelly.
10.10 Warrant Escrow Agreement, dated April 3, 1998, among the
Company and Ronnie Crumpler, Gary Levey and Anthony Kelly.
10.11 Form of Option Agreement, among the Company and certain
employees previously employed by Kelly-Levey & Assoc., Inc.
10.12 Kelly-Levey & Assoc., Inc. Retention Incentive Bonus Plan,
dated April 3, 1998.
10.13 Form of Retention Incentive Bonus Plan Agreement, dated
April 3, 1998, among certain former employees, Kelly-Levey &
Assoc., Inc. and the Company.
10.14 Retention Incentive Bonus Plan Escrow Agreement, dated April
3, 1998, among the Company and Kelly-Levey & Assoc., Inc,
Burke & Company, P.L.L., Anthony Kelly, Gary Levey, Ronnie
Crumpler, Trevor Montgomery, Rob Petersen and Don Kirby.
10.15 Earnout Agreement, dated April 3, 1998, among the Company,
Kelly-Levey & Assoc., Inc., Anthony Kelly, Gary Levey and
Ronnie Crumpler.
10.16* Earnout Escrow Agreement, dated April 3, 1998, among the
Company, Kelly-Levey & Assoc., Burke & Company, P.L.L. (as
representative of the shareholders), Anthony Kelly, Gary
Levey and Ronnie Crumpler.
10.17* 1997 Stock Purchase and Shareholders Agreement, dated
October 15, 1997 by and among the Company, Annette M.
Canitano, Nicholas A. Canitano, Karen M. Conley, Kenneth L.
Conley, NAC Enterprises, Inc., CKCK Enterprises, Inc.,
Kenneth L. Conley Charitable Remainder Trust, Karen M.
Conley Charitable Remainder Trust, TA/Advent VIII L.P.,
Advent Atlantic and Pacific III L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce
Johnston, McDonald & Company Securities, Inc., McD Venture
Capital Fund, L.P. and GHK Investments, L.L.C.
10.18 Form of the Company's Incentive Stock Option Agreement.
10.19* Amended and Restated Share Redemption and Purchase
Agreement, dated July 1, 1997, among the Company, Karen M.
Conley, Nicholas A. Canitano, Annette M. Canitano and Joseph
Minadeo.
</TABLE>
<PAGE> 89
EXHIBIT INDEX -- CONTINUED
<TABLE>
<CAPTION>
PAGINATION
BY
SEQUENTIAL
EXHIBIT NUMBERING
NUMBER DESCRIPTION OF DOCUMENT SYSTEM
<C> <S> <C>
10.20 Agreement, dated October 15, 1997, among the Company,
Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley,
Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises,
Inc., Kenneth L. Conley Charitable Remainder Trust, Karen M.
Conley Charitable Remainder Trust, TA/Advent VIII, L.P.,
Advent Atlantic and Pacific L.P., TA Venture Investors
Limited Partnership, Kenneth T. Schiciano, A. Bruce
Johnston, McDonald & Company Securities, Inc., McD Venture
Capital Fund, L.P., GHK Investments, L.L.C. and Joseph
Minadeo.
10.21 Stock Redemption Agreement, dated October 15, 1997, between
the Company and NAC Enterprises, Inc.
10.22 Stock Redemption Agreement, dated October 15, 1997, between
the Company and CKCK Enterprises, Inc.
10.23 Stock Redemption Agreement, dated October 15, 1997, between
the Company and Kenneth L. Conley Charitable Remainder
Trust.
10.24 Stock Redemption Agreement, dated October 15, 1997, between
the Company and Karen M. Conley Charitable Remainder Trust.
10.25 The Company's 1997 Equity and Performance Incentive Plan,
dated October 15, 1997.
10.26 First Amendment to the Company's Equity and Performance
Incentive Plan, dated July 21, 1998.
10.27* The Company's 401(k) Plan and Trust, dated December 2, 1996.
10.28* First Amendment to the Company's 401(k) Plan and Trust,
dated April 3, 1998.
10.29* Amendment No. 2 to the Company's 401(k) Plan and Trust,
dated April 3, 1998.
10.30 Form of the Company's Employee Stock Purchase Plan.
10.31 Loan Agreement, dated April 7, 1998, between the Company and
Fleet National Bank.
10.32* Lease Agreement, dated January 3, 1997, between the Company
and Place Renaissance, Ltd.
10.33 R-3 National Implementation Partner Agreement, dated April
2, 1996, between the Company and SAP America, Inc.
10.34* Oracle Alliance Agreement, dated , 1997,
between the Company and Oracle Corp.
10.35 Form of Indemnification Agreement for directors and
officers.
10.36 Amendment to Amended and Restated Share Redemption and
Purchase Agreement, among the Company, Karen M. Conley,
Nicholas A. Canitano, Annette M. Canitano and Joseph
Minadeo.
11* Statement regarding computation of per share earnings.
23.1* Consent of Jones, Day, Reavis & Pogue (included with Exhibit
5).
23.2 Consent of PricewaterhouseCoopers LLP
24 Powers of Attorney.
27* Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CONLEY, CANITANO & ASSOCIATES, INC.
ARTICLE I
---------
The name of the corporation is Conley, Canitano & Associates, Inc. (the
"Corporation").
ARTICLE II
----------
The place in the State of Ohio where the Corporation's principal office
is located is the City of Mayfield Heights, Cuyahoga County.
ARTICLE III
-----------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code.
ARTICLE IV
----------
The total number of shares of capital stock which the Corporation shall
have authority to issue is 55,500,800, of which (a) 500,800 shares shall be
preferred stock, par value $.01 per share, (b) 5,000,000 shares shall be
non-voting preferred stock, no par value, (c) 5,000,000 shares shall be voting
preferred stock, no par value (Sections (a), (b) and (c) collectively referred
to herein as "Preferred Stock"), and (d) 45,000,000 shares shall be common
stock, no par value.
Except as otherwise restricted by these Second Amended and Restated
Articles of Incorporation, the Corporation is authorized to issue, from time to
time, all or any portion of the capital stock of the Corporation which may have
been authorized but not issued, to such person or persons and for such lawful
consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and manner of any disposition of such
authorized but unissued capital stock.
<PAGE> 2
Any and all such shares issued for which the full consideration has
been paid or delivered shall be deemed fully paid shares of capital stock, and
the holder of such shares shall not be liable for any further call or assessment
or any other payment thereon.
The voting powers, designations, preferences, privileges and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions of each class of capital stock of the Corporation,
shall be as provided in this Article IV.
The Corporation shall not, by amendment of these Second Amended and
Restated Articles of Incorporation or through any Extraordinary Transaction (as
defined in Section A.5(a)(ii)) or other reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, knowingly or purposefully avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but shall at all times in good faith assist in the
carrying out of all the provisions hereof and in the taking of all such action
as may be necessary or appropriate in order to protect the conversion rights, if
any, and other rights of the holders of the Preferred Stock against impairment.
A. CONVERTIBLE PREFERRED STOCK
---------------------------
1. DESIGNATION. A total of 250,400 shares of the Corporation's
Preferred Stock shall be designated as a series known as Convertible Preferred
Stock, par value $.01 per share (the "Convertible Stock").
2. ELECTION OF DIRECTORS; VOTING.
(a) ELECTION OF DIRECTORS. The holders of outstanding shares
of Convertible Stock shall, voting together as a separate class, be
entitled to elect three (3) Directors of the Corporation. Such
Directors shall be the candidates receiving the greatest number of
affirmative votes (with each holder of Convertible Stock entitled to
cast one vote for or against each candidate with respect to each share
of Convertible Stock held by such holder) of the outstanding shares of
Convertible Stock (the "Convertible Stock Director Designees"), with
votes cast against such candidates and votes withheld having no legal
effect. The election of the Convertible Stock Director Designees by the
holders of the Convertible Stock shall occur (i) at the annual meeting
of holders of capital stock, (ii) at any special meeting of holders of
capital stock, (iii) at any special meeting of holders of Convertible
Stock called by holders of a majority of the outstanding shares of
Convertible Stock or (iv) by the unanimous written consent of holders
of the outstanding shares of Convertible Stock. If at any time when any
share of Convertible Stock is outstanding any Convertible Stock
Director Designee should cease to be a Director for any reason, the
vacancy shall only be filled by the vote or written consent of the
holders of the outstanding shares of Convertible Stock, voting together
as a separate class, in the manner and on the basis specified above.
The holders of outstanding shares of Convertible Stock shall also be
entitled to vote for all other Directors of the Corporation together
with holders of all other shares of the Corporation's outstanding
capital stock entitled to vote thereon, voting as a single class, with
each outstanding share entitled to the same number of votes specified
in Section A.2(b). The holders of outstanding
- 2 -
<PAGE> 3
shares of Convertible Stock, may, in their sole discretion, determine
to elect only one or two Convertible Stock Director Designees from time
to time, and during any such period the Board of Directors nonetheless
shall be deemed duly constituted.
(b) VOTING GENERALLY. The holder of each share of Convertible
Stock shall be entitled to the number of votes equal to the largest
number of full shares of Common Stock (as defined in Section C of this
Article IV) into which each share of Convertible Stock could be
converted pursuant to Section A.6 hereof (other than by means of
Section A.6(b)) on the record date for the vote or for written consent
of shareholders, if applicable, multiplied by the number of shares of
Convertible Stock held of record on such date. The holder of each share
of Convertible Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Code of Regulations of the Corporation
and shall vote with holders of the Common Stock, voting together as
single class, upon all matters submitted to a vote of shareholders,
excluding those matters required to be submitted to a class or series
vote pursuant to the terms hereof (including without limitation Section
A.8) or by law. Fractional votes shall not, however, be permitted and
any fractional voting rights resulting from the above formula (after
aggregating all shares of Common Stock into which shares of Convertible
Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with any fraction equal or greater than one-half
rounded upward to one).
3. DIVIDENDS. The holders of Convertible Stock shall be entitled to
receive dividends out of funds legally available therefor at such times and in
such amounts as the Board of Directors may determine in its sole discretion;
PROVIDED, HOWEVER, that no such dividend may be declared or paid on any shares
of Convertible Stock unless at the same time a dividend is declared or paid on
all outstanding shares of Common Stock and vice versa, with holders of
Convertible Stock and Common Stock sharing in any such dividends as if they
constituted a single class of stock and with each holder of a share of
Convertible Stock entitled to receive such dividends based on the number of
shares of Common Stock into which such share of Convertible Stock is then
convertible hereunder. The right to dividends on shares of Convertible Stock
shall not be cumulative, and no right shall accrue to holders of Convertible
Stock by reason of the fact that dividends on said shares are not declared in
any prior period.
4. LIQUIDATION.
(a) LIQUIDATION PREFERENCE. Upon any liquidation, dissolution
or winding up of the Corporation and its subsidiaries, whether
voluntary or involuntary (a "A Liquidation Event"), each holder of
outstanding shares of Convertible Stock shall be entitled to be paid
out of the assets of the Corporation available for distribution to
shareholders, whether such assets are capital, surplus or earnings, and
before any amount shall be paid or distributed to the holders of Common
Stock or of any other stock ranking on liquidation junior to the
Convertible Stock, an amount in cash equal to (i) $69.89 per share of
Convertible Stock held by such holder (adjusted appropriately for stock
splits, stock dividends, recapitalizations and the like with respect to
the Convertible Stock), plus (ii) any declared but unpaid dividends to
which such holder of outstanding shares of Convertible Stock is then
entitled pursuant to Sections A.3 and A.5(f) hereof (the sum of clauses
(i) and (ii) being referred to herein as the
- 3 -
<PAGE> 4
("Convertible Base Liquidation Amount"), plus (iii) any interest
accrued pursuant to Section A.5(e) hereof to which such holder of
Convertible Stock is entitled, if any (the sum of clauses (i), (ii) and
(iii) being referred to herein as the "Convertible Liquidation
Preference Amount"); PROVIDED, HOWEVER, that if, upon any Liquidation
Event, the amounts payable with respect to the Convertible Liquidation
Preference Amount are not paid in full, the holders of the Convertible
Stock shall share ratably in any distribution of assets in proportion
to the full respective preferential amounts to which they are entitled;
and PROVIDED FURTHER, HOWEVER, that if upon any Liquidation Event the
holders of the outstanding shares of Convertible Stock would receive
more than the Convertible Liquidation Preference Amount in the event
their shares were converted into Series A Redeemable Preferred Stock
(as defined in Section B.1 of this Article IV) and Common Stock
immediately prior to the record date for distributions in connection
with such Liquidation Event, then each holder of an outstanding share
of Convertible Stock shall receive an amount equal to such holder's
Series A Redeemable Liquidation Preference Amount (as defined in
Section B.4) under Section B.4 before any amount shall be paid or
distributed to the holders of Common Stock or of any other stock
ranking on liquidation junior to the Convertible Stock, and thereafter
shall share ratably with the holders of Common Stock in the assets
available for distribution, with such distributions to be made in cash
and as if each share of Convertible Stock had been converted into the
number of shares of Series A Redeemable Preferred Stock and Common
Stock issuable upon the conversion of such holder's shares of
Convertible Stock immediately prior to any such Liquidation Event. The
provisions of this Section A.4 shall not in any way limit the right of
the holders of Convertible Stock to elect to convert their shares of
Convertible Stock into Series A Redeemable Preferred Stock and Common
Stock pursuant to Section A.6 prior to or in connection with any
Liquidation Event.
(b) NOTICE. Prior to the occurrence of any Liquidation Event,
the Corporation will furnish each holder of Convertible Stock notice in
accordance with Section A.9 hereof, together with a certificate
prepared by the chief financial officer of the Corporation describing
in detail the facts of such Liquidation Event, stating in detail the
amount(s) per share of Convertible Stock each holder of Convertible
Stock would receive pursuant to the provisions of Section A.4(a) hereof
(both with respect to the amount a holder would receive pursuant to
clauses (i) and (ii) of Section A.4(a) and the amount a holder would
receive pursuant to the second proviso of Section A.4(a)) and stating
in detail the facts upon which such amounts were determined.
5. REDEMPTION.
(a) REDEMPTION EVENTS.
(i) ON OR AFTER OCTOBER 15, 2001.
(A) At any time after October 15, 2001, on
any one occasion any holder of Convertible Stock may
require the Corporation to redeem up to 50% of the
outstanding shares of Convertible Stock held by such
holder at such time.
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<PAGE> 5
(B) At any time after October 15, 2002, on
any one occasion any holder of Convertible Stock may
require the Corporation to redeem up to all of the
outstanding shares of Convertible Stock held by such
holder at such time.
(ii) EXTRAORDINARY TRANSACTIONS. Upon the election of
the holder or holders of not less than sixty-six and
two-thirds percent in voting power of the outstanding
Convertible Stock in connection with (A) a merger or
consolidation of the Corporation with or into another
corporation (with respect to which less than a majority of the
outstanding voting power of such surviving corporation is held
by shareholders of the Corporation immediately prior to such
event), (B) the sale or transfer of all or substantially all
of the properties and assets of the Corporation and its
subsidiaries, (C) any purchase by any party of shares of
capital stock of the Corporation (either through a negotiated
stock purchase or a tender for such shares), the effect of
which is that such party that did not beneficially own a
majority of the voting power of the outstanding shares of
capital stock of the Corporation immediately prior to such
purchase beneficially owns at least a majority of such voting
power immediately after such purchase, or (D) the redemption
or repurchase of shares representing a majority of the voting
power of the outstanding shares of capital stock of the
Corporation (each an "Extraordinary Transaction"), then, as a
part of and as a condition to the effectiveness of such
Extraordinary Transaction, UNLESS the holders of Convertible
Stock shall have elected to convert their shares of
Convertible Stock into Series A Redeemable Preferred Stock and
Common Stock in accordance with the voluntary conversion
provisions of Section A.6 prior to the effective date of such
Extraordinary Transaction, the Corporation shall, on the
effective date of such Extraordinary Transaction, redeem all
(but not less than all) of the outstanding shares of
Convertible Stock for an amount equal to the Convertible
Liquidation Preference Amount, such amount to be payable in
cash or, at the election of holders of not less than sixty-six
and two-thirds percent in voting power of the outstanding
Convertible Stock, in the same form of consideration as is
paid to the holders of Common Stock in such Extraordinary
Transaction; PROVIDED, HOWEVER, that if upon any Extraordinary
Transaction the holders of the outstanding shares of
Convertible Stock would receive more than the Convertible
Liquidation Preference Amount in the event their shares were
converted into Series A Redeemable Preferred Stock and Common
Stock immediately prior to such Extraordinary Transaction,
then each holder of Convertible Stock shall receive with
respect to each outstanding share of Convertible Stock held by
such holder an amount equal to the per share liquidation
preference for a share of Series A Redeemable Preferred Stock
under Section B.4 before any amount shall be paid or
distributed to the holders of Common Stock or of any other
stock ranking on liquidation junior to the Convertible Stock,
payable in cash, and thereafter shall share ratably with the
holders of the Common Stock in the proceeds of such
Extraordinary Transaction or, as applicable, shall receive
from the Corporation an amount equal to the amount per share
that would be paid if the shares of Common Stock receivable
upon conversion of the Convertible Stock were being acquired
in the Extraordinary Transaction at the same price per share
as is paid for Common Stock, which amount
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<PAGE> 6
shall be paid in the same form of consideration as is paid to
holders of Common Stock, as if each share of Convertible Stock
had been converted into the number of shares of Series A
Redeemable Preferred Stock and Common Stock issuable upon the
conversion of such share of Convertible Stock immediately
prior to such Extraordinary Transaction. The foregoing
election shall be made by such holders giving the Corporation
and each other holder of Convertible Stock not less than five
(5) business days prior written notice, which notice shall set
forth the date for such redemption. The provisions of this
Section A.5 shall not in any way limit the right of the
holders of Convertible Stock to elect to convert their shares
into shares of Series A Redeemable Preferred Stock and Common
Stock pursuant to Section A.6 prior to or in connection with
any Extraordinary Transaction.
(b) VALUATION OF DISTRIBUTION SECURITIES. Any securities or
other consideration to be delivered to the holders of the Convertible
Stock upon any Extraordinary Transaction in accordance with the terms
hereof shall be valued as follows:
(i) If traded on a nationally recognized securities
exchange or inter-dealer quotation system, the value shall be
deemed to be the average of the closing prices of the
securities on such exchange or system over the 30-day period
ending three (3) business days prior to the closing;
(ii) If traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the
30-day period ending three (3) business days prior to the
closing; and
(iii) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined
by the Corporation and the holders of not less than sixty-six
and two-thirds percent in voting power of the outstanding
shares of Convertible Stock, provided that if the Corporation
and the holders of sixty-six and two-thirds percent in voting
power of the outstanding shares of Convertible Stock are
unable to reach agreement, then by independent appraisal by a
mutually agreed to investment banker, the fees of which shall
be paid by the Corporation.
(c) NOTICE BY CORPORATION. Prior to the occurrence of any
Extraordinary Transaction, the Corporation will furnish each holder of
Convertible Stock notice in accordance with Section A.9 hereof,
together with a certificate prepared by the chief financial officer of
the Corporation describing in detail all material terms of such
Extraordinary Transaction, including without limitation the
consideration to be delivered in connection with such Extraordinary
Transaction and the identities of the parties to the Extraordinary
Transaction.
(d) REDEMPTION DATE; REDEMPTION PRICE. Any holder of
Convertible Stock may exercise such holder's right of redemption
pursuant to Section A.5(a)(i) by such holder giving the Corporation not
less than five (5) business days prior written notice, which notice
shall set forth the date for such redemption. Upon the election of the
holders of not less than sixty-
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<PAGE> 7
six and two-thirds percent of the voting power of the outstanding
Convertible Stock to cause the Corporation to redeem the Convertible
Stock pursuant to Section A.5(a)(ii), all holders of Convertible Stock
shall be deemed to have elected to cause the Convertible Stock to be so
redeemed. Any date upon which a redemption shall actually occur in
accordance with Section A.5(a) shall be referred to as a "Convertible
Redemption Date." The redemption price for each share of Convertible
Stock redeemed pursuant to this Section A.5 shall be the per share
Convertible Liquidation Preference Amount or such greater per share
amount as may be payable pursuant to the proviso to Section A.5(a)(ii),
if applicable (the "Convertible Redemption Price"). The aggregate
Convertible Redemption Price shall be payable in cash in immediately
available funds to the respective holders of the Convertible Stock on
the fifteenth (15th) day (or if such day is not a business day, the
next business day after the 15th day) after the day on which the
Corporation receives the redemption election pursuant to this Section
A.5(d) (subject to Section A.5(e)) except to the extent contemplated by
the proviso to Section A.5(a)(ii); provided, however, that such date
may be postponed for up to an additional sixty (60) calendar days to
permit the appraisal process under Section A.5(b)(iii). Until the
aggregate Convertible Redemption Price has been paid for all shares of
Convertible Stock being redeemed: (A) no dividend whatsoever shall be
paid or declared, and no distribution shall be made, on any capital
stock of the Corporation; and (B) except as permitted by Sections
A.8(d)(i), (ii) and (iii), no shares of capital stock of the
Corporation (other than the Convertible Stock in accordance with this
Section A.5) shall be purchased, redeemed or acquired by the
Corporation and no monies shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption or
acquisition thereof.
(e) REDEMPTION PROHIBITED. If, at a Convertible Redemption
Date, the Corporation is prohibited under Section 1701.35 of the Ohio
Revised Code ("Section 1701.35") from redeeming all shares of
Convertible Stock for which redemption is required hereunder, then it
shall redeem such shares on a pro-rata basis among the holders of
Convertible Stock in proportion to the full respective redemption
amounts to which they are entitled hereunder to the extent possible and
shall redeem the remaining shares to be redeemed as soon as the
Corporation is not prohibited from redeeming some or all of such shares
under Section 1701.35, subject to the last paragraph of Section A.8.
The shares of Convertible Stock not redeemed shall remain outstanding
and entitled to all of the rights and preferences provided in this
Article IV. In the event that the Corporation fails for any reason to
redeem shares for which redemption is required pursuant to this Section
A.5, including without limitation due to a prohibition of such
redemption under Section 1701.35, then during the period from the
applicable Convertible Redemption Date through the date on which such
shares are redeemed, the applicable Convertible Base Liquidation Amount
of such shares shall bear interest at the rate of 15% per annum, with
such interest to accrue daily in arrears and to be compounded annually;
PROVIDED, HOWEVER, that in no event shall such interest exceed the
maximum permitted rate of interest under applicable law (the "Maximum
Permitted Rate"). In the event that fulfillment of any provision hereof
results in such rate of interest being in excess of the Maximum
Permitted Rate, the obligation to be fulfilled shall automatically be
reduced to eliminate such excess; PROVIDED, HOWEVER, that any
subsequent increase in the Maximum Permitted Rate shall be
retroactively effective to the applicable Redemption Date.
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<PAGE> 8
(f) DIVIDEND AFTER CONVERTIBLE REDEMPTION DATE. From and after
a Convertible Redemption Date, no shares of Convertible Stock subject
to redemption shall be entitled to dividends, if any, as contemplated
by Section A.3; PROVIDED, HOWEVER, that in the event that shares of
Convertible Stock are unable to be redeemed and continue to be
outstanding in accordance with Section A.5(e), such shares shall
continue to be entitled to dividends and interest thereon as provided
in Sections A.3 and A.5(e) until the date on which such shares are
actually redeemed by the Corporation.
(g) SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Convertible Preferred Redemption Price by certified check or wire
transfer, each holder of shares of Convertible Stock to be redeemed
shall surrender the certificate or certificates representing such
shares to the Corporation, duly assigned or endorsed for transfer (or
accompanied by duly executed stock powers relating thereto), or, in the
event the certificate or certificates are lost, stolen or missing,
shall deliver an affidavit or agreement satisfactory to the Corporation
to indemnify the Corporation from any loss incurred by it in connection
therewith (an "Affidavit of Loss") with respect to such certificates at
the principal executive office of the Corporation or the office of the
transfer agent for the Convertible Stock or such office or offices in
the continental United States of an agent for redemption as may from
time to time be designated by notice to the holders of Convertible
Stock, and each surrendered certificate shall be canceled and retired;
PROVIDED, HOWEVER, that if the holder has exercised its redemption
right pursuant to Section A.5(a)(i)(A) or the Corporation is prohibited
from redeeming all shares of Convertible Stock as provided in Section
A.5(e), the holder shall not be required to surrender said
certificate(s) to the Corporation until said holder has received a new
stock certificate for those shares of Convertible Stock not so
redeemed.
6. CONVERSION. The holders of the Convertible Stock shall have the
following conversion rights:
(a) AUTOMATIC CONVERSION UPON ELECTION OF HOLDERS. The holders
of shares of Convertible Stock shall be entitled, upon the written
election of the holder or holders of not less than sixty-six and
two-thirds percent in voting power of the outstanding shares of
Convertible Stock, without the payment of any additional consideration,
(i) immediately prior to and subject to the closing or happening of a
Liquidation Event or an Extraordinary Transaction and (ii) at any time
after October 15, 1999, to cause each (but not less than all) of the
outstanding shares of Convertible Stock to be automatically converted
into (i) the number of fully paid and nonassessable shares of Common
Stock which results from dividing the Conversion Price (as defined in
this Section A.6(a)) per share in effect for the Convertible Stock at
the time of conversion into the per share Conversion Value (as defined
in this Section A.6(a)) of the Convertible Stock (together with any
other shares of Common Stock held by the holders of Convertible Stock
(regardless of whether such holders continue to hold Convertible
Stock), the "Conversion Shares") and (ii) one (1) fully paid and
nonassessable share of Series A Redeemable Preferred Stock. Upon the
election to so convert in the manner and on the basis specified in the
preceding sentence, all holders of the Convertible Stock shall be
deemed to have elected to voluntarily convert all outstanding shares of
Convertible Stock pursuant to this Section A.6. Upon the filing of
these Second Amended and Restated Articles
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<PAGE> 9
of Incorporation with the Ohio Secretary of State's office, the
"Conversion Price" per share of Convertible Stock shall be $6.99, and
the per share "Conversion Value" of Convertible Stock shall be $69.89.
The Conversion Price per share of Convertible Stock and the Common
Stock Conversion Rate (as defined in this Section A.6(a)) shall be
subject to adjustment from time to time as provided in Section A.7
hereof. The number of shares of Common Stock into which a share of a
Convertible Stock is convertible is hereinafter referred to as the
"Common Stock Conversion Rate." The number of shares of Series A
Redeemable Preferred Stock into which a share of Convertible Stock is
convertible is hereinafter referred to as the "Series A Redeemable
Conversion Rate." If the holders of shares of Convertible Stock elect
to convert the outstanding shares of Convertible Stock at a time when
there are any declared but unpaid dividends or other amounts due on or
in respect of such shares, such dividends and other amounts shall be
paid in full in cash by the Corporation in connection with such
conversion.
(b) AUTOMATIC CONVERSION UPON QPO. Each share of Convertible
Stock shall automatically be converted, without the payment of any
additional consideration, into shares of Common Stock and Series A
Redeemable Preferred Stock as of, and in all cases subject to, the
closing of the Corporation's first underwritten offering to the public
pursuant to an effective registration statement under the Securities
Act of 1933, as amended, provided that (i) such registration statement
covers the offer and sale of Common Stock of which the aggregate net
proceeds attributable to sales for the account of the Corporation
exceed $35,000,000, at a price per share equal to at least $11.00 (as
appropriately adjusted for any stock split, combination,
reorganization, recapitalization, stock dividend, or similar event),
(ii) such Common Stock is listed for trading on either the New York
Stock Exchange or the Nasdaq National Market and (iii) if a redemption
election is made pursuant to Section B.5(a)(i) or (a)(ii), either (A)
all outstanding shares of Series A Redeemable Preferred Stock which are
outstanding or issuable upon such automatic conversion are redeemed
immediately upon and as of the closing of such offering, (B)
contemporaneously with such offering cash in an amount sufficient to
redeem all outstanding shares of Series A Redeemable Preferred Stock is
segregated and irrevocably held by the Corporation for payment to
holders of Series A Redeemable Preferred Stock or (C) all outstanding
shares of Series A Redeemable Preferred Stock are exchanged for Series
A Notes (as defined in Section B.5(a)(i)) (a "QPO" or a "Qualified
Public Offering"); PROVIDED that if a closing of a QPO occurs, all
outstanding shares of Convertible Stock shall be deemed to have been
converted into shares of Common Stock and Series A Redeemable Preferred
Stock immediately prior to such closing. Any such conversion shall be
at the Common Stock Conversion Rate and Series A Redeemable Conversion
Rate in effect upon the closing of a QPO, as applicable.
If the holders of shares of Convertible Stock are required to convert
the outstanding shares of Convertible Stock pursuant to this Section
A.6(b) at a time when there are any declared but unpaid dividends or
any amounts due on or in respect of such shares pursuant to Section
A.5(e) hereof, such dividends and other amounts shall be paid in full
in cash by the Corporation in connection with such conversion.
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<PAGE> 10
(c) PROCEDURE FOR VOLUNTARY CONVERSION. Upon election to
convert pursuant to Section A.6(a), each holder of Convertible Stock
shall surrender the certificate or certificates representing its
Convertible Stock, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating
thereto), at the principal executive office of the Corporation or the
offices of the transfer agent for the Convertible Stock or such office
or offices in the continental United States of an agent for conversion
as may from time to time be designated by notice to the holders of the
Convertible Stock by the Corporation, or shall deliver an Affidavit of
Loss with respect to such certificates. Upon surrender of a certificate
representing Convertible Stock for conversion, or delivery of an
Affidavit of Loss, the Corporation shall issue and send by hand
delivery, by courier or by first class mail (postage prepaid) to the
holder thereof or to such holder's designee, at the address designated
by such holder, certificates for the number of shares of Common Stock
and Series A Redeemable Preferred Stock to which such holder shall be
entitled upon conversion. The issuance of certificates for Common Stock
and Series A Redeemable Preferred Stock upon conversion of Convertible
Stock will be made without charge to the holders of such shares for any
issuance tax in respect thereof or other costs incurred by the
Corporation in connection with such conversion and the related issuance
of such stock. If a Liquidation Event or conversion of Convertible
Stock upon an Extraordinary Transaction or public offering not
constituting a QPO occurs, all outstanding shares of Convertible Stock
shall be deemed to have been converted into shares of Common Stock and
Series A Redeemable Preferred Stock immediately prior thereto, provided
that the Corporation shall make appropriate provisions (x) for the
Common Stock issued upon such conversion to be treated on the same
basis as all other Common Stock in such Liquidation Event,
Extraordinary Transaction or public offering not constituting a QPO and
(y) for the payment of the Series A Redeemable Liquidation Preference
Amount in connection with any Liquidation Event or the redemption of
the Series A Redeemable Preferred Stock (issued upon such conversion)
upon election of such redemption in connection with any Extraordinary
Transaction or public offering not constituting a QPO, if applicable,
as provided herein. In the event of any public offering constituting a
QPO, the provisions of Section A.5(d) shall apply.
(d) PROCEDURE FOR AUTOMATIC CONVERSION. As of, and in all
cases subject to, the closing of a QPO (the "Automatic Conversion
Date"), all outstanding shares of Convertible Stock shall be converted
automatically into shares of Common Stock and Series A Redeemable
Preferred Stock at the applicable conversion rates specified in Section
A.6(a) and without any further action by the holders of such shares and
whether or not the certificates representing such shares of Convertible
Stock are surrendered to the Corporation or its transfer agent;
PROVIDED, HOWEVER, that all holders of Convertible Stock shall be given
prior written notice of the occurrence of a QPO in accordance with
Section A.9 hereof. The Corporation shall not be obligated to issue
certificates evidencing the shares of Series A Redeemable Preferred
Stock or Common Stock issuable on the Automatic Conversion Date (or the
cash payment or issuance of the Series A Notes for the shares of Series
A Redeemable Preferred Stock which are redeemed immediately after such
automatic conversion as provided below and in Section B.5(a)(i) or
B.5(a)(ii)) unless certificates evidencing such shares of the
Convertible Stock being converted, or an Affidavit of Loss with respect
to such certificates, are delivered to the Corporation or its transfer
agent. On the Automatic Conversion Date,
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<PAGE> 11
all rights with respect to the Convertible Stock so converted shall
terminate, except any of the rights of the holders thereof upon
surrender of their certificate or certificates therefor or delivery of
an Affidavit of Loss thereof to receive certificates for the number of
shares of Common Stock and Series A Redeemable Preferred Stock into
which such Convertible Stock has been converted (or the cash payment or
Series A Notes to which such holder is entitled as provided below and
in Section B.5(a)(i) or (a)(ii)). If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder
or by his, her or its attorney duly authorized in writing. Upon
surrender of such certificates or Affidavit of Loss the Corporation
shall issue and deliver to such holder, promptly (and in any event in
such time as is sufficient to enable such holder to participate in such
QPO) at such office and in its name as shown on such surrendered
certificate or certificates, a certificate or certificates for the
number of shares of Common Stock and number of shares of Series A
Redeemable Preferred Stock or the Series A Notes into which the shares
of the Convertible Stock surrendered were convertible on the Automatic
Conversion Date. Notwithstanding anything to the contrary set forth in
this Section A.6(d), the Corporation may deliver, in lieu of
certificates for Series A Redeemable Preferred Stock, cash in an amount
determined pursuant to Section B.5(b) hereof on account of the
redemption of such Series A Redeemable Preferred Stock, and upon
payment of such cash the Series A Redeemable Preferred Stock into which
such Convertible Stock would have been converted shall be deemed to
have been issued and redeemed by the Corporation.
(e) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock and Series A Redeemable
Preferred Stock solely for the purpose of effecting the conversion of
the shares of Convertible Stock such number of its shares of Common
Stock and Series A Redeemable Preferred Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares
of Convertible Stock; and if at any time the number of authorized but
unissued shares of Common Stock and Series A Redeemable Preferred Stock
shall not be sufficient to effect the conversion of all then
outstanding shares of Convertible Stock, the Corporation will take such
corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock and Series A Redeemable Preferred Stock
to such number of shares as shall be sufficient for such purpose.
(f) NO CLOSING OF TRANSFER BOOKS. The Corporation shall not
close its books against the transfer of shares of Convertible Stock in
any manner which would interfere with the timely conversion of any
shares of Convertible Stock.
7. ADJUSTMENTS. The Conversion Price in effect from time to time shall
be subject to adjustment from and after October 10, 1997 and regardless of
whether any shares of Convertible Stock are then issued and outstanding as
follows:
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. Upon the
issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of
outstanding shares of Common Stock into a greater
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<PAGE> 12
number of shares of Common Stock, or the combination of outstanding
shares of Common Stock into a smaller number of shares of Common Stock,
the Conversion Price shall, simultaneously with the happening of such
dividend, subdivision or split be adjusted by multiplying the then
effective Conversion Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior
to such event and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such event. An
adjustment made pursuant to this Section A.7(a) shall be given effect,
upon payment of such a dividend or distribution, as of the record date
for the determination of shareholders entitled to receive such dividend
or distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof.
(b) SALE OF COMMON STOCK. In the event the Corporation shall
at any time, or from time to time, issue, sell or exchange any shares
of Common Stock (including shares held in the Corporation's treasury
but excluding up to 1,420,000 shares of Common Stock (as appropriately
adjusted for stock splits, stock dividends and the like) issued to
officers, directors or employees of the Corporation or upon the
exercise of options or other rights issued to such officers, directors
or employees pursuant to the stock option plans (the "Excluded
Shares"), for a consideration per share less than the Conversion Price
in effect immediately prior to the issuance, sale or exchange of such
shares, then, and thereafter successively upon each such issuance, sale
or exchange, the Conversion Price in effect immediately prior to the
issuance, sale or exchange of such shares shall forthwith be reduced to
an amount determined by multiplying such Conversion Price by a
fraction:
(i) the numerator of which shall be (X) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such additional shares of Common
Stock (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any
outstanding Convertible Stock, options, warrants, rights or
convertible securities), plus (Y) the number of shares of
Common Stock which the net aggregate consideration received by
the Corporation for the total number of such additional shares
of Common Stock so issued would purchase at the Conversion
Price (prior to adjustment), and
(ii) the denominator of which shall be (X) the number
of shares of Common Stock of all classes outstanding
immediately prior to the issuance of such additional shares of
Common Stock (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise of
any outstanding Convertible Stock, options, warrants, rights
or convertible securities), plus (Y) the number of such
additional shares of Common Stock so issued.
(c) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE SECURITIES. In the
event the Corporation shall at any time or from time to time, issue
options, warrants or rights to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of
Common Stock (other than any options or warrants for Excluded Shares),
for a consideration per share (determined by dividing the Net Aggregate
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<PAGE> 13
Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants,
rights or convertible securities were exercised or converted to the
fullest extent permitted by their terms) less than the Conversion Price
in effect immediately prior to the issuance of such options or rights
or convertible or exchangeable securities, the Conversion Price in
effect immediately prior to the issuance of such options, warrants or
rights or securities shall be reduced to an amount determined by
multiplying such Conversion Price by a fraction:
(i) the numerator of which shall be (X) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such options, rights or convertible
securities (excluding treasury shares but including all shares
of Common Stock issuable upon conversion or exercise of any
outstanding Convertible Stock, options, warrants, rights or
convertible securities), plus (Y) the number of shares of
Common Stock which the total amount of consideration received
by the Corporation for the issuance of such options, warrants,
rights or convertible securities plus the minimum amount set
forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net
Aggregate Consideration") would purchase at the Conversion
Price prior to adjustment, and
(ii) the denominator of which shall be (X) the number
of shares of Common Stock of all classes outstanding
immediately prior to the issuance of such options, warrants,
rights or convertible securities (excluding treasury shares
but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding Convertible Stock,
options, warrants, rights or convertible securities), plus (Y)
the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible
securities were exercised or converted.
(d) EXPIRATION OR CHANGE IN PRICE. If the consideration per
share provided for in any options or rights to subscribe for shares of
Common Stock or any securities exchangeable for or convertible into
shares of Common Stock, changes at any time, the Conversion Price in
effect at the time of such change shall be readjusted to the Conversion
Price which would have been in effect at such time had such options or
convertible securities provided for such changed consideration per
share (determined as provided in Section A.7(c) hereof), at the time
initially granted, issued or sold; PROVIDED, that such adjustment of
the Conversion Price will be made only as and to the extent that the
Conversion Price effective upon such adjustment remains less than or
equal to the Conversion Price that would be in effect if such options,
rights or securities had not been issued. No adjustment of the
Conversion Price shall be made under this Section A.7 upon the issuance
of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase
rights or pursuant to the exercise of any conversion or exchange rights
in any convertible securities if an adjustment shall previously have
been made upon the issuance of such warrants, options or other rights.
Any adjustment of the Conversion Price shall be disregarded if, as, and
when the rights to acquire shares of Common Stock upon exercise or
conversion of the warrants, options, rights or convertible securities
which gave rise to such adjustment expire or are canceled without
having been exercised, so that the Conversion Price
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<PAGE> 14
effective immediately upon such cancellation or expiration shall be
equal to the Conversion Price in effect at the time of the issuance of
the expired or canceled warrants, options, rights or convertible
securities, with such additional adjustments as would have been made to
that Conversion Price had the expired or canceled warrants, options,
rights or convertible securities not been issued.
(e) OTHER ADJUSTMENTS. In the event the Corporation shall make
or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Corporation other than shares of Common
Stock, then and in each such event lawful and adequate provision shall
be made so that the holders of Convertible Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities of the Corporation which
they would have received had their Convertible Stock been converted
into Common Stock and Series A Redeemable Preferred Stock on the date
of such event and had they thereafter, during the period from the date
of such event to and including the date of conversion, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
Section A.7 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the
Convertible Stock shall be changed into the same or different number of
shares of any class or classes of stock, whether by reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for above, or a reorganization, merger, consolidation
or sale of assets provided for elsewhere in this Section A.7), then and
in each such event the holder of each share of Convertible Stock shall
have the right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change, by holders
of the number of shares of Common Stock into which such shares of
Convertible Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(f) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time there shall be a capital reorganization of the Common
Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this Section A.7) or a
merger or consolidation of the Corporation with or into another
Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a
part of and as a condition to the effectiveness of such reorganization,
merger, consolidation or sale, lawful and adequate provision shall be
made so that the holders of the Convertible Stock shall thereafter be
entitled to receive upon conversion of the Convertible Stock the number
of shares of stock or other securities or property of the Corporation
or of the successor Corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case,
appropriate provisions shall be made with respect to the rights of the
holders of the Convertible Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section
A.7
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<PAGE> 15
(including without limitation provisions for adjustment of the
Conversion Price and the number of shares purchasable upon conversion
of the Convertible Stock) shall thereafter be applicable, as nearly as
may be, with respect to any shares of stock, securities or assets to be
deliverable thereafter upon the conversion of the Convertible Stock.
(g) All calculations under this Section A.7 shall be made to
the nearest cent or to the nearest one hundredth (1/100) of a share, as
the case may be.
(h) Upon the occurrence of each adjustment or readjustment
pursuant to this Section A.7, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the
terms hereof and prepare and furnish to each holder of Convertible
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon written request at any time of
any holder of Convertible Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Prices before and after such
adjustment or readjustment, and (iii) the number of shares of Common
Stock and Series A Redeemable Preferred Stock and the amount, if any,
of other property which at the time would be received upon the
conversion of such holder's shares of Convertible Stock.
8. COVENANTS. So long as any shares of Convertible Preferred Stock (or
Series A Redeemable Preferred Stock, as applicable) shall be outstanding, the
Corporation shall not, without first having provided written notice of such
proposed action to each holder of outstanding shares of Convertible Preferred
Stock (or Series A Redeemable Preferred Stock, as applicable) and having
obtained the affirmative vote or written consent of the holders of not less than
sixty-six and two-thirds percent in voting power of the outstanding shares of
Convertible Preferred Stock (or Series A Redeemable Preferred Stock, as
applicable), voting as a single class, with each share of Convertible Preferred
Stock (or Series A Redeemable Preferred Stock, as applicable) entitling the
holder thereof to one vote per share of Convertible Preferred Stock (or Series A
Redeemable Preferred Stock, as applicable) held by such holder:
(a) sell, lease or otherwise dispose of (whether in one
transaction or a series of related transactions) all or a substantial
portion of its assets or business,
(b) merge with or into or consolidate with another entity or
enter into or engage in any other transaction or series of related
transactions, in any such case in connection with or as a result of
which the Corporation is not the surviving entity or the owners of the
Corporation's outstanding equity securities prior to the transaction or
series of related transactions do not own at least a majority of the
outstanding equity securities of the surviving, resulting or
consolidated entity,
(c) dissolve, liquidate or wind up its operations, (d)
directly or indirectly redeem, purchase, or otherwise acquire for
consideration any shares of its Common Stock (as defined in Section
C.1) or any other class of its capital
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<PAGE> 16
stock except (i) for the redemption of Convertible Preferred Stock,
Series A Redeemable Preferred Stock or Conversion Shares pursuant to
and as provided in these Second Amended and Restated Articles of
Incorporation, (ii) for the exchange of Series A Redeemable Preferred
Stock for Series A Notes as contemplated by Section B.5(a)(i), (iii) as
contemplated by Sections 1.2 and 4.5 of the Stock Purchase and
Shareholders Agreement dated as of October 15 by and among the
Corporation and the shareholders of the Corporation (the "Purchase
Agreement"), or (iv) for the repurchase of shares of Common Stock from
employees and consultants pursuant to agreements entered into in
connection with the issuance of options and/or restricted stock,
pursuant to the Corporation's 1997 Equity and Performance Incentive
Plan,
(e) propose or adopt any amendment to this Article IV of these
Second Amended and Restated Articles of Incorporation, or any other
amendment to these Second Amended and Restated Articles of
Incorporation or the Corporation's regulations that eliminates, amends
or restricts or otherwise adversely affects the rights and preferences
of the Convertible Preferred Stock or the Series A Redeemable Preferred
Stock, or increases the authorized shares of Convertible Preferred
Stock or Series A Redeemable Preferred Stock,
(f) declare or make dividend payments on any shares of its
Common Stock or any other class of its capital stock,
(g) create, or obligate itself to create, any class or series
of shares having preference over or being on a parity with the
Convertible Preferred Stock or the Series A Redeemable Preferred Stock,
(h) increase the size of the Board of Directors to more than
seven (7) members, or
(i) enter into or be a party to any transaction or agreement,
including without limitation any lease (other than the lease in effect
as of the date of filing these Second Amended and Restated Articles of
Incorporation with respect to the Company's new offices located in
Mayfield Heights, Ohio as set forth in the agreement by and between the
Corporation and American National Development, Ltd., dated May, 1996)
or other rental or purchase agreement providing for loans or extensions
of credit by or to the Company with or for the benefit of any person or
entity which is a shareholder, officer or director of the Company, a
relative by blood or marriage of, a trust or estate for the benefit of,
or a person or entity which directly or indirectly controls, is
controlled by, or is under common control with, any such person or
entity, except (i) for normal compensation paid to employees of the
Company in the ordinary course of business and (ii) transactions
expressly disclosed in or contemplated by the Agreement and the
exhibits thereto.
Further, the Corporation shall not, by amendment of these Second
Amended and Restated Articles of Incorporation or through any Extraordinary
Transaction or other reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
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<PAGE> 17
knowingly or purposefully avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Corporation and
each subsidiary of the Corporation but shall at all times in good faith assist
in the carrying out of all the provisions of this Article IV and in the taking
of all such action as may be necessary or appropriate in order to protect the
rights of the holders of the Convertible Preferred Stock and the Series A
Redeemable Preferred Stock set forth in this Certificate against impairment. Any
successor to the Corporation or any subsidiary of the Corporation shall agree,
as a condition to such succession, to carry out and observe the obligations of
the Corporation hereunder with respect to the Convertible Preferred Stock and
the Series A Redeemable Preferred Stock.
9. NOTICE
(a) LIQUIDATION EVENTS, EXTRAORDINARY TRANSACTIONS, ETC. In
the event (i) the Corporation establishes a record date to determine
the holders of any class of securities who are entitled to receive any
dividend or other distribution or who are entitled to vote at a meeting
(or by written consent) in connection with any of the transactions
identified in clause (ii) hereof, or (ii) any Liquidation Event (as
defined in Section A.4), any Extraordinary Transaction (as defined in
Section A.5), any QPO (as defined in Section A.6) or any other public
offering becomes reasonably likely to occur, the Corporation shall mail
or cause to be mailed by first class mail (postage prepaid) to each
holder of Convertible Stock (or each holder of Series A Redeemable
Preferred Stock, as applicable) at least fifteen (15) days prior to
such record date specified therein or the expected effective date of
any such transaction, whichever is earlier, a notice specifying (A) the
date of such record date for the purpose of such dividend or
distribution or meeting or consent and a description of such dividend
or distribution or the action to be taken at such meeting or by such
consent, (B) the date on which any such Liquidation Event,
Extraordinary Transaction, QPO or other public offering is expected to
become effective, and (C) the date on which the books of the
Corporation shall close or a record shall be taken with respect to any
such event.
(b) WAIVER OF NOTICE. The holder or holders of not less than
sixty-six and two-thirds percent in voting power of the outstanding
shares of Convertible Stock (or Series A Redeemable Preferred Stock, as
applicable) may, at any time upon written notice to the Corporation,
waive any notice provisions specified herein for the benefit of such
holders, and any such waiver shall be binding upon all holders of such
securities.
(c) GENERAL. In the event that the Corporation provides any
notice, report or statement to any holder of Common Stock, the
Corporation shall at the same time provide a copy of any such notice,
report or statement to each holder of outstanding shares of Convertible
Stock (or Series A Redeemable Preferred Stock, as applicable).
10. NO REISSUANCE OF CONVERTIBLE STOCK. No share or shares of
Convertible Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
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<PAGE> 18
11. CONTRACTUAL RIGHTS OF HOLDERS. The various provisions set forth
herein for the benefit of the holders of the Convertible Stock and Series A
Redeemable Preferred Stock shall be deemed contract rights enforceable by them,
including without limitation, one or more actions for specific performance.
B. SERIES A REDEEMABLE PREFERRED STOCK
1. DESIGNATION. A total of 250,400 shares of the Corporation's
Preferred Stock shall be designated as a series known as Series A Redeemable
Preferred Stock, par value $.01 per share (the "Series A Redeemable Preferred
Stock").
2. ELECTION OF DIRECTORS; VOTING.
(a) ELECTION OF DIRECTORS. The holders of outstanding shares
of Series A Redeemable Preferred Stock shall, voting together as a
separate class, be entitled to elect one (1) Director. Such Director
shall be the candidate receiving the greatest number of affirmative
votes (with each holder of Series A Redeemable Preferred Stock entitled
to cast one vote for or against each candidate with respect to each
share of Series A Redeemable Preferred Stock held by such holder) of
the outstanding shares of Series A Redeemable Preferred Stock (the
"Series A Redeemable Preferred Stock Director Designee"), with votes
cast against such candidates and votes withheld having no legal
effect). The election of the Series A Redeemable Preferred Stock
Director Designee by the holders of the Series A Redeemable Preferred
Stock shall occur (i) at the annual meeting of holders of capital
stock, (ii) at any special meeting of holders of capital stock, (iii)
at any special meeting of holders of Series A Redeemable Preferred
Stock called by holders of a majority of the outstanding shares of
Series A Redeemable Preferred Stock or (iv) by the unanimous written
consent of holders of the outstanding shares of Series A Redeemable
Preferred Stock. Upon conversion of the Convertible Stock, the holder
or holders of not less than a majority in voting power of the
outstanding Series A Redeemable Preferred Stock shall designate one of
the Convertible Stock Director Designees then serving on the
Corporation's board of directors to continue in such capacity as the
Series A Redeemable Preferred Stock Designee. If at any time when any
share of Series A Redeemable Preferred Stock is outstanding the Series
A Redeemable Preferred Stock Director Designee should cease to be a
Director for any reason, the vacancy shall only be filled by the vote
or written consent of holders of the outstanding shares of Series A
Redeemable Preferred Stock, voting together as a separate class, in the
manner and on the basis specified above.
(b) VOTING GENERALLY. Except as set forth above with respect
to the election of the Series A Redeemable Preferred Stock Director
Designee, the holders of Series A Redeemable Preferred Stock shall not
be entitled to vote on any matters except to the extent otherwise
required under the Ohio Revised Code.
3. DIVIDENDS. The holders of outstanding shares of Series A Redeemable
Preferred Stock shall be entitled to receive, out of any funds legally available
therefor, cumulative (non-compounding) dividends on the Series A Redeemable
Preferred Stock in cash, at the per share rate per annum of
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<PAGE> 19
seven percent (7%) of $62.90 (adjusted appropriately for stock splits, stock
dividends, recapitalizations and the like with respect to the Series A
Redeemable Preferred Stock) (a "Series A Redeemable Cumulative Dividend"). Such
dividends will accrue quarterly in arrears commencing as of the date of issuance
of the Series A Redeemable Preferred Stock and be cumulative, to the extent
unpaid, whether or not they have been declared and whether or not there are
profits, surplus or other funds of the Corporation legally available for the
payment of dividends. Series A Redeemable Cumulative Dividends shall become due
and payable with respect to any share of Series A Redeemable Preferred Stock as
provided in Section B.4 and Section B.5. So long as any shares of Series A
Redeemable Preferred Stock are outstanding and the Series A Redeemable
Cumulative Dividends have not been paid in full in cash: (A) no dividend
whatsoever shall be paid or declared, and no distribution shall be made, on any
Common Stock or other capital stock of the Corporation ranking junior to the
Series A Redeemable Preferred Stock; and (B) except as provided in Sections
A.8(d)(i), (ii) and (iii), no shares of capital stock of the Corporation ranking
junior to the Series A Redeemable Preferred Stock shall be purchased, redeemed
or acquired by the Corporation and no monies shall be paid into or set aside or
made available for a sinking fund for the purchase, redemption or acquisition
thereof. All numbers relating to the calculation of dividends pursuant to this
Section B.3 shall be subject to equitable adjustment in the event of any stock
split, combination, reorganization, recapitalization, reclassification or other
similar event involving a change in the Series A Redeemable Preferred Stock.
Nothing herein contained shall in any way or under any circumstances be
construed or deemed to required the Board to declare, or the Corporation to pay
or set apart for payment, any cash dividends of the Series A Redeemable
Preferred Stock. Dividends payable on the Series A Redeemable Preferred Stock
for any period less than a year shall be computed on the basis of a 365 day (366
day if applicable) year and the actual number of days elapsed.
4. LIQUIDATION. Upon any Liquidation Event, each holder of outstanding
shares of Series A Redeemable Preferred Stock shall be entitled to be paid out
of the assets of the Corporation available for distribution to shareholders,
whether such assets are capital, surplus, or earnings, and before any amount
shall be paid or distributed to the holders of Common Stock or of any other
stock ranking on liquidation junior to the Series A Redeemable Preferred Stock,
an amount in cash equal to the sum of (a) $62.90 per share of Series A
Redeemable Preferred Stock held by such holder (adjusted appropriately for stock
splits, stock dividends, recapitalizations and the like with respect to the
Series A Redeemable Preferred Stock), plus (b) any unpaid dividends to which
such holder of outstanding shares of Series A Redeemable Preferred Stock is
entitled pursuant to Sections B.3 and B.5(d) hereof (the sum of clauses (a) and
(b) being referred to herein as the"Series A Redeemable Base Liquidation
Amount"), plus (c) any interest accrued pursuant to Section B.5(c) to which such
holder of outstanding shares of Series A Redeemable Preferred Stock is entitled,
if any (the sum of clauses (a), (b) and (c) being referred to herein as the
"Series A Redeemable Liquidation Preference Amount"); PROVIDED, HOWEVER, that
if, upon any Liquidation Event, the amounts payable with respect to the Series A
Redeemable Liquidation Preference Amount are not paid in full, the holders of
the Series A Redeemable Preferred Stock shall share ratably in any distribution
of assets in proportion to the full respective preferential amounts to which
they are entitled.
5. REDEMPTION.
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<PAGE> 20
(a) REDEMPTION EVENTS.
(i) UPON ELECTION OF HOLDERS UPON A QPO. Upon the election of
the holder or holders of not less than sixty-six and two-thirds percent
of the outstanding Convertible Stock, the Corporation shall redeem all
(and not less than all, except as set forth in the third sentence of
this Section B.5(a)) of the outstanding shares of Series A Redeemable
Preferred Stock upon the closing of a QPO. The foregoing election shall
be made by such holders giving the Corporation and each other holder of
Series A Redeemable Preferred Stock (or Convertible Stock, as
applicable) written notice not less than five (5) days prior to the
closing of a QPO. In the event that the principal underwriter for a QPO
shall reasonably and in good faith request in writing, or cause the
Company to so request in writing, that the holders of Series A
Redeemable Preferred Stock waive the holders' right to elect to have
such holder's shares of Series A Redeemable Preferred Stock redeemed
pursuant to this Section B.5(a)(i) and the holders of sixty-six and
two-thirds percent in voting power of the outstanding shares of the
Series A Redeemable Preferred Stock agree to so waive such redemption
election, then all outstanding shares of Series A Redeemable Preferred
Stock shall be exchanged, without the payment of additional
consideration, for notes of the Company ("Series A Notes") in an
aggregate principal amount equal to the aggregate Series A Redemption
Price (as defined in Section B.5(b) below), which Series A Notes shall
(i) mature on the second anniversary of the effective date of such QPO
and (ii) bear interest on the outstanding principal balance thereof at
the rate of fifteen percent (15%) per annum, which interest shall
accrue daily in arrears and be paid on the last day of each month,
commencing on the last day of the first month following the effective
date of such QPO.
(ii) UPON ELECTION OF CORPORATION UPON A QPO. The Corporation
may elect to redeem all (but not less than all, other than pursuant to
Section B.5(c) below) of the outstanding shares of Series A Redeemable
Preferred Stock at any time upon the closing of a QPO. The foregoing
election shall be made by the Corporation giving each holder of Series
A Redeemable Preferred Stock written notice not less than five (5) days
prior to the closing of a QPO.
(iii) LAPSE OF TIME.
(A) At any time after the later of the first
anniversary of the date of the conversion of the Convertible
Preferred Stock as set forth in Section A.6 (other than in
connection with an Extraordinary Transaction) and October 15,
2001, on any one occasion any holder of Series A Redeemable
Preferred Stock may require the Corporation to redeem up to
50% of the outstanding shares of Series A Redeemable Preferred
Stock held by such holder at such time.
(B) At any time after the later of the second
anniversary of the date of the conversion of the Convertible
Preferred Stock as set forth in Section
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<PAGE> 21
A.6 (other than in connection with an Extraordinary
Transaction) and October 15, 2002, on any one occasion any
holder of Series A Redeemable Preferred Stock may require the
Corporation to redeem up to all of the outstanding shares of
Series A Redeemable Preferred Stock held by such holder at
such time.
(iv) UPON EXTRAORDINARY TRANSACTIONS. Upon the election of the
holder or holders of not less than sixty-six and two-thirds percent in
voting power of the outstanding Series A Redeemable Preferred Stock (or
Convertible Stock, as applicable, proposing to convert the same in
order to effect a redemption of the Series A Redeemable Preferred Stock
received upon such conversion hereunder), the Corporation shall redeem
all (and not less than all, other than pursuant to Section B.5(c)
below) of the outstanding shares of Series A Redeemable Preferred Stock
upon the occurrence of an Extraordinary Transaction (as defined in
Section A.5) or public offering not constituting a QPO. The foregoing
election shall be made by such holders giving the Corporation and each
other holder of Series A Redeemable Preferred Stock (or Convertible
Stock, as applicable) not less than five (5) days prior written notice,
which notice shall set forth the date for such redemption.
(v) UPON ELECTION OF CORPORATION.
(A) At any time after the later of the first
anniversary of the date of the conversion of the Convertible
Preferred Stock as set forth in Section A.6 and October 15,
2001, the Corporation may redeem 50% (but not less than 50%)
of the outstanding shares of Series A Redeemable Preferred
Stock. The foregoing election shall be made by the Corporation
giving each holder of Series A Redeemable Preferred Stock
written notice not less than five (5) days prior to the date
for such redemption.
(B) At any time after the later of the second
anniversary of the date of the conversion of the Convertible
Preferred Stock as set forth in Section A.6 and October 15,
2002, the Corporation may redeem all (but not less than all)
of the outstanding shares of Series A Redeemable Preferred
Stock. The foregoing election shall be made by the Corporation
giving each holder of Series A Redeemable Preferred Stock
written notice not less than five (5) days prior to such
redemption.
(b) REDEMPTION DATE; REDEMPTION PRICE. Any holder of Series A
Redeemable Preferred Stock may exercise such holder's right of
redemption pursuant to Section B.5(a)(iii) by such holder giving the
Corporation not less than ten (10) days prior written notice, which
notice shall set forth the date for such redemption. Upon the election
of the holders of not less than sixty-six and two-thirds percent in
voting power of the outstanding Series A Redeemable Preferred Stock to
cause the Corporation to redeem the Series A Redeemable Preferred Stock
pursuant to Section B.5(a)(i) or (a)(iv), all holders of Series A
Redeemable Preferred Stock shall be deemed to have elected to cause the
Series A
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<PAGE> 22
Redeemable Preferred Stock to be so redeemed. Any date upon which a
redemption shall actually occur in accordance with Section B.5(a) shall
be referred to as a "Series A Redemption Date." The redemption price
for each share of Series A Redeemable Preferred Stock redeemed pursuant
to this Section B.5 shall be the per share Series A Redeemable
Liquidation Preference Amount (the "Series A Redemption Price"). The
aggregate Series A Redemption Price shall be payable in cash in
immediately available funds on the Series A Redemption Date. Until the
aggregate Series A Redemption Price, including any interest thereon,
has been paid in cash for all shares of Series A Redeemable Preferred
Stock redeemed as of the applicable Series A Redemption Date or Series
A Notes have been issued pursuant to Section B.5(a)(i): (A) no dividend
whatsoever shall be paid or declared, and no distribution shall be
made, on any capital stock of the Corporation; and (B) except as
provided in Sections A.8(d)(i), (ii) and (iii), no shares of capital
stock of the Corporation (other than the Series A Redeemable Preferred
Stock in accordance with this Section B.5) shall be purchased, redeemed
or acquired by the Corporation and no monies shall be paid into or set
aside or made available for a sinking fund for the purchase, redemption
or acquisition thereof.
(c) REDEMPTION PROHIBITED. If, at a Series A Redemption Date,
the Corporation is prohibited under Section 1701.35 from redeeming all
shares of Series A Redeemable Preferred Stock for which redemption is
required hereunder, then it shall redeem such shares on a pro-rata
basis among the holders of Series A Redeemable Preferred Stock in
proportion to the full respective redemption amounts to which they are
entitled hereunder to the extent possible and shall redeem the
remaining shares to be redeemed as soon as the Corporation is not
prohibited from redeeming some or all of such shares under Section
1701.35, subject to the last paragraph of Section A.8. The shares of
Series A Redeemable Preferred Stock not redeemed shall remain
outstanding and entitled to all of the rights and preferences provided
in this Article III. In the event that the Corporation fails for any
reason to redeem shares for which redemption is triggered pursuant to
Section B.5 (other than pursuant to the third sentence of Section
B.5(a)(i)), including without limitation due to a prohibition of such
redemption under Section 1701.35, then during the period from the
applicable Series A Redemption Date through the date on which such
shares are redeemed, the applicable Series A Redeemable Base
Liquidation Amount of such shares shall bear interest at the rate of
15% per annum, with such interest to accrue daily in arrears and to be
compounded annually.
(d) DIVIDEND AFTER REDEMPTION DATE. From and after the closing
of a QPO or an Extraordinary Transaction or an public offering not
constituting a QPO (in the case of a redemption pursuant to Section
B.5(a)(i) or (iv)) or the date specified for redemption in the election
notice as set forth in Section B.5(a)(ii) or (v) or Section B.5(b), no
shares of Series A Redeemable Preferred Stock subject to redemption
shall be entitled to any further dividends pursuant to Section B.3
hereof; PROVIDED, HOWEVER, that in the event that shares of Series A
Redeemable Preferred Stock are unable to be redeemed and continue to be
outstanding in accordance with Section B.5(c), such shares shall
continue to be entitled to dividends and interest thereon as provided
in Sections B.3 and B.5(c) until the date on which such shares are
actually redeemed by the Corporation.
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<PAGE> 23
(e) SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Series A Redemption Price by certified check or wire transfer or
receipt of the Series A Notes pursuant to the third sentence of Section
b.5(a)(i), each holder of shares of Series A Redeemable Preferred Stock
to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation, duly assigned or endorsed
for transfer (or accompanied by duly executed stock powers relating
thereto), or shall deliver an Affidavit of Loss with respect to such
certificates at the principal executive office of the Corporation or
the office of the transfer agent for the Series A Redeemable Preferred
Stock or such office or offices in the continental United States of an
agent for redemption as may from time to time be designated by notice
to the holders of Series A Redeemable Preferred Stock (or the holders
of Convertible Stock, as applicable), and each surrendered certificate
shall be canceled and retired; PROVIDED, HOWEVER, that if the holder
has exercised its redemption right pursuant to Section B.5(a)(iii)(A),
the holder shall not be required to surrender said certificate(s) to
the Corporation until said holder has received a new stock certificate
for those shares of Series A Redeemable Preferred Stock not so
redeemed.
6. NOTICE. In the event that the Corporation provides or is required to
provide notice to any holder of Convertible Stock or Common Stock in accordance
with the provisions of these Second Amended and Restated Articles of
Incorporation (including the provisions of Sections A.5(c) and A.9) and/or the
Corporation's regulations, the Corporation shall at the same time provide a copy
of any such notice to each holder of outstanding shares of Series A Redeemable
Preferred Stock.
7. NO REISSUANCE OF SERIES A REDEEMABLE PREFERRED STOCK. No share or
shares of Series A Redeemable Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion, exchange or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from the
shares which the Corporation shall be authorized to issue.
8. COVENANTS. So long as any shares of Series A Redeemable Preferred
Stock shall be outstanding the provisions of Section A.8 shall apply to all
shares of Series A Redeemable Preferred Stock as if such shares were shares of
Convertible Preferred Stock.
C. COMMON STOCK
1. DESIGNATION. A total of 45,000,000 shares of the Corporation's
common stock shall be designated as Common Stock, no par value (the "Common
Stock").
2. VOTING.
(a) ELECTION OF DIRECTORS. The holders of Common Stock voting
together with the holders of outstanding Convertible Stock as a single
class shall be entitled to elect all of the Directors of the
Corporation (other than the Directors who are subject to election by
the holders of Convertible Stock or Series A Redeemable Preferred Stock
as a separate class) for so long as any shares of Convertible Stock or
Series A Redeemable Preferred Stock remain outstanding and thereafter
shall be entitled to elect all of the Directors of the Corporation.
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<PAGE> 24
Such Directors shall be the candidates receiving the greatest number of
affirmative votes entitled to be cast (with each holder entitled to
cast one vote for or against each candidate with respect to each share
held by such holder), with votes cast against such candidates and votes
withheld having no legal effect. The election of such Directors shall
occur at the annual meeting of holders of capital stock or at any
special meeting called and held in accordance with the regulations of
the Corporation. If a person elected in accordance with the foregoing
provisions should cease to be a Director for any reason, the vacancy
shall only be filled by the vote of the outstanding shares entitled to
vote for such Directors, in the manner and on the basis specified
above.
(b) OTHER VOTING. The holder of each share of Common Stock
shall be entitled to one vote for each such share as determined on the
record date for the vote or consent of shareholders and shall vote
together with the holders of the Convertible Stock as a single class
upon any items submitted to a vote of shareholders, except as otherwise
provided herein.
3. DIVIDENDS. Subject to the payment in full of all preferential
dividends to which the holders of the Redeemable Preferred Stock are entitled
hereunder, the holders of Common Stock shall be entitled to receive dividends
out of funds legally available therefor at such times and in such amounts as the
Board of Directors may determine in its sole discretion, with holders of
Convertible Stock and Common Stock sharing PARI PASSU in such dividends as
contemplated by Section A.3.
4. LIQUIDATION. Upon any Liquidation Event, after the payment or
provision for payment of all debts and liabilities of the Corporation and all
preferential amounts to which the holders of Convertible Stock or Series A
Redeemable Preferred Stock, as applicable, are entitled with respect to the
distribution of assets in liquidation, the holders of Common Stock (and to the
extent applicable under Section A.4(a) Convertible Stock) shall be entitled to
share ratably in the remaining assets of the Corporation available for
distribution.
5. REDEMPTION OF CONVERSION SHARES.
(a) REDEMPTION EVENT. Upon the written election of the holder
or holders of not less than sixty-six and two-thirds percent in voting
power of the Conversion Shares at any time after October 15, 2003, the
Corporation shall redeem all of the outstanding Conversion Shares.
(b) REDEMPTION DATE; REDEMPTION PRICE. Any holder or holders
of not less than sixty-six and two-thirds percent in voting power of
the Conversion Shares may exercise such right of redemption pursuant to
Section C.5(a) by such holder giving the Corporation not less than
twenty (20) days prior written notice, which notice shall set forth the
date for such redemption. Any date upon which a redemption shall
actually occur in accordance with Section C.5(a) shall be referred to
as a "Conversion Share Redemption Date." The redemption price for each
Conversion Share redeemed pursuant to this Section C.5 shall be the sum
of (x) the greater of (i) the $.4541 (adjusted appropriately for stock
splits, stock dividends, recapitalizations and the like with respect to
the Common Stock) and (ii) the Fair Market Value (as defined in Section
C.5(b)(i) below) of each Conversion Share, plus (y) any
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<PAGE> 25
unpaid dividends accumulated with respect to such Conversion Shares
under Section C.3 and Section C.5(d) hereof (the sum of clauses (x) and
(y) being referred to herein as the "Conversion Share Base Redemption
Price"), plus (z) any interest accrued pursuant to Section C.5(c) with
respect to such Conversion Share (the sum of clauses (x), (y) and (z)
being referred to herein as the "Conversion Share Redemption Price").
The aggregate Conversion Share Redemption Price shall be payable in
cash in immediately available funds on the Conversion Share Redemption
Date. Until the aggregate Conversion Share Redemption Price, including
any interest thereon, has been paid in cash for all Conversion Shares
redeemed as of the applicable Conversion Share Redemption Date: (A) no
dividend whatsoever shall be paid or declared, and no distribution
shall be made, on any capital stock of the Corporation; and (B) except
as provided in Sections A.8(d)(i), (ii) and (iii), no shares of capital
stock of the Corporation shall be purchased, redeemed or acquired by
the Corporation and no monies shall be paid into or set aside or made
available for a sinking fund for the purchase, redemption or
acquisition thereof.
(i) The Fair Market Value of the Conversion Shares shall be
determined according to the following procedure:
(A) The Board of Directors of the Corporation and
holders of at least a majority of the Conversion Shares (the
"Conversion Share Majority") shall negotiate in good faith in
an effort to reach an agreement upon the Fair Market Value of
the Conversion Shares for a period of ten (10) days beginning
April 15, 2003.
(B) If the Board of Directors and Conversion Share
Majority are unable to reach agreement under the foregoing
subsection (A), the Fair Market Value of the Conversion Shares
shall be determined by appraisal. Within thirty (30) days
after the expiration of the ten-day period in subsection (A)
above, the Board of Directors and holders of the Conversion
Shares to be redeemed shall each elect as an appraiser
(collectively, the "Selected Appraisers") a senior member of
the American Society of Appraisers experienced in the
appraisal of software services companies or an investment
banker who is an NASD member and is experienced in the
appraisal of software services companies. The Selected
Appraisers shall establish the value of the Corporation as if
100% of the Corporation were sold for cash on a going concern
basis in an orderly, negotiated transaction between an
informed and willing seller under no compulsion to sell and an
informed and willing buyer, net of reasonably expected
transaction expenses. Each Selected Appraiser shall render its
appraisal within thirty (30) days of its appointment
hereunder. In the event that either Selected Appraiser fails
to render an appraisal within such thirty-day period, the
first appraisal rendered shall be conclusive. In the event
that the values determined by the Selected Appraisers differ
by less than ten percent (10%) of the higher value, the value
of the Corporation shall be the average of the appraisals made
by each of the Selected Appraisers. In the event that the
values differ by ten percent (10%)
- 25 -
<PAGE> 26
or more of the higher value, the Selected Appraisers shall
within ten (10) days select a third appraiser (the "Neutral
Appraiser") to conduct an appraisal under the standards set
forth herein. The Neutral Appraiser shall render an appraisal
within thirty (30) days of its appointment hereunder. The
value of the Corporation shall be equal to the appraisal made
by the Neutral Appraiser if such appraisal is between the two
appraisals made by the Selected Appraisers or, if such
appraisal by the Neutral Appraiser is not between the two
appraisals made by the Selected Appraisers, then the value of
the Corporation shall be that one of the two appraisals made
by the Selected Appraisers that is closer to the appraisal
made by the Neutral Appraiser. All appraisals delivered
pursuant to this subsection (ii) shall be in writing and
signed by the appraiser. The fees, costs and expenses of the
Selected Appraisers and Neutral Appraiser will be borne by the
Corporation. The Fair Market Value of the Conversion Shares
shall be an amount equal to the amount of net proceeds that
the holders of the Conversion Shares would have received for
their shares of Common Stock immediately prior to a sale of
the Corporation as provided above.
(C) Such Fair Market Value of the Conversion Shares
shall be calculated in such a manner as to make the holders of
the Conversion Shares neither better off nor worse off than
would have been the case if 100% of the Corporation had been
sold for cash at the appraised value of the Corporation in
accordance with the procedures set forth above (i.e., there is
no discount for minority interests or lack of marketability
thereof).
(c) REDEMPTION PROHIBITED. If, at a Conversion Share
Redemption Date, the Corporation is prohibited under Section 1701.35
from redeeming all Conversion Shares for which redemption is required
hereunder, then it shall redeem such shares on a pro-rata basis among
the holders of Conversion Shares in proportion to the full respective
redemption amounts to which they are entitled hereunder to the extent
possible and shall redeem the remaining shares to be redeemed as soon
as the Corporation is not prohibited from redeeming some or all of such
shares under Section 1701.35, subject to the last paragraph of Section
A.8. The Conversion Shares not redeemed shall remain outstanding and
entitled to all of the rights and preferences provided in this Article
IV. In the event that the Corporation fails for any reason to redeem
shares for which redemption is required pursuant to Section C.5,
including without limitation due to a prohibition of such redemption
under Section 1701.35, then during the period from the applicable
Conversion Share Redemption Date through the date on which such shares
are redeemed, the applicable Conversion Share Base Redemption Price of
such shares shall bear interest at the rate of 15% per annum, with such
interest to accrue daily in arrears and to be compounded annually.
(d) DIVIDEND AFTER REDEMPTION DATE. From and after a
Conversion Share Redemption Date, no Conversion Shares subject to
redemption at such Conversion Share Redemption shall be entitled to any
further dividends pursuant to Section C.3 hereof; PROVIDED, HOWEVER,
that in the event that Conversion Shares are unable to be redeemed and
- 26 -
<PAGE> 27
continue to be outstanding in accordance with Section C.5(c), such
shares shall continue to be entitled to dividends and interest thereon
as provided in Sections C.3 and C.5(c) until the date on which such
shares are actually redeemed by the Corporation.
(e) SURRENDER OF CERTIFICATES. Upon receipt of the applicable
Conversion Share Redemption Price by certified check or wire transfer,
each holder of Conversion Shares to be redeemed shall surrender the
certificate or certificates representing such shares to the
Corporation, duly assigned or endorsed for transfer (or accompanied by
duly executed stock powers relating thereto), or shall deliver an
Affidavit of Loss with respect to such certificates at the principal
executive office of the Corporation or the office of the transfer agent
for the Conversion Shares or such office or offices in the continental
United States of an agent for redemption as may from time to time be
designated by notice to the holders of Conversion Shares, and each
surrendered certificate shall be canceled and retired, PROVIDED,
HOWEVER, that if the holder has not exercised its redemption right with
respect to all of its Conversion Shares, the holder shall not be
required to surrender said certificate(s) to the Corporation until said
holder has received a new stock certificate for those Conversion Shares
not so surrendered. Upon receipt of the certificate or certificates, as
the case may be, or an Affidavit of Loss, the Corporation shall pay the
applicable Conversion Share Redemption Price by certified check or wire
transfer.
6. FRACTIONAL SHARES; UNCERTIFICATED SHARES. The Corporation may issue
fractional shares (up to five decimal places) of Common Stock and Preferred
Stock. Fractional shares shall be entitled to dividends (on a pro rata basis),
and the holders of fractional shares shall be entitled to all rights as
shareholders of the Corporation to the extent provided herein and under
applicable law in respect of such fractional shares. Shares of Common Stock and
Preferred Stock, or fractions thereof, may, but need not be, represented by
share certificates. Such shares, or fractions thereof, not represented by share
certificates ("Uncertificated Shares") shall be registered in the stock records
book of the Corporation. The Corporation at any time at its sole option may
deliver to any registered holder of such shares share certificates to represent
Uncertificated Shares previously issued (or deemed issued) to such holder.
ARTICLE V
---------
The Board of Directors shall be authorized hereby to exercise all
powers now or hereafter permitted by law providing rights to the Board of
Directors to adopt amendments to these Second Amended and Restated Articles of
Incorporation (i) to fix or change the express terms of any unissued or treasury
shares of any class, including, without limiting the generality of the
foregoing: division of such shares into series and the designation and
authorized number of shares of each series; voting rights of such shares (to the
extent now or hereafter permitted by law); dividend or distribution rate; dates
of payment of dividends or distributions and the dates from which they are
cumulative; liquidation price; redemption rights and price; sinking fund
requirements; conversion rights; and restrictions on the issuance of shares of
the same series or any other class or series; all as may be established by
resolution of the Board of Directors from time to time (collectively with the
terms of the Preferred Stock, a "Preferred Stock Designation"), and (ii) to
include within these Second Amended and Restated Articles of Incorporation such
additional provisions, or amendments to any existing provisions, as may
hereafter be authorized by law.
- 27 -
<PAGE> 28
ARTICLE VI
----------
Except as may be provided in any Preferred Stock Designation, holders
of shares of capital stock of the Corporation shall not be entitled to
cumulative voting rights in the election of directors.
ARTICLE VII
-----------
Except as may be provided in any Preferred Stock Designation, no
holder of any shares of capital stock of the Corporation shall have any
preemptive right to acquire any shares of unissued capital stock of any class or
series, now or hereafter authorized, or any treasury shares or securities
convertible into such shares or carrying a right to subscribe to or acquire such
shares of capital stock.
ARTICLE VIII
------------
The Corporation may from time to time, pursuant to authorization by
the Board of Directors and without action by the shareholders, purchase or
otherwise acquire capital stock of the Corporation of any class or classes in
such manner, upon such terms and in such amounts as the Board of Directors shall
determine; subject, however, to such limitation or restriction, if any, as is
contained in any Preferred Stock Designation at the time of such purchase or
acquisition.
ARTICLE IX
----------
Notwithstanding anything to the contrary contained in these Second
Amended and Restated Articles of Incorporation, the affirmative vote of the
holders of at least 80% of the voting power of the Corporation, voting together
as a single class, shall be required to amend or repeal, or adopt any provision
inconsistent with, Article V, Article VI, Article VII, Article VIII or this
Article IX; provided, however, that this Article IX shall not alter the voting
entitlement of shares that, by virtue of any Preferred Stock Designation, are
expressly entitled to vote on any amendment to these Second Amended and Restated
Articles of Incorporation. For purposes of these Second Amended and Restated
Articles of Incorporation, "voting power of the Corporation" means the aggregate
voting power of (1) all the outstanding shares of Common Stock of the
Corporation and (2) all the outstanding shares of any class or series of capital
stock of the Corporation that has (i) rights to distributions senior to those of
the Common Stock including, without limitation, any relative, participating,
optional, or other special rights and privileges of, and any qualifications,
limitations or restrictions on, such shares and (ii) voting rights entitling
such shares to vote generally in the election of directors.
ARTICLE X
---------
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<PAGE> 29
Any and every statute of the State of Ohio hereafter enacted, whereby
the rights, powers or privileges of corporations or of the shareholders of
corporations organized under the laws of the State of Ohio are increased or
diminished or in any way affected, or whereby effect is given to the action
taken by any number, less than all, of the shareholders of any such corporation,
shall apply to the Corporation and shall be binding not only upon the
Corporation but upon every shareholder of the Corporation to the same extent as
if such statute had been in force at the date of filing these Second Amended and
Restated Articles of Incorporation in the office of the Secretary of State of
Ohio.
ARTICLE XI
----------
These Second Amended and Restated Articles of Incorporation supersede
the existing Amended and Restated Articles of Incorporation of the Corporation.
- 29 -
<PAGE> 1
Exhibit 3.2
EXHIBIT A
---------
================================================================================
CONLEY, CANITANO & ASSOCIATES, INC.
AMENDED AND RESTATED CODE OF REGULATIONS
As Adopted and in
Effect on July 21, 1998
================================================================================
<PAGE> 2
SHAREHOLDER MEETINGS
--------------------
1. TIME AND PLACE OF MEETINGS. All meetings of the shareholders for the
election of directors or for any other purpose will be held at such time and
place, within or without the State of Ohio, as may be designated by the Board of
Directors or, in the absence of a designation by the Board of Directors, the
Chairman of the Board of Directors, if any (the "Chairman"), the President, or
the Secretary, and stated in the notice of meeting. The Board of Directors may
postpone and reschedule any previously scheduled annual or special meeting of
the shareholders.
2. ANNUAL MEETING. An annual meeting of the shareholders will be held
at such date and time as may be designated from time to time by the Board of
Directors, at which meeting the shareholders will elect directors to succeed
those directors whose terms expire at such meeting and will transact such other
business as may be brought properly before the meeting in accordance with
Regulation 8.
3. SPECIAL MEETINGS. Special meetings of shareholders may be called by
the Chairman or the President or by a majority of the Board of Directors acting
with or without a meeting or by any person or persons who hold not less than 50%
of all the shares outstanding and entitled to be voted on any proposal to be
submitted at said meeting. Special meetings of the holders of shares that are
entitled to call a special meeting by virtue of any Preferred Stock Designation
may call such meetings in the manner and for the purposes provided in the
applicable terms of such Preferred Stock Designation. For purposes of this
Amended and Restated Code of Regulations, "Preferred Stock Designation" means
the express terms of shares of any class or series of capital stock of the
Corporation, whether now or hereafter issued, with rights to distributions
senior to those of the Common Stock including, without limitation, any relative,
participating, optional, or other special rights and privileges of, and any
qualifications or restrictions on, such shares.
b. Upon written request by any person or persons entitled to call a
meeting of shareholders delivered in person or by registered mail to the
Chairman, the President or the Secretary, such officer shall forthwith cause
notice of the meeting to be given to the shareholders entitled to notice of such
meeting in accordance with Regulation 4. If such notice shall not be given
within 60 days after the delivery or mailing of such request, the person or
persons requesting the meeting may fix the time of the meeting and give, or
cause to be given, notice in the manner provided in Regulation 4.
4. NOTICE OF MEETINGS. Written notice of every meeting of the
shareholders called in accordance with these Regulations, stating the time,
place, and purposes for which the meeting is called, will be given by or at the
direction of the President, a Vice President, the Secretary or an Assistant
Secretary (or in case of their refusal, by the person or persons entitled to
call the meeting under Regulation 3). Such notice will be given not less than 7
nor more than 60 calendar days before the date of the meeting to each
shareholder of record entitled to notice of such meeting. If such notice is
mailed, it shall be addressed to the shareholders at their respective addresses
as they appear on the records of the Corporation, and notice shall be deemed to
have been given on the day so mailed. Notice of adjournment of a meeting need
not be given if the time and place to which it is adjourned are fixed and
announced at such meeting.
5. INSPECTORS. Inspectors of election may be appointed to act at any
meeting of shareholders in accordance with Ohio law.
6. QUORUM. To constitute a quorum at any meeting of shareholders, there
shall be present in person or by proxy shareholders of record entitled to
exercise not less than a majority of the voting power of the Corporation in
respect of any one of the purposes for which the meeting is called, unless a
greater or lesser number is expressly provided for with respect to a particular
class or series of capital stock by the terms of any applicable Preferred Stock
Designation. Except as may be otherwise provided in any Preferred Stock
Designation, the holders of a majority of the voting power of the Corporation
represented in person or by proxy at a meeting of shareholders, whether or not a
quorum be present, may adjourn the meeting from time to time. For purposes of
this Amended and Restated Code of Regulations, "voting power of the Corporation"
means the aggregate voting power of (a) all the outstanding shares of Common
Stock of the Corporation and (b) all the outstanding shares of any class or
series of capital stock of the Corporation that has (i) rights to distributions
senior to those of the Common Stock including, without
<PAGE> 3
limitation, any relative, participating, optional, or other special rights and
privileges of, and any qualifications or restrictions on, such shares and (ii)
voting rights entitling such shares to vote generally in the election of
directors.
7. VOTING. Except as otherwise expressly required by law, the Articles
of Incorporation or this Amended and Restated Code of Regulations, at any
meeting of shareholders at which a quorum is present, a majority of the votes
cast, whether in person or by proxy, on any matter properly brought before such
meeting in accordance with Regulation 8 will be the act of the shareholders. An
abstention shall not represent a vote cast. Every proxy must be duly executed
and filed with the Secretary. A shareholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing with the
Secretary written notice of revocation or a later appointment. The vote upon any
question brought before a meeting of the shareholders may be by voice vote,
unless otherwise required by law, the Articles of Incorporation or this Amended
and Restated Code of Regulations or unless the presiding officer otherwise
determines. Every vote taken by written ballot will be counted by the inspectors
of election, if inspectors of election are appointed.
8. ORDER OF BUSINESS. The Chairman, or such other officer of the
Corporation designated by a majority of the total number of directors that the
Corporation would have if there were no vacancies on the Board of Directors
(such number being referred to as the "Whole Board"), will call meetings of
shareholders to order and will act as presiding officer thereof. Unless
otherwise determined by the Board of Directors prior to the meeting, the
presiding officer of the meeting of shareholders will also determine the order
of business and have the authority in his or her sole discretion to regulate the
conduct of any such meeting including, without limitation, by imposing
restrictions on the persons (other than shareholders of the Corporation or their
duly appointed proxies) who may attend any such shareholders' meeting, by
ascertaining whether any shareholder or his proxy may be excluded from any
meeting of shareholders based upon any determination by the presiding officer,
in his sole discretion, that any such person has unduly disrupted or is likely
to disrupt the proceedings of the meeting, and by determining the circumstances
in which and time at which any person may make a statement or ask questions at
any meeting of shareholders.
(b) At an annual meeting of the shareholders, only such business will
be conducted or considered as is properly brought before the meeting. To be
properly brought before an annual meeting, business must be (i) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the President, a Vice President, the Secretary or an Assistant Secretary in
accordance with Regulation 4, (ii) otherwise properly brought before the meeting
by the presiding officer or by or at the direction of a majority of the Whole
Board, or (iii) otherwise properly requested to be brought before the meeting by
a shareholder of the Corporation in accordance with Regulation 8(c).
(c) For business to be properly requested by a shareholder to be
brought before an annual meeting, the shareholder must (i) be a shareholder of
the Corporation of record at the time of the giving of the notice for such
annual meeting provided for in this Amended and Restated Code of Regulations,
(ii) be entitled to vote at such meeting, and (iii) have given timely notice
thereof in writing to the Secretary. To be timely, a shareholder's notice must
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 nor more than 90 calendar days prior to the annual
meeting; PROVIDED, HOWEVER, that in the event public announcement of the date of
the annual meeting is not made at least 75 calendar days prior to the date of
the annual meeting and the annual meeting is held on a date more than ten
calendar days before or after the first anniversary of the date on which the
prior year's annual meeting was held, notice by the shareholder to be timely
must be so received not later than the close of business on the 10th calendar
day following the day on which public announcement is first made of the date of
the annual meeting. A shareholder's notice to the Secretary must set forth as to
each matter the shareholder proposes to bring before the annual meeting (A) a
description in reasonable detail of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (B) the name and address, as they appear on the Corporation's books, of
the shareholder proposing such business and of the beneficial owner, if any, on
whose behalf the proposal is made, (C) the class and number of shares of the
Corporation that are owned beneficially and of record by the shareholder
proposing such business and by the beneficial owner, if any, on whose behalf the
proposal is made, and
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<PAGE> 4
(D) any material interest of such shareholder proposing such business and the
beneficial owner, if any, on whose behalf the proposal is made in such business.
Notwithstanding the foregoing provisions of this Amended and Restated Code of
Regulations, a shareholder must also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this Regulation 8(c). For
purposes of this Regulation 8(c) and Regulation 13, "public announcement" means
disclosure in a press release reported by the Dow Jones News Service, Associated
Press, or comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Sections
13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended, or publicly
filed by the Corporation with any national securities exchange or quotation
service through which the Corporation's stock is listed or traded, or furnished
by the Corporation to its shareholders. Nothing in this Regulation 8(c) will be
deemed to affect any rights of shareholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended.
(d) At a special meeting of shareholders, only such business may be
conducted or considered as is properly brought before the meeting. To be
properly brought before a special meeting, business must be (i) specified in the
notice of the meeting (or any supplement thereto) given by or at the direction
of the President, a Vice President, the Secretary or an Assistant Secretary (or
in case of their failure to give any required notice, the other persons entitled
to give notice) in accordance with Regulation 4 or (ii) otherwise brought before
the meeting by the presiding officer or by or at the direction of a majority of
the Whole Board.
(e) The determination of whether any business sought to be brought
before any annual or special meeting of the shareholders is properly brought
before such meeting in accordance with this Regulation 8 will be made by the
presiding officer of such meeting. If the presiding officer determines that any
business is not properly brought before such meeting, he or she will so declare
to the meeting and any such business will not be conducted or considered.
DIRECTORS
---------
9. FUNCTION. Except where the law, the Articles of Incorporation, or
this Amended and Restated Code of Regulations requires action to be authorized
or taken by the shareholders, all of the authority of the Corporation shall be
exercised by or under the direction of the Board of Directors.
10. NUMBER, ELECTION, AND TERMS OF DIRECTORS. Except as may be
otherwise provided in any Preferred Stock Designation, the number of the
directors of the Corporation will not be less than six nor more than 16 as may
be determined from time to time only (i) by a vote of a majority of the Whole
Board, or (ii) by the affirmative vote of the holders of at least 80% of the
voting power of the Corporation, voting together as a single class. The
directors, other than those who may be expressly elected by virtue of the terms
of any Preferred Stock Designation, will be classified with respect to the time
for which they severally hold office into two classes, as nearly equal in size
as possible and consisting of not less than three directors in each class,
designated Class I and Class II. The directors first appointed to Class I will
hold office for a term expiring at the annual meeting of shareholders to be held
in 1999 and the directors first appointed to Class II will hold office for a
term expiring at the annual meeting of shareholders to be held in 2000. The
members of each class will hold office until their successors are elected.
Except as may be otherwise provided in any Preferred Stock Designation, at each
annual meeting of the shareholders of the Corporation, the successors of the
class of directors whose terms expire at that meeting shall be elected by
plurality vote of all votes cast at such meeting to hold office for a
term expiring at the annual meeting of shareholders held in the third year
following the year of their election. Except as may be otherwise provided in any
Preferred Stock Designation, directors may be elected by the shareholders only
at an annual meeting of shareholders. No decrease in the number of directors
constituting the Board of Directors may shorten the term of any incumbent
director. Election of directors of the Corporation need not be by written ballot
unless requested by the presiding officer or by the holders of a majority of the
voting power of the Corporation present in person or represented by proxy at a
meeting of the shareholders at which directors are to be elected.
-3-
<PAGE> 5
11. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as may be
otherwise provided in any Preferred Stock Designation, any vacancy (including
newly created directorships resulting from any increase in the number of
directors and any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other cause) may be filled only (i)
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, or by a sole remaining
director or (ii) by the affirmative vote of the shareholders after a vote to
increase the number of directors at a meeting called for that purpose in
accordance with this Amended and Restated Code of Regulations. Any director
elected in accordance with the preceding sentence will hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor has been elected.
12. REMOVAL. Except as may be otherwise provided in any Preferred Stock
Designation, directors may not be removed from the Board of Directors by the
shareholders or otherwise.
13. NOMINATIONS OF DIRECTORS; ELECTION. Except as may be otherwise
provided in any Preferred Stock Designation, only persons who are nominated in
accordance with this Regulation 13 will be eligible for election at a meeting of
shareholders to be members of the Board of Directors of the Corporation.
(b) Nominations of persons for election as directors of the Corporation
may be made only at an annual meeting of shareholders (i) by or at the direction
of the Board of Directors or a committee thereof or (ii) by any shareholder who
is a shareholder of record at the time of giving of notice provided for in this
Regulation 13, who is entitled to vote for the election of directors at such
meeting, and who complies with the procedures set forth in this Regulation 13.
All nominations by shareholders must be made pursuant to timely notice in proper
written form to the Secretary.
(c) To be timely, a shareholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
60 nor more than 90 calendar days prior to the annual meeting of shareholders;
PROVIDED, HOWEVER, that in the event that public announcement of the date of the
annual meeting is not made at least 75 calendar days prior to the date of the
annual meeting and the annual meeting is held on a date more than one week
before or after the first anniversary of the date on which the prior year's
annual meeting was held, notice by the shareholder to be timely must be so
received not later than the close of business on the 10th calendar day following
the day on which public announcement is first made of the date of the annual
meeting. To be in proper written form, such shareholder's notice must set forth
or include: (i) the name and address, as they appear on the Corporation's books,
of the shareholder giving the notice and of the beneficial owner, if any, on
whose behalf the nomination is made; (ii) a representation that the shareholder
giving the notice is a holder of record of stock of the Corporation entitled to
vote at such annual meeting and intends to appear in person or by proxy at the
annual meeting to nominate the person or persons specified in the notice; (iii)
the class and number of shares of stock of the Corporation owned beneficially
and of record by the shareholder giving the notice and by the beneficial owner,
if any, on whose behalf the nomination is made; (iv) a description of all
arrangements or understandings between or among any of (A) the shareholder
giving the notice, (B) the beneficial owner on whose behalf the notice is given,
(C) each nominee, and (D) any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the
shareholder giving the notice; (v) such other information regarding each nominee
proposed by the shareholder giving the notice as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, by the Board of Directors; and (vi) the signed consent of each
nominee to serve as a director of the Corporation if so elected. The presiding
officer of any annual meeting may, if the facts warrant, determine that a
nomination was not made in accordance with this Regulation 13, and if he or she
should so determine, he or she will so declare to the meeting, and the defective
nomination will be disregarded. Notwithstanding the foregoing provisions of this
Regulation 13, a shareholder must also comply with all applicable requirements
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder with respect to the matters set forth in this Regulation
13.
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<PAGE> 6
14. RESIGNATION. Any director may resign at any time by giving written
notice of his resignation to the Chairman or the Secretary. Any resignation will
be effective upon actual receipt by any such person or, if later, as of the date
and time specified in such written notice.
15. REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held immediately after the annual meeting of the shareholders and at such other
time and place either within or without the State of Ohio as may from time to
time be determined by a majority of the Whole Board. Notice of regular meetings
of the Board of Directors need not be given.
16. SPECIAL MEETINGS. Special meetings of the Board of Directors may be
called by the Chairman or the President. Notice of special meetings stating the
place, date and hour shall be given to each director by whom such notice is not
waived either personally or by mail, telephone, telegram, telex, facsimile, or
similar medium of communication not less than twenty-four hours before the
designated hour for such meeting and will be called by the Chairman or the
President, in like manner and on like notice, on the written request of not less
than one-third of the Whole Board. Special meetings of the Board of Directors
may be held at such time and place either within or without the State of Ohio as
is determined by a majority of the Whole Board or specified in the notice of any
such meeting.
17. QUORUM AND VOTE. At all meetings of the Board of Directors, a
majority of the total number of directors then in office will constitute a
quorum for the transaction of business. Except for the designation of committees
as hereinafter provided and except for actions required by this Amended and
Restated Code of Regulations to be taken by a majority of the Whole Board, the
act of a majority of the directors present at any meeting at which a quorum is
present will be the act of the Board of Directors. If a quorum is not present at
any meeting of the Board of Directors, the directors present thereat may adjourn
the meeting from time to time to another time or place, without notice other
than announcement at the meeting, until a quorum is present.
18. PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT. Meetings of
the Board of Directors or of any committee of the Board of Directors may be held
through any means of communications equipment if all persons participating can
hear each other, and such participation will constitute presence in person at
such meeting.
19. COMMITTEES. The Board of Directors may from time to time create an
executive committee or any other committee or committees of directors to act in
the intervals between meetings of the Board of Directors and may delegate to
such committee or committees any of its authority other than that of filling
vacancies among the Board of Directors or in any committee of the Board of
Directors. Unless a lesser number is then permitted by law, no committee shall
consist of less than three directors. The Board of Directors may appoint one or
more directors as alternate members of any such committee to take the place of
absent committee members at meetings of such committee. Unless otherwise ordered
by the Board of Directors, a majority of the members of any committee appointed
by the Board of Directors pursuant to this Regulation 19 shall constitute a
quorum at any meeting thereof, and the act of a majority of the members present
at a meeting at which a quorum is present shall be the act of such committee.
Action may be taken by any such committee without a meeting by a writing or
writings signed by all of its members. Any such committee shall prescribe its
own rules for calling and holding meetings and its method of procedure, subject
to any rules prescribed by the Board of Directors, and will keep a written
record of all action taken by it.
20. COMPENSATION. The Board of Directors may establish the compensation
and expense reimbursement policies for directors in exchange for membership on
the Board of Directors and on committees of the Board of Directors, attendance
at meetings of the Board of Directors or committees of the Board of Directors,
and for other services by directors to the Corporation or any of its
subsidiaries.
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21. BYLAWS. The Board of Directors may adopt Bylaws for the conduct of
its meetings and those of any committees of the Board of Directors that are not
inconsistent with the Articles of Incorporation or this Amended and Restated
Code of Regulations.
OFFICERS
--------
22. GENERALLY. The Corporation may have a Chairman (or Co-Chairman),
elected by the directors from among their number, and shall have a President, a
Secretary and a Treasurer. The Corporation may also have one or more Vice
Presidents and such other officers and assistant officers as the Board of
Directors may deem appropriate. If the Board of Directors so desires, it may
elect a Chief Executive Officer to manage the affairs of the Corporation,
subject to the direction and control of the Board of Directors. All of the
officers shall be elected by the Board of Directors. Notwithstanding the
foregoing, by specific action, the Board of Directors may authorize the Chairman
or the President to appoint any person to any office other than Chairman,
President, Secretary, or Treasurer. Any number of offices may be held by the
same person, and no two offices must be held by the same person. Any of the
offices may be left vacant from time to time as the Board of Directors may
determine. In case of the absence or disability of any officer of the
Corporation or for any other reason deemed sufficient by a majority of the Board
of Directors, the Board of Directors may delegate the absent or disabled
officer's powers or duties to any other officer or to any director.
23. AUTHORITY AND DUTIES OF OFFICERS. The officers of the Corporation
shall have such authority and shall perform such duties as are customarily
incident to their respective offices, or as may be specified from time to time
by the Board of Directors regardless of whether such authority and duties are
customarily incident to such office.
24. COMPENSATION. The compensation of all officers and agents of the
Corporation who are also members of the Board of Directors of the Corporation
will be fixed by the Board of Directors or by a committee of the Board of
Directors. The Board of Directors may fix the compensation of the other officers
and agents of the Corporation, or delegate the power to fix such compensation,
to the Chief Executive Officer or any other officer of the Corporation.
25. SUCCESSION. The officers of the Corporation will hold office until
their successors are elected. Any officer may be removed at any time by the
affirmative vote of a majority of the Whole Board. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors or by the
Chairman or President as provided in Regulation 22.
STOCK
-----
26. TRANSFER AND REGISTRATION OF CERTIFICATES. The Board of Directors
shall have authority to make such rules and regulations as they deem expedient
concerning the issuance, transfer and registration of certificates for shares
and the shares represented thereby and may appoint transfer agents and
registrars thereof.
27. SUBSTITUTED CERTIFICATES. Any person claiming a certificate for
shares to have been lost, stolen or destroyed shall make an affidavit or
affirmation of that fact, shall give the Corporation and its registrar or
registrars and its transfer agent or agents a bond of indemnity satisfactory to
the Board of Directors or a committee thereof or to the President or a Vice
President and the Secretary or the Treasurer, whereupon a new certificate may be
executed and delivered of the same tenor and for the same number of shares as
the one alleged to have been lost, stolen or destroyed.
28. VOTING OF SHARES HELD BY THE CORPORATION. Unless otherwise ordered
by the Board of Directors, the President in person or by proxy or proxies
appointed by him shall have full power and
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<PAGE> 8
authority on behalf of the Corporation to vote, act and consent with respect to
any shares issued by other corporations which the Corporation may own.
29. RECORD DATES AND OWNERS. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to designate an agent to act on
behalf of the shareholders to call a special meeting of shareholders, or to take
any other collective action on behalf of the shareholders, the Board of
Directors may fix a record date, which will not be less than 7 nor more than 60
calendar days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders will be the date next
preceding the day on which notice is given, or, if notice is waived, at the date
next preceding the day on which the meeting is held.
(b) The Corporation will be entitled to treat the person in whose name
shares are registered on the books of the Corporation as the absolute owner
thereof, and will not be bound to recognize any equitable or other claim to, or
interest in, such share on the part of any other person, whether or not the
Corporation has knowledge or notice thereof, except as expressly provided by
applicable law.
INDEMNIFICATION AND INSURANCE
-----------------------------
30. INDEMNIFICATION. The Corporation shall indemnify, to the full
extent then permitted by law, any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a member of the Board of Directors or an officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
Corporation shall pay, to the full extent then required by law, expenses,
including attorney's fees, incurred by a member of the Board of Directors in
defending any such action, suit or proceeding as they are incurred, in advance
of the final disposition thereof, and may pay, in the same manner and to the
full extent then permitted by law, such expenses incurred by any other person.
The indemnification and payment of expenses provided hereby shall not be
exclusive of, and shall be in addition to, any other rights granted to those
seeking indemnification under any law, the Articles of Incorporation, any
agreement, vote of shareholders or disinterested members of the Board of
Directors, or otherwise, both as to action in official capacities and as to
action in another capacity while he or she is a member of the Board of
Directors, or an officer, employee or agent of the Corporation, and shall
continue as to a person who has ceased to be a member of the Board of Directors,
trustee, officer, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
31. INSURANCE. The Corporation may, to the full extent then permitted
by law and authorized by the Board of Directors, purchase and maintain insurance
or furnish similar protection, including but not limited to trust funds, letters
of credit or self-insurance, on behalf of or for any persons described in
Regulation 30 against any liability asserted against and incurred by any such
person in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability. Insurance may be purchased from or maintained with a person in which
the Corporation has a financial interest.
32. AGREEMENTS. The Corporation, upon approval by the Board of
Directors, may enter into agreements with any persons whom the Corporation may
indemnify under this Amended and Restated Code of Regulations or under law and
undertake thereby to indemnify such persons and to pay the expenses incurred by
them in defending any action, suit or proceeding against them, whether or not
the Corporation would have the power under law or this Amended and Restated Code
of Regulations to indemnify any such person.
GENERAL
-------
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33. FISCAL YEAR. The fiscal year of the Corporation will end on the
thirty-first day of December in each calendar year or such other date as may be
fixed from time to time by the Board of Directors.
34. SEAL. The Board of Directors may adopt a corporate seal and use the
same by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
35. AMENDMENTS. Except as otherwise provided by law or by the Articles
of Incorporation or this Amended and Restated Code of Regulations, these
Regulations or any of them may be amended in any respect or repealed at any time
at any meeting of shareholders, provided that any amendment or supplement
proposed to be acted upon at any such meeting has been described or referred to
in the notice of such meeting. Notwithstanding the foregoing sentence or
anything to the contrary contained in the Articles of Incorporation or this
Amended and Restated Code of Regulations, Regulations 1, 3(a), 8, 10, 11, 12,
13, 30 and 35 may not be amended or repealed by the shareholders, and no
provision inconsistent therewith may be adopted by the shareholders, without the
affirmative vote of the holders of at least 80% of the voting power of the
Corporation, voting together as a single class. Notwithstanding the foregoing
provisions of this Regulation 35, no amendment to Regulations 30, 31 or 32 will
be effective to eliminate or diminish the rights of persons specified in those
Regulations existing at the time immediately preceding such amendment.
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CONLEY, CANITANO & ASSOCIATES, INC.
Amended and Restated Code of Regulations
TABLE OF CONTENTS
-----------------
Page
----
SHAREHOLDER MEETINGS........................................................ 1
1. Time and Place of Meetings................................ 1
2. Annual Meeting............................................ 1
3. Special Meetings.......................................... 1
4. Notice of Meetings........................................ 1
5. Inspectors................................................ 1
6. Quorum.................................................... 1
7. Voting.................................................... 2
8. Order of Business......................................... 2
DIRECTORS................................................................... 3
9. Function.................................................. 3
10. Number, Election, and Terms of Directors.................. 3
11. Newly Created Directorships and Vacancies................. 4
12. Removal................................................... 4
13. Nominations of Directors; Election........................ 4
14. Resignation............................................... 5
15. Regular Meetings.......................................... 5
16. Special Meetings.......................................... 5
17. Quorum and Vote........................................... 5
18. Participation in Meetings by Communications Equipment..... 5
19. Committees................................................ 5
20. Compensation.............................................. 5
21. Bylaws.................................................... 6
OFFICERS ................................................................... 6
22. Generally................................................. 6
23. Authority and Duties of Officers.......................... 6
24. Compensation.............................................. 6
25. Succession................................................ 6
STOCK ................................................................... 6
26. Transfer and Registration of Certificates................. 6
27. Substituted Certificates.................................. 6
28. Voting Of Shares Held by the Corporation.................. 6
29. Record Dates and Owners................................... 7
INDEMNIFICATION AND INSURANCE............................................... 7
30. Indemnification........................................... 7
31. Insurance................................................. 7
32. Agreements................................................ 7
GENERAL ................................................................... 7
33. Fiscal Year............................................... 7
34. Seal...................................................... 8
35. Amendments................................................ 8
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Exhibit 10.1
EXECUTION VERSION
-----------------
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement dated as of April 3, 1998 (this "Agreement"),
is by and between CONLEY, CANITANO & ASSOC., INC., an Ohio corporation ("CCAi"),
and Ronnie Crumpler ("Crumpler").
R E C I T A L S:
----------------
Concurrently with the execution and delivery of this Agreement, CCAi is
purchasing from Crumpler and certain other individuals all of the issued and
outstanding shares of common stock of Kelly-Levey & Associates, Inc. ("KLA")
pursuant to the terms and conditions of a Stock Purchase Agreement made as of
April _, 1998 (the "Purchase Agreement").
As a condition to entering into the Purchase Agreement, CCAi desires to
employ Crumpler, and Crumpler desires to serve, as Vice President of Vertical
Market Development of CCAi for the time and upon and subject to the terms and
conditions specified in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, CCAi and Crumpler hereby agree as follows:
SECTION 1. EMPLOYMENT.
1.1 TERM. CCAi agrees to employ Crumpler, and Crumpler agrees to
serve CCAi, for a term beginning on the date of this Agreement and ending on
<PAGE> 2
October __, 2000 (the "Term") unless extended by mutual consent of the parties
or sooner terminated pursuant to the provisions of Section 5 of this Agreement.
1.2 DUTIES. (a) As long as this Agreement is in effect, Crumpler
shall be employed in a management capacity with the title of "Vice President of
Vertical Market Development". Crumpler shall, to the best of his ability, devote
all reasonable efforts to such employment and the management needs of the
business of CCAi and discharge faithfully, diligently and to the best of his
ability as long as this Agreement is in effect all reasonable management
responsibilities and duties as may be assigned to him from time to time by the
Chairman or President.
(b) As long as this Agreement is in effect, Crumpler shall devote
one hundred percent (100%) of his working time and attention during normal
business hours to his duties under this Agreement.
1.3 COMPENSATION. (a) As long as this Agreement is in effect, as
compensation for the services to be rendered during such period and the other
obligations undertaken by Crumpler under this Agreement, Crumpler shall be
entitled to the compensation described in ATTACHMENT A hereto.
(b) As long as this Agreement is in effect, CCAi shall provide
Crumpler with the benefits and perquisites set forth on Attachment A hereto.
(c) Additionally, CCAi shall, at least annually, review Crumpler's
performance with a view towards evaluation of bonus compensation to be paid to
Crumpler, which bonus compensation, if any, shall be at CCAi's sole discretion.
The basis for such bonus compensation might include, without limitation,
extraordinary client development activities by Crumpler.
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<PAGE> 3
SECTION 2. CONFIDENTIALITY.
(a) Crumpler acknowledges that by reason of the nature of
Crumpler's duties and his former position of trust with KLA, Crumpler has had
and will have access to and become informed of confidential and secret
information which is not otherwise available to the Trade or public and which is
a competitive asset of CCAi (the "Confidential Information"), including, without
limitation: (i) customer information such as names, addresses, sales histories,
purchasing habits, credit status, pricing levels, current and anticipated
customer requirements, etc.; (ii) certain prospective customer information,
mailing lists, etc.; (iii) product and systems specifications, schematics,
designs, concepts for new or improved products and other product or systems
data; (iv) product and parts suppliers' and prospective suppliers' names,
addresses and contracts; (v) new and future product and systems development and
planning data; (vi) future corporate planning data; (vii) computer software and
the data base technologies, systems, structures and architectures; (viii)
marketing strategies; (ix) CCAi's financial results and business condition; (X)
any other information, however documented, of CCAi that is a "trade secret"
either under common law or as such term is defined by statute under the laws of
any applicable jurisdiction, and (xi) any of the foregoing which belong to any
other person or company but to which Crumpler has had access by reason of his
employment or relationship with CCAi (including, without limitation, information
which is delivered to CCAi in confidence by persons or companies for whom CCAi
is performing services). Crumpler agrees faithfully to keep in strict
confidence, and not, either directly or indirectly, to make known, divulge,
reveal,
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<PAGE> 4
furnish, make available or use (except for use in the regular course of
Crumpler's duties under this Agreement) any such Confidential Information.
(b) In the event Crumpler is requested in connection with any legal
proceeding to disclose any Confidential Information, Crumpler shall give CCAi
prompt notice of such request so that CCAi may seek an appropriate protective
order or other remedy and/or waive compliance with the provisions of this
Agreement, and Crumpler shall cooperate with CCAi to obtain such protective
order. In the event that such protective order or other remedy is not obtained
or CCAi waives compliance with Section 2 of this Agreement, Crumpler shall
furnish only that portion of the Confidential Information which is ordered to be
disclosed or which is legally required, in the opinion of Crumpler's counsel, to
be disclosed. Crumpler's disclosure in accordance with this 2(b) shall not
constitute a violation of this Section 2.
(c) Crumpler acknowledges that all sales manuals, instruction
books, catalogs, price lists, information and records, technical manuals and
documentation, drafts of instructions, guides and manuals, maintenance manuals,
schematics, engineering and technical notes and drafts, mechanical drawings,
blueprints and other engineering, mechanical or technical documentation (whether
in draft or final form), and other sales or technical information and aids
relating to CCAi's business, and any and all other documents containing
Confidential Information furnished to Crumpler by CCAi or otherwise acquired or
developed by Crumpler shall at all times be the property of CCAi. Upon
termination of Crumpler's employment, Crumpler shall return to CCAi any such
property or documents which are in Crumpler's possession, custody or control,
but Crumpler's obligation of confidentiality shall survive such termination of
employment
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<PAGE> 5
until and unless any such Confidential Information shall have become, through no
fault of Crumpler, generally known to the trade.
(d) For purposes of this Section 2 and Sections 3 and 4, the term
"CCAi" shall include its wholly-owned subsidiary, KLA.
SECTION 3. NON-COMPETITION.
3.1 COVENANT NOT TO COMPETE. Crumpler acknowledges that as long as
Crumpler is employed by CCAi, Crumpler's access to the Confidential Information
will enable Crumpler to benefit from CCAi's goodwill and know-how. To protect
these vital interests of CCAi, Crumpler agrees that as long as this Agreement is
in effect and for a period of two years following the termination of Crumpler's
employment, Crumpler will not, without the prior written consent of CCAi, except
as set forth in Section 3.2 of this Agreement, directly or indirectly, as a
shareholder, director, officer, employee, agent or consultant, (a) invest or
engage in any business which is competitive with that of CCAi or accept
employment with or render services to a competitor of CCAi or take any action
inconsistent with the relationship of an employee to CCAi; (b) solicit sales of,
or sell or deliver, any product or system of a competitor of CCAi that is of the
kind and character manufactured, sold or distributed by CCAi to any person, firm
or corporation called upon or served by Crumpler on behalf of CCAi; (c) solicit
or divert from CCAi the business or patronage of any person, firm or corporation
with whom Crumpler has had business relations on CCAi's behalf in the 12 month
period immediately prior to Crumpler's termination of employment, including
performing services similar to those performances while an
employee of CCAi with any customer of CCAi; (d) invest or
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<PAGE> 6
engage in any business which is a member of the so-called "SAP Alliance
Partners", a list of which is attached hereto as ATTACHMENT B and may be updated
from time to time by CCAi; or (e) engage or assist in or influence the
engagement or hiring by any competing organization of any salesman, distributor,
contractor or employee of CCAi at the time of Crumpler's termination of
employment, or otherwise cause or encourage any person, firm or corporation
having a business relationship with CCAi at the time of Crumpler's termination
of employment to sever such relationship with, or commit any act materially
adverse to, CCAi. Crumpler further agrees that this covenant not to compete
applies whether Crumpler acts as an individual for his own account, or as a
partner, employee, agent, salesman, distributor, consultant or representative of
any person, firm or corporation. The restriction contained in this Section 3 as
it relates to the period following the termination of Crumpler's employment
shall be limited to those geographic areas in which CCAi is then doing or
soliciting business or selling products or services, and no business shall be
considered competitive with CCAi unless CCAi was actually and actively engaged
in such business or had definitive plans to enter such business at the time of
the termination of Crumpler's employment.
3.2 EXCEPTIONS. Nothing herein shall be interpreted to prohibit
Crumpler from acquiring, for investment purposes, securities of a corporation
that may compete with CCAi, provided such securities are listed on a national
securities exchange or are regularly quoted in an over-the-counter market by one
or more members of the National Association of Securities Dealers or similar
organization and provided further that the securities acquired by Crumpler
comprise less than one percent of the total outstanding voting securities of
such corporation.
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<PAGE> 7
SECTION 4. COVENANTS REGARDING INVENTIONS.
(a) While Crumpler is employed by CCAi, Crumpler shall keep CCAi
informed of any inventions, discoveries, improvements, trade secrets and secret
processes made by him, in whole or in part, or conceived by him alone or with
others, which result from any work he may do for, or at the request of, CCAi or
which relate to the business, operations, activities, research, investigation or
obligations of CCAi.
(b) Crumpler, and his heirs, assigns and representatives, shall
assign, transfer and set over, and do hereby assign, transfer and set over to
CCAi, its successors and its assigns, all his and their right, title and
interest in and to all inventions, discoveries, improvements, trade secrets,
secret processes, patents, patent applications, service marks, trademarks,
trademark applications, copyrights and copyright registrations which he solely
or jointly with others has conceived, made, acquired or suggested at any time
prior to the termination of Crumpler's employment and which relate either to the
business, operations, activities, research or investigations of CCAi.
(c) To the extent CCAi deems it necessary or desirable to effect
the intent of this Section 4 and the assignments, transfers and set overs
provided in Sections 4(a) or 4(b), Crumpler shall, at the expense of CCAi,
assist CCAi or its nominees to obtain patents for any inventions, discoveries,
improvements, trade secrets and secret processes in any countries throughout the
world; and Crumpler shall
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<PAGE> 8
execute and deliver any applications, assignments, or other instruments and all
papers necessary to secure United States or foreign country letter patents or
the renewal or continuation thereof and to transfer to CCAi, as requested, all
the right, title, and interest in and to such formulae, inventions, discoveries,
improvements, trade secrets, secret processes, or the renewal or continuation
thereof.
(d) To the extent CCAi deems it necessary or desirable to effect
the intent of this Section 4 and the assignments, transfers and set overs
provided in Sections 4(a) or 4(b), Crumpler shall deliver to CCAi any and all
facts, sketches, drawings, models, figures and other information with respect to
such formulae, inventions, discoveries, improvements, trade secrets and secret
processes at any time requested by CCAi and shall execute and deliver any
applications, assignments or other instruments in writing reasonably necessary
or desirable in obtaining such patents, or the renewal or continuation thereof,
or in any litigation or other proceedings connected therewith.
SECTION 5. TERMINATION; OBLIGATIONS.
(a) The employment of Crumpler shall terminate upon the occurrence
of any of the following events:
(i) the death of Crumpler;
(ii) six months after the "disability" of Crumpler. Crumpler will
be considered disabled for purposes of this Agreement when, in the judgment of
CCAi, after having had consultation with medical experts in the applicable
field, CCAi determines that Crumpler will be incapable of performing his duties
under this
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<PAGE> 9
Agreement for future period of 60 days or more or such disability meets the
criteria of "permanent and total disability" within the meaning of Section
22(e)(3) of the Internal Revenue Code;
(iii) the delivery of written notice to Crumpler stating that Crumpler
is being terminated for "cause", with such written notice setting forth such
cause in reasonable detail. As used herein, the term "cause" shall mean:
(A) misappropriating any funds or property of CCAi, committing
fraud or embezzlement or engaging in any criminal or illegal activity, any of
which shall have a material adverse effect on CCAi;
(B) except for providing services to CCAi in exchange for
compensation in accordance with the terms of this Agreement, attempting to
obtain material personal gain, profit or enrichment at the expense of CCAi or
from any transaction in which Crumpler has an interest which is known by
Crumpler to be materially adverse to the interest of CCAi, unless Crumpler shall
have obtained the prior written consent of the Board;
(C) being finally convicted of a felony involving moral turpitude
or any felony involving incarceration;
(D) committing any material breach of this Agreement, provided such
breach continues unremedied for a period of 30 days after CCAi shall have
notified Crumpler in writing of such breach; or
(E) performing or committing any act intended by Crumpler to cause
a material adverse affect on CCAi, including, without limitation, acts of sexual
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<PAGE> 10
harassment, provided such act continues unremedied for a period of 30 days after
CCAi shall have notified Crumpler in writing of such act.
(b) Upon termination of employment in accordance with Section 5(a)
above or upon termination by Crumpler: (i) CCAi shall have no further obligation
to Crumpler except to pay Crumpler (or Crumpler's estate in the case of death)
the Base Salary and other benefits provided herein as he may be entitled to
receive pursuant to Section 1.3 of this Agreement up to the time of termination
(provided, however, Crumpler shall be entitled to the Warrant (as defined in the
Stock Purchase Agreement) or any stock or options in CCAi that Crumpler was
issued or granted by CCAi prior to the date of his termination; and (ii)
Crumpler shall have no further obligation to CCAi except that he shall (A)
continue to be bound by the provisions of Sections 2, 3 and 4 of this Agreement;
(B) remain liable to CCAi for any actual damages, if any caused by Crumpler's
conduct described in Section 5(a)(iii) of this Agreement; and (C) if Crumpler's
employment was terminated under Section 5(a)(iii), continue to cooperate with
CCAi without charge to CCAi (but subject to reimbursement by CCAi of any
out-of-pocket costs incurred by Crumpler in the course of such cooperation) as
to matters within Crumpler's personal knowledge.
(c) In the event that Crumpler is terminated by CCAi for reasons other
than those set forth in Section 5(a) above, Crumpler shall be entitled to (i)
continue to receive his Base Salary for the longer of (A) the remainder or the
Term of this Agreement, or (B) three months following such termination, and (ii)
participate in all applicable company health, accident, and other benefit plans
or programs in effect for employees of CCAi.
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<PAGE> 11
SECTION 6. REMEDIES.
Inasmuch as any breach of, or failure to comply with, this
Agreement will cause serious and substantial damage to CCAi, if Crumpler should
in any way breach, or fail to comply with, the terms of this Agreement, CCAi
shall be entitled to an injunction restraining Crumpler from such breach or
failure. All remedies expressly provided for herein are cumulative of any and
all other remedies now existing at law or in equity. Resort to any remedy
provided for under this Section 6 or provided for by law shall not prevent the
concurrent or subsequent employment of any other appropriate remedy or remedies,
or preclude the recovery by CCAi of monetary damages.
SECTION 7. MISCELLANEOUS.
7.1 AMENDMENT. This Agreement may be amended only by a writing
executed by the parties to this Agreement.
7.2 ENTIRE AGREEMENT. This Agreement and the other agreements
expressly referred to in this Agreement set forth the entire understanding of
the parties to this Agreement regarding the subject matter of this Agreement and
supersede all prior contracts, agreements, arrangements, communications,
discussions, representations and warranties, whether oral or written, between
the parties regarding the subject matter of this Agreement. The Attachments to
this Agreement are incorporated in this Agreement and shall be part of this
Agreement for all purposes.
7.3 NOTICES. Any notice, request, consent and other communication
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when received if personally delivered or sent
by facsimile, (b)
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<PAGE> 12
within one day after being sent by recognized overnight delivery service, or (c)
within 5 days after being sent by registered or certified mail, return receipt
requested, postage prepaid, to the parties (and to the persons to whom copies
shall be sent) at their respective addresses set forth below.
If to CCAi:
Conley, Canitano & Assoc., Inc.
5800 Landerbrook Drive
Mayfield Heights, OH 44124
Telephone: (440) 684-6600
Facsimile: (440) 684-6714 Attention: Mr.
Nicholas A. Canitano
If to Crumpler:
Ronnie Crumpler
2720 Lakeshore Lane
Carrollton, Texas 75006
Telephone: (972) 416-3104
Facsimile:
with a copy to:
Thompson, Coe, Cousins & Irons, L.L.P.
200 Crescent Court
Eleventh Floor
Dallas, Texas 75201-1853
Telephone: (214) 871-8216
Facsimile: (214) 871-8209
Attention: Michael A. McClelland, Esq.
Any party by written notice to the other party may change the address or the
persons to whom notices or copies thereof shall be directed.
7.4 ASSIGNMENT. This Agreement and the rights and duties hereunder
shall be binding upon and inure to the benefit of successors and permitted
assigns of each party to this Agreement, but shall not be assignable or
delegable by either party
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<PAGE> 13
without the prior written consent of the other, provided, however, CCAi shall be
entitled to assign this Agreement and the rights and duties hereunder to KLA.
7.5 GOVERNING LAW. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of Ohio. Each party
agrees to submit to the personal jurisdiction of the state and federal courts
located in the State of Ohio.
7.6 SEVERABILITY. Each section and subsection of this Agreement
constitutes a separate and distinct provision hereof. It is the intent of the
parties to this Agreement that the provisions of this Agreement be enforced to
the fullest extent permissible under the laws and public policies applicable in
each jurisdiction in which enforcement is sought. Accordingly, if any provision
of this Agreement shall be adjudicated to be invalid, ineffective or
unenforceable, the remaining provisions shall not be affected thereby. The
invalid, ineffective or unenforceable provision shall, without further action by
the parties, be automatically amended to effect the original purpose and intent
of the invalid, ineffective and unenforceable provision; PROVIDED, HOWEVER, that
such amendment shall apply only with respect to the operation of such provision
in the particular jurisdiction with respect to which such adjudication is made.
7.7 WAIVERS. Any waiver by any party or any violation of, breach of
or default under any provision of this Agreement by the other party shall not be
construed as, or constitute, a continuing waiver of such provision, or waiver of
any other violation of, breach of or default under any other provision of this
Agreement.
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<PAGE> 14
7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
7.9 THIRD PARTIES. Nothing expressed or implied in this Agreement
is intended, or shall be construed, to confer upon or give any person or entity
other than CCAi and Crumpler any rights or remedies under, or by reason of, this
Agreement.
7.10 WITHHOLDING OF TAXES. CCAi may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required to be withheld pursuant to any law or government regulation or ruling.
7.11 SURVIVAL OF CERTAIN OBLIGATIONS. The obligations of CCAi and
Crumpler set forth in this Agreement which by their terms extend beyond or
survive the termination of this Agreement shall not be affected or diminished in
any way by the termination of this Agreement.
[Signatures on Following Page]
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<PAGE> 15
IN WITNESS WHEREOF, CCAi has caused this Agreement to be duly
executed and delivered by its duly authorized officer, and Crumpler has duly
executed and delivered this Agreement, as of the date first written above.
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Nicholas A. Canitano
------------------------------
Title: Chairman & CEO
---------------------------
/s/ Ronnie Crumpler
---------------------------------
RONNIE CRUMPLER
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<PAGE> 16
ATTACHMENT A
------------
Salary, Benefits and Perquisites
--------------------------------
SALARY
$237,000 per year of salary ("Base Salary"). During the Term of this Agreement,
Crumpler's Base Salary shall be reviewed annually and may be increased by CCAi
in its sole discretion.
BONUS: During the Term of this Agreement, Crumpler shall be eligible to receive
an annual bonus of up to $175,000 based upon reasonable goals mutually agreed
upon by CCAi and Crumpler. CCAI shall evaluate annually Crumpler's extraordinary
client development and may, at its discretion, pay Crumpler an additional bonus
in addition to the preceding bonus. In addition, Crumpler shall be eligible to
participate in CCAi's stock option program on the same basis and in the same
manner as other Executive Vice Presidents of CCAi.
BENEFITS
1. As long as this Agreement is in effect, Crumpler shall be
entitled to participate in all applicable company health, accident and other
benefit plans or programs in effect for employees of CCAi on the same basis and
in the same manner as other Executive Vice Presidents of CCAi similarly
situated.
2. As long as this Agreement is in effect, Crumpler shall be
entitled to vacation, and to such holidays, sick leave and other time off
consistent with the practices of CCAi on the same basis and in the same manner
as other Executive Vice Presidents of CCAi similarly situated.
3. All reasonable out-of-pocket documented expenses incurred by
Crumpler on behalf of CCAi in the ordinary and normal course of business shall
be reimbursed by CCAi on the same basis and in the same manner as other
Executive Vice Presidents of CCAi similarly situated.
4. As long as this Agreement is in effect, Crumpler shall be
entitled to indemnification provided to officers and directors as set forth in
CCAi's Code of Regulations and shall be an insured under an Directors and
Officers Liability Insurance that CCAi may have in place.
<PAGE> 17
ATTACHMENT B
------------
SAP Alliance Partners
<PAGE> 1
Exhibit 10.2
EXECUTION VERSION
-----------------
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement dated as of April 3, 1998 (this "Agreement"),
is by and between CONLEY, CANITANO & ASSOC., INC., an Ohio corporation ("CCAi"),
and Gary Levey ("Levey").
R E C I T A L S:
----------------
Concurrently with the execution and delivery of this Agreement, CCAi is
purchasing from Levey and certain other individuals all of the issued and
outstanding shares of common stock of Kelly-Levey & Associates, Inc. ("KLA")
pursuant to the terms and conditions of a Stock Purchase Agreement made as of
April __, 1998 (the "Purchase Agreement").
As a condition to entering into the Purchase Agreement, CCAi desires to
employ Levey, and Levey desires to serve, as District Manager of CCAi for the
time and upon and subject to the terms and conditions specified in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, CCAi and Levey hereby agree as follows:
SECTION 1. EMPLOYMENT.
1.1 TERM. CCAi agrees to employ Levey, and Levey agrees to serve CCAi,
for a term beginning on the date of this Agreement and ending on October __,
2000 (the "Term") unless extended by mutual consent of the parties or sooner
terminated pursuant to the provisions of Section 5 of this Agreement.
<PAGE> 2
1.2 DUTIES. (a) As long as this Agreement is in effect, Levey shall be
employed in a management capacity with the title of "District Manager". Levey
shall, to the best of his ability, devote all reasonable efforts to such
employment and the management needs of the business of CCAi and discharge
faithfully, diligently and to the best of his ability as long as this Agreement
is in effect all reasonable management responsibilities and duties as may be
assigned to him from time to time by the Chairman or President.
(b) As long as this Agreement is in effect, Levey shall devote one
hundred percent (100%) of his working time and attention during normal business
hours to his duties under this Agreement.
1.3 COMPENSATION. (a) As long as this Agreement is in effect, as
compensation for the services to be rendered during such period and the other
obligations undertaken by Levey under this Agreement, Levey shall be entitled to
the compensation described in ATTACHMENT A hereto.
(b) As long as this Agreement is in effect, CCAi shall provide Levey
with the benefits and perquisites set forth on Attachment A hereto.
SECTION 2. CONFIDENTIALITY.
(a) Levey acknowledges that by reason of the nature of Levey's
duties and his former position of trust with KLA, Levey has had and will have
access to and become informed of confidential and secret information which is
not otherwise available to the Trade or public and which is a competitive asset
of CCAi (the "Confidential Information"), including, without limitation: (i)
customer information such as names,
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<PAGE> 3
addresses, sales histories, purchasing habits, credit status, pricing levels,
current and anticipated customer requirements, etc.; (ii) certain prospective
customer information, mailing lists, etc.; (iii) product and systems
specifications, schematics, designs, concepts for new or improved products and
other product or systems data; (iv) product and parts suppliers' and prospective
suppliers' names, addresses and contracts; (v) new and future product and
systems development and planning data; (vi) future corporate planning data;
(vii) computer software and the data base technologies, systems, structures and
architectures; (viii) marketing strategies; (ix) CCAi's financial results and
business condition; (x) any other information, however documented, of CCAi that
is a "trade secret" either under common law or as such term is defined by
statute under the laws of any applicable jurisdiction, and (xi) any of the
foregoing which belong to any other person or company but to which Levey has had
access by reason of his employment or relationship with CCAi (including, without
limitation, information which is delivered to CCAi in confidence by persons or
companies for whom CCAi is performing services). Levey agrees faithfully to keep
in strict confidence, and not, either directly or indirectly, to make known,
divulge, reveal, furnish, make available or use (except for use in the regular
course of Levey's duties under this Agreement) any such Confidential
Information.
(b) In the event Levey is requested in connection with any
legal proceeding to disclose any Confidential Information, Levey shall give CCAi
prompt notice of such request so that CCAi may seek an appropriate protective
order or other remedy and/or waive compliance with the provisions of this
Agreement, and Levey shall cooperate with CCAi to obtain such protective order.
In the event that such protective
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<PAGE> 4
order or other remedy is not obtained or CCAi waives compliance with Section 2
of this Agreement, Levey shall furnish only that portion of the Confidential
Information which is ordered to be disclosed or is legally required, in the
opinion of Levey's counsel, to be disclosed. Levey's disclosure in accordance
with this 2(b) shall not constitute a violation of this Section 2.
(c) Levey acknowledges that all sales manuals, instruction books,
catalogs, price lists, information and records, technical manuals and
documentation, drafts of instructions, guides and manuals, maintenance manuals,
schematics, engineering and technical notes and drafts, mechanical drawings,
blueprints and other engineering, mechanical or technical documentation (whether
in draft or final form), and other sales or technical information and aids
relating to CCAi's business, and any and all other documents containing
Confidential Information furnished to Levey by CCAi or otherwise acquired or
developed by Levey shall at all times be the property of CCAi. Upon termination
of Levey's employment, Levey shall return to CCAi any such property or documents
which are in Levey's possession, custody or control, but Levey's obligation of
confidentiality shall survive such termination of employment until and unless
any such Confidential Information shall have become, through no fault of Levey,
generally known to the trade.
(d) For purposes of this Section 2 and Sections 3 and 4, the term
"CCAi" shall include its wholly-owned subsidiary, KLA.
SECTION 3. NON-COMPETITION.
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<PAGE> 5
3.1 COVENANT NOT TO COMPETE. Levey acknowledges that as long as
Levey is employed by CCAi, Levey's access to the Confidential Information will
enable Levey to benefit from CCAi's goodwill and know-how. To protect these
vital interests of CCAi, Levey agrees that as long as this Agreement is in
effect and for a period of two years following the termination of Levey's
employment, Levey will not, without the prior written consent of CCAi, except as
set forth in Section 3.2 of this Agreement, directly or indirectly, as a
shareholder, director, officer, employee, agent or consultant, (a) invest or
engage in any business which is competitive with that of CCAi or accept
employment with or render services to a competitor of CCAi or take any action
inconsistent with the relationship of an employee to CCAi; (b) solicit sales of,
or sell or deliver, any product or system of a competitor of CCAi that is of the
kind and character manufactured, sold or distributed by CCAi to any person, firm
or corporation called upon or served by Levey on behalf of CCAi; (c) solicit or
divert from CCAi the business or patronage of any person, firm or corporation
with whom Levey has had business relations on CCAi's behalf in the 12 month
period immediately prior to Levey's termination of employment, including
performing services similar to those performances while an employee of CCAi with
any customer of CCAi; (d) invest or engage in any business which is a member of
the so-called "SAP Alliance Partners", a list of which is attached hereto as
ATTACHMENT B and may be updated from time to time by CCAi; or (e) engage or
assist in or influence the engagement or hiring by any competing organization of
any salesman, distributor, contractor or employee of CCAi at the time of Levey's
termination of employment, or otherwise cause or encourage any person, firm or
corporation having a business relationship with CCAi at the time of Levey's
termination of employment to sever such
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<PAGE> 6
relationship with, or commit any act materially adverse to, CCAi. Levey further
agrees that this covenant not to compete applies whether Levey acts as an
individual for his own account, or as a partner, employee, agent, salesman,
distributor, consultant or representative of any person, firm or corporation.
The restriction contained in this Section 3 as it relates to the period
following the termination of Levey's employment shall be limited to those
geographic areas in which CCAi is then doing or soliciting business or selling
products or services, and no business shall be considered competitive with CCAi
unless CCAi was actually and actively engaged in such business or had definitive
plans to enter such business at the time of the termination of Levey's
employment.
3.2 EXCEPTIONS. Nothing herein shall be interpreted to prohibit
Levey from acquiring, for investment purposes, securities of a corporation that
may compete with CCAi, provided such securities are listed on a national
securities exchange or are regularly quoted in an over-the-counter market by one
or more members of the National Association of Securities Dealers or similar
organization and provided further that the securities acquired by Levey comprise
less than one percent of the total outstanding voting securities of such
corporation.
SECTION 4. COVENANTS REGARDING INVENTIONS.
(a) While Levey is employed by CCAi, Levey shall keep CCAi informed
of any inventions, discoveries, improvements, trade secrets and secret processes
made by him, in whole or in part, or conceived by him alone or with others,
which result from
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<PAGE> 7
any work he may do for, or at the request of, CCAi or which relate to the
business, operations, activities, research, investigation or obligations of
CCAi.
(b) Levey, and his heirs, assigns and representatives, shall
assign, transfer and set over, and do hereby assign, transfer and set over to
CCAi, its successors and its assigns, all his and their right, title and
interest in and to all inventions, discoveries, improvements, trade secrets,
secret processes, patents, patent applications, service marks, trademarks,
trademark applications, copyrights and copyright registrations which he solely
or jointly with others has conceived, made, acquired or suggested at any time
prior to the termination of Levey's employment and which relate either to the
business, operations, activities, research or investigations of CCAi.
(c) To the extent CCAi deems it necessary or desirable to effect
the intent of this Section 4 and the assignments, transfers and set overs
provided in Sections 4(a) or 4(b), Levey shall, at the expense of CCAi, assist
CCAi or its nominees to obtain patents for any inventions, discoveries,
improvements, trade secrets and secret processes in any countries throughout the
world; and Levey shall execute and deliver any applications, assignments, or
other instruments and all papers necessary to secure United States or foreign
country letter patents or the renewal or continuation thereof and to transfer to
CCAi, as requested, all the right, title, and interest in and to such formulae,
inventions, discoveries, improvements, trade secrets, secret processes, or the
renewal or continuation thereof.
(d) To the extent CCAi deems it necessary or desirable to effect
the intent of this Section 4 and the assignments, transfers and set overs
provided in
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<PAGE> 8
Sections 4(a) or 4(b), Levey shall deliver to CCAi any and all facts, sketches,
drawings, models, figures and other information with respect to such formulae,
inventions, discoveries, improvements, trade secrets and secret processes at any
time requested by CCAi and shall execute and deliver any applications,
assignments or other instruments in writing reasonably necessary or desirable in
obtaining such patents, or the renewal or continuation thereof, or in any
litigation or other proceedings connected therewith.
SECTION 5. TERMINATION; OBLIGATIONS.
(a) The employment of Levey shall terminate upon the occurrence of
any of the following events:
(i) the death of Levey;
(ii) six months after the "disability" of Levey. Levey will be
considered disabled for purposes of this Agreement when, in the judgment of
CCAi, after having had consultation with medical experts in the applicable
field, CCAi determines that Levey will be incapable of performing his duties
under this Agreement for a future period of 60 days or more or such disability
meets the criteria of "permanent and total disability" within the meaning of
Section 22(e)(3) of the Internal Revenue Code;
(iii) the delivery of written notice to Levey stating that Levey is
being terminated for "cause", with such written notice setting forth such cause
in reasonable detail. As used herein, the term "cause" shall mean:
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<PAGE> 9
(A) misappropriating any funds or property of CCAi, committing
fraud or embezzlement or engaging in any criminal or illegal activity any of
which shall have a material adverse effect on CCAi;
(B) except for providing services to CCAi in exchange for
compensation in accordance with the terms of this Agreement, attempting to
obtain material personal gain, profit or enrichment at the expense of CCAi or
from any transaction in which Levey has an interest which is known by Levey to
be materially adverse to the interest of CCAi, unless Levey shall have obtained
the prior written consent of the Board;
(C) being finally convicted of a felony involving moral turpitude
or any felony involving incarceration;
(D) committing any material breach of this Agreement, provided such
breach continues unremedied for a period of 30 days after CCAi shall have
notified Levey in writing of such breach; or
(E) performing or committing any act intended by Levey to cause a
material adverse affect on CCAi, including, without limitation, acts of sexual
harassment, provided such act continues unremedied for a period of 30 days after
CCAi shall have notified Levey in writing of such act.
(b) Upon termination of employment in accordance with Section 5(a)
above or upon termination by Levey: (i) CCAi shall have no further obligation to
Levey except to pay Levey (or Levey's estate in the case of death) the Base
Salary and other benefits provided herein as he may be entitled to receive
pursuant to Section 1.3 of this Agreement only up to the time of termination
(provided, however, Levey shall continue
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<PAGE> 10
to be entitled to the Warrant (as defined in the Purchase Agreement) or any
stock or options in CCAi that Levey was issued or granted by CCAi prior to the
date of his termination); and (ii) Levey shall have no further obligation to
CCAi except that he shall (A) continue to be bound by the provisions of Sections
2, 3 and 4 of this Agreement; (B) remain liable to CCAi for any actual damages,
if any caused by Levey's conduct described in Section 5(a)(iii) of this
Agreement; and (C) if Levey's employment was terminated under Section 5(a)(iii),
continue to cooperate with CCAi without charge to CCAi (but subject to
reimbursement by CCAi of any out-of-pocket costs incurred by Levey in the course
of such cooperation) as to matters within Levey's personal knowledge.
(c) In the event that Levey is terminated by CCAi for reasons other
than those set forth in Section 5(a) above, Levey shall be entitled to (i)
continue to receive his Base Salary for the longer of (A) the remainder of the
Term of this Agreement or (B) three months following such termination, and (ii)
participate in all applicable company health, accident, and other benefit plans
or programs in effect for employees of CCAi.
SECTION 6. REMEDIES.
Inasmuch as any breach of, or failure to comply with, this
Agreement will cause serious and substantial damage to CCAi, if Levey should in
any way breach, or fail to comply with, the terms of this Agreement, CCAi shall
be entitled to an injunction restraining Levey from such breach or failure. All
remedies expressly provided for herein are cumulative of any and all other
remedies now existing at law or in equity. Resort to any remedy provided for
under this Section 6 or provided for by law shall not
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<PAGE> 11
prevent the concurrent or subsequent employment of any other appropriate remedy
or remedies, or preclude the recovery by CCAi of monetary damages.
SECTION 7. MISCELLANEOUS.
7.1 AMENDMENT. This Agreement may be amended only by a writing
executed by the parties to this Agreement.
7.2 ENTIRE AGREEMENT. This Agreement and the other agreements
expressly referred to in this Agreement set forth the entire understanding of
the parties to this Agreement regarding the subject matter of this Agreement and
supersede all prior contracts, agreements, arrangements, communications,
discussions, representations and warranties, whether oral or written, between
the parties regarding the subject matter of this Agreement. The Attachments to
this Agreement are incorporated in this Agreement and shall be part of this
Agreement for all purposes.
7.3 NOTICES. Any notice, request, consent and other communication
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when received if personally delivered or sent
by facsimile, (b) within one day after being sent by recognized overnight
delivery service, or (c) within 5 days after being sent by registered or
certified mail, return receipt requested, postage prepaid, to the parties (and
to the persons to whom copies shall be sent) at their respective addresses set
forth below.
If to CCAi:
Conley, Canitano & Assoc., Inc.
5800 Landerbrook Drive
Mayfield Heights, OH 44124
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<PAGE> 12
Telephone: (440) 684-6600
Facsimile: (440) 684-6714
Attention: Mr. Nicholas A. Canitano
If to Levey:
Gary A. Levey
11424 Kayak Court
Indianapolis, IN 46256
Telephone: (313) 823-0655
Facsimile:_________________
Any party by written notice to the other party may change the address or the
persons to whom notices or copies thereof shall be directed.
7.4 ASSIGNMENT. This Agreement and the rights and duties hereunder
shall be binding upon and inure to the benefit of successors and permitted
assigns of each party to this Agreement, but shall not be assignable or
delegable by either party without the prior written consent of the other,
provided, however, CCAi shall be entitled to assign this Agreement and the
rights and duties hereunder to KLA.
7.5 GOVERNING LAW. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws of the State of Ohio. Each party
agrees to submit to the personal jurisdiction of the state and federal courts
located in the State of Ohio.
7.6 SEVERABILITY. Each section and subsection of this Agreement
constitutes a separate and distinct provision hereof. It is the intent of the
parties to this Agreement that the provisions of this Agreement be enforced to
the fullest extent permissible under the laws and public policies applicable in
each jurisdiction in which enforcement is sought. Accordingly, if any provision
of this Agreement shall be
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<PAGE> 13
adjudicated to be invalid, ineffective or unenforceable, the remaining
provisions shall not be affected thereby. The invalid, ineffective or
unenforceable provision shall, without further action by the parties, be
automatically amended to effect the original purpose and intent of the invalid,
ineffective and unenforceable provision; PROVIDED, HOWEVER, that such amendment
shall apply only with respect to the operation of such provision in the
particular jurisdiction with respect to which such adjudication is made.
7.7 WAIVERS. Any waiver by any party or any violation of, breach of
or default under any provision of this Agreement by the other party shall not be
construed as, or constitute, a continuing waiver of such provision, or waiver of
any other violation of, breach of or default under any other provision of this
Agreement.
7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together will constitute one and the same instrument.
7.9 THIRD PARTIES. Nothing expressed or implied in this Agreement
is intended, or shall be construed, to confer upon or give any person or entity
other than CCAi and Levey any rights or remedies under, or by reason of, this
Agreement.
7.10 WITHHOLDING OF TAXES. CCAi may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required to be withheld pursuant to any law or government regulation or ruling.
7.11 SURVIVAL OF CERTAIN OBLIGATIONS. The obligations of CCAi and
Levey set forth in this Agreement which by their terms extend beyond or survive
the termination of this Agreement shall not be affected or diminished in any way
by the termination of this Agreement.
- 13 -
<PAGE> 14
IN WITNESS WHEREOF, CCAi has caused this Agreement to be duly
executed and delivered by its duly authorized officer, and Levey has duly
executed and delivered this Agreement, as of the date first written above.
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Nicholas A. Canitano
---------------------------
Title: Chairman & CEO
------------------------
/s/ Gary Levey
------------------------------
GARY LEVEY
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<PAGE> 15
ATTACHMENT A
------------
Salary, Benefits ad Perquisites
--------------------------------
SALARY
$225,000 per year of salary ("Base Salary"). During the Term of this Agreement,
Levey's Base Salary shall be reviewed annually and may be increased by CCAi in
its sole discretion.
BENEFITS
1. As long as this Agreement is in effect, Levey shall be entitled
to participate in all applicable company health, accident and other benefit
plans or programs in effect for employees of CCAi on the same basis and in the
same manner as other employees of CCAi similarly situated.
2. As long as this Agreement is in effect, Levey shall be entitled
to vacation, and to such holidays, sick leave and other time off consistent with
the practices of CCAi on the same basis and in the same manner as other
employees of CCAi similarly situated.
3. All reasonable out-of-pocket documented expenses incurred by
Levey on behalf of CCAi in the ordinary and normal course of business shall be
reimbursed by CCAi in accordance with its past policies on the same basis and in
the same manner as other employees of CCAi similarly situated.
<PAGE> 1
Exhibit 10.3
CCAi EMPLOYMENT AGREEMENT
This CCAi Employment Agreement is made as of April 1, 1998, by and between
Conley, Canitano & Assoc., Inc., an Ohio Corporation ("CCAi"), and
(hereinafter "You" or "Employee").
CCAi is engaged in the general business of providing computer software
consulting services, including highly specialized services in connection with
software systems currently being marketed by SAP America, Inc., and SAP AG
("SAP") and Employee desires to be hired by and become an employee of CCAi.
Accordingly, CCAi and Employee agree as follows:
1. EMPLOYEE'S DUTIES
You agree to devote your full time to the business and affairs of CCAi and to
use Your best efforts to promote and enhance CCAi's interests in performing Your
job as described in the attached "Employee's Job Description". CCAi reserves the
right to amend, modify, supplement or revise the nature and scope of those
duties, obligations and responsibilities from time to time.
2. EMPLOYEE COMPENSATION
CCAi agrees that, in consideration of Your rendering services to CCAi according
to this Employment Agreement, You shall receive the compensation and benefits
described in the attached "Schedule of Employee's Compensation and Benefits".
CCAi reserves the right to amend, modify, supplement or otherwise revise the
compensation and benefits from time to time.
3. ACKNOWLEDGMENT OF CCAi's TRADE SECRETS
You acknowledge and agree that, in the performance of Your employment duties,
You will be brought into frequent contact, either in person, by telephone or
through the mails, with CCAi's existing and potential customers. You also agree
that CCAi's trade secrets and confidential information that you gain during Your
association with CCAi, have been developed by CCAi through substantial
expenditures of time, effort and money and constitute CCAi's valuable and unique
property. You further understand and agree that this makes it necessary for the
protection of CCAi's business that You not compete with CCAi during Your
employment and not compete with CCAi for a reasonable period thereafter, as
further provided in the following Paragraphs.
4. LIMITED GEOGRAPHIC AND CUSTOMER BASED NON-COMPETITION
For a period of one (1) year following the termination of Your employment, if
You are terminated for Cause or leave the employment of CCAi on your own, You
will not, without the prior written consent of CCAi:
(a) enter into or engage in any business which competes with CCAi's
protected business within the Restricted Territory (as defined below);
or
(b) solicit customers, sources of referrals for customers, business,
patronage, orders for, or sell any products or services in competition
with, or for any business that competes with, CCAi's protected business
in the Restricted Territory; or
<PAGE> 2
(c) divert, entice or otherwise take away any customers and/or sources
of referrals for customers, business, patronage or orders of CCAi within
the Restricted Territory, or attempt to do so; or
(d) promote or assist (financially or otherwise) any person, firm,
association, partnership, corporation or other entity engaged in any
business which competes with CCAi's protected business within the
Restricted Territory,
(e) for the purposes of this Paragraph 4, CCAi's protected business is
defined to be the provision of software consulting services in
connection with software systems marketed by SAP;
(f) for the purposes of this Paragraph 4, the Restricted Territory shall
be defined as and limited to a 50 mile radius from the Cleveland office
of CCAi or any additional "significant offices" of CCAi existing on the
date of termination of Your employment and all of the specific customer
accounts, for which you performed services on behalf of CCAi within the
12 month period immediately preceding termination. For purposes of this
Agreement, a "significant office" shall mean an office of CCAi which has
been in existence for at least six months and employs a human resources
representative, an account executive and an administrative support
person.
(g) for purposes of this Paragraph 4, CCAi shall only be deemed to have
provided written consent upon delivery to You of a specific
authorization signed on behalf of CCAi which specifies the type of
activity to which CCAi consents.
5. NON-COMPETITION PERIOD EXTENDED AS A RESULT OF VIOLATIONS
If a court determines that You have violated any of Your obligations under
Paragraph 4, then the period applicable to each obligation that You are
determined to have violated will automatically be extended by a period of time
equal in length to the period during which such violation(s) occurred.
6. SOLICITATION OF OTHER CCAI EMPLOYEES PROHIBITED
You agree not to directly or indirectly at any time solicit or induce or attempt
to solicit or induce any employee(s) or any sales representative(s), agent(s) or
consultant(s) of CCAi to terminate their employment, representation or other
association with CCAi.
7. CCAI'S CONFIDENTIAL INFORMATION
(a) You agree that both during and after Your employment with CCAi, You
will keep in strict confidence, and not, directly or indirectly,
disclose, furnish, disseminate, make available or (except in the
course of performing Your employment duties) use any of CCAi's trade
secrets or confidential business and technical information or those
of its customers or vendors. You understand that this obligation is
not limited by when or how You may have acquired such information.
<PAGE> 3
(b) Such confidential information shall include, without limitation,
CCAi's unique selling methods and trade techniques, training, marketing
and selling manuals, promotional materials, training courses and other
training and instructional materials, vendor and product information,
customer and prospective customer lists, referral lists, other customer
and referral information and other business information.
(c) You specifically acknowledge that all such confidential information,
whether or not reduced to writing or maintained on any form of
electronic media, and whether compiled by CCAi and/or by You, derives
independent economic value from not being readily known to or
ascertainable by proper means by others who can obtain economic value
from its disclosure or use. You further acknowledge CCAi has made
reasonable efforts to maintain the secrecy of such information and that
such information is CCAi's sole property. You also acknowledge and agree
that any retention and use of such information by You during Your
employment with CCAi (except in the course of performing Your duties and
obligations hereunder) or after the termination of Your employment will
constitute a misappropriation of CCAi's trade secrets.
8. INVENTIONS AND COPYRIGHTS
(a) Employee hereby assigns and agrees to assign to CCAi, its
successors, assigns or nominees, all of his or her rights to any
discoveries, inventions and improvements, whether patentable or not,
made, conceived or suggested, either solely or jointly with others, by
Employee while in CCAi's employ, whether in the course of his or her
employment with the use of CCAi's time, material or facilities or that
is in any way within or related to the existing or contemplated scope of
CCAi's business, unless Employee obtains a written consent from CCAi
that any discovery, invention, or improvement shall remain the property
of Employee. Any discovery, invention or improvement relating to any
subject matter with which CCAi was concerned during Your employment and
made, conceived or suggested by You, either solely or jointly with
others, within one(1) year following termination of Your employment
under this Agreement or any successor agreements shall be irrebuttably
presumed to have been so made, conceived or suggested in the course of
such employment with the use of CCAi's time, materials or facilities,
unless Employee obtains a written consent from CCAi that any discovery,
invention or improvement shall remain the property of Employee. Upon
request by CCAi with respect to any such discoveries, inventions or
improvements, You will execute and deliver to CCAi, at any time during
or after Your employment, all appropriate documents for use in applying
for, obtaining and maintaining such domestic and foreign patents as CCAi
may desire, and all proper assignments therefor, when so requested, at
the expense of CCAi, but without further or additional consideration.
(b) Employee acknowledges that to the extent permitted by law, all work
papers, reports, documentation, drawings, photographs, negatives, tapes
and masters therefor, prototypes and other materials (hereinafter,
"items"), including, without limitation, any and all such items
generated and maintained on any form of electronic media, generated by
Employee during his or her employment with CCAi shall be considered a
"work made for hire" and that ownership of any and all copyrights in any
and all such items shall belong to CCAi.
<PAGE> 4
9. RETURN OF CCAI PROPERTY
You agree that upon termination of Your employment with CCAi, for any reason,
You will return to CCAi, in good condition, all of CCAi's materials (including
without limitation, the originals and all copies) that contain, reflect,
summarize, describe, analyze, refer to or relate to any items of information
listed in paragraph 7(b) of this Agreement. In the event that such items are not
so returned, CCAi will have the right to charge You for all reasonable damages,
costs, attorneys' fees and other expenses incurred in searching for, taking,
removing and/or recovering such property.
10. OBLIGATION TO NOTIFY FUTURE EMPLOYER OF THIS AGREEMENT
During Your employment and for one (1) year thereafter, You agree to communicate
the contents of this Agreement to any person, firm, association, partnership,
corporation or other entity by which You intend to be employed, associated with,
or represent and which is engaged in a business that is competitive to CCAi's
business.
11. INADEQUATE REMEDY AT LAW
You acknowledge and agree that the remedy at law available to CCAi for breach of
any of Your obligations under this Agreement would be inadequate. You therefore
agree that, in addition to any other rights or remedies that CCAi may have at
law or in equity, temporary and permanent injunctive relief may be granted in
any proceeding which may be brought to enforce any provision contained in
Paragraphs 3, 4, 6, 7, 8, and 9, inclusive, of this Agreement, without the
necessity of proof of actual damage.
12. REASONABLENESS AND CONSIDERATION
You acknowledge that Your obligations under this Agreement are reasonable in the
context of the nature of CCAi's business and the competitive injuries likely to
be sustained by CCAi if You violate such obligations. You further acknowledge
that this Agreement is made in consideration of, and is adequately supported by
CCAi's agreement to employ, or to continue to employ You, or to grant additional
compensation or benefits to You, as the case may be, which You acknowledge
constitutes new and/or good, valuable and sufficient consideration.
13. TERMINATION
(a) You may terminate this Agreement at any time, but, if you are
actively engaged on a client assignment You agree to provide thirty days
notice to CCAi, before the last day of employment, unless otherwise
mutually agreed.
(b) CCAi will have the right to terminate Your employment at any time,
for any reason, with or without cause. In the event CCAi terminates Your
employment, then CCAi will pay You such amounts, if any, required by
CCAi's severance policy, if any, applicable to You, less any amounts
owed by you to CCAi. However, You hereby waive Your rights to such
payment if: You voluntarily terminate your employment or are terminated
for "cause". "Cause" shall mean:
<PAGE> 5
(i) misappropriating any funds or property of CCAi, committing fraud or
embezzlement or engaging in any criminal or illegal activity have a
material adverse effect on CCAi; (ii) except for providing services to
CCAi in exchange for compensation in accordance with the terms of this
Agreement, attempting to obtain material personal gain, profit or
enrichment at the expense of CCAi or from any transaction in which the
Employee has an interest which is known by the Employee to be adverse to
the interest of CCAi; (iii) being convicted of a felony; (iv) committing
any material breach of this Agreement with CCAi; provided such breach
continues for a period of 30 days after CCAi shall have notified the
Employee in writing of such breach; (v) performing or committing any act
intended by Employee to cause a material adverse effect on CCAi,
including, without limitation, acts of sexual harassment, provided such
act continues unremedied for a period of 30 days after CCAi shall have
notified the Employee in writing of such act; or (vi) non-performance of
Employee's job responsibilities, provided such nonperformance continues
unremedied for a period of 30 days after CCAi shall have notified
Employee in writing of such act.
(c) This Agreement shall continue in effect until terminated as provided
in this Paragraph. Notwithstanding any such termination, any covenant or
provision of this Agreement which is contemplated to extend beyond the
termination of this Agreement or of Employee's employment hereunder
shall survive any such termination, as further provided in Paragraph 17.
14. MODIFICATIONS TO BE IN WRITING
No modification, waiver, amendment or addition to any of the terms of this
Agreement shall be effective unless set forth in a writing signed by You and
CCAi. CCAi's failure to enforce any provision of this Agreement shall not be
construed to be a waiver of such provision or of CCAi's right thereafter to
enforce each and every provision hereof.
15. ASSIGNMENT
This Agreement is not assignable by either party without the prior written
consent of the other, except that CCAi may assign it to any assignee of or
successor to substantially all of the business or assets of CCAi or any direct
or indirect subsidiary thereof.
16. SUPERSEDES PRIOR AGREEMENTS
This Agreement supersedes all previous agreements, written or oral, between
Employee and the Company or its predecessors.
17. SEVERABILITY
All provisions, terms, conditions, paragraphs, agreements and covenants
("Provisions") contained in this Agreement are severable and, in the event any
one of them shall be held to be invalid by any court of competent jurisdiction,
this Agreement shall be interpreted as if such Provision was not contained
herein, and such determination shall not otherwise affect the validity of any
other Provisions. This and all other Provisions of this Agreement shall be and
remain applicable as provided herein, irrespective of any termination of Your
employment hereunder, whether by You or by CCAi, voluntary or involuntary,
<PAGE> 6
or for cause or without cause, and irrespective of any other termination or
expiration of this or any other written or oral agreement or arrangement (or any
extensions thereof) with CCAi.
18. OHIO LAW
This Agreement shall become effective as of the date set forth above and shall
be governed by, and construed in accordance with, the internal substantive laws
of the State of Ohio. You agree that the state and federal courts located in the
State of Ohio will have jurisdiction in any action, suit or proceeding against
You based on or arising out of this Agreement and You hereby: (a) submit to the
personal jurisdiction of such courts; (b) consent to service of process in
connection with any action, suit or proceeding against You; and (c) waive any
other requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction, venue or service of process.
19. TITLES
The titles and headings used herein are solely for organizational purposes and
are not intended to have any substantive meaning.
You agree and represent that, prior to signing this Agreement, You have read,
fully understand and voluntarily agree to the terms and conditions as stated
above.
<PAGE> 7
IN WITNESS WHEREOF, employee, having read and fully understood each of the
foregoing provisions, and CCAi, hereto have executed this Employment Agreement
as of the month, day and year first written above.
EMPLOYEE:
------------------------------------
CCAi:
Accepted For
Conley, Canitano & Assoc., Inc.
at Cleveland, Ohio
by: /s/ Karen M. Conley
---------------------------------
Karen M. Conley
Executive Vice-President
and: /s/ Annette M. Canitano
---------------------------------
Annette M. Canitano
Executive Vice-President
<PAGE> 1
Exhibit 10.4
EXECUTION COPY
--------------
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (this "AGREEMENT") is made as of April 3,
1998, by and between Conley, Canitano & Assoc., Inc., an Ohio corporation
("CCAI"), and Anthony F. Kelly, residing at 787 Gallant Fox, Union, Kentucky
41091 ("KELLY").
RECITALS
Concurrently with the execution and delivery of this Agreement, CCAi is
purchasing from Kelly and certain other individuals all of the outstanding
shares (the "SHARES") of common stock, no par value per share, of Kelly-Levey &
Associates ("KLA" and together with CCAi, the "COMPANY") pursuant to the terms
and conditions of a stock purchase agreement made as of April 3, 1998 (the
"STOCK PURCHASE AGREEMENT"). Section 3.2(i) of the Stock Purchase Agreement
requires that a noncompetition agreement be executed and delivered by Kelly as a
condition to the purchase of the Shares by CCAi.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS
Capitalized terms not expressly defined in this Agreement shall have
the meanings ascribed to them in the Stock Purchase Agreement.
2. ACKNOWLEDGMENTS BY KELLY
Kelly acknowledges that (a) Kelly has occupied a position of trust and
confidence with KLA prior to the date hereof and has become familiar with the
following, any and all of which constitute confidential information of the
Company (collectively the "CONFIDENTIAL INFORMATION"): (i) any and all trade
secrets concerning the business and affairs of the Company, product
specifications, data, formulae, compositions, processes, designs, sketches,
photographs, graphs, drawings, samples, inventions and ideas, past, current and
planned research and development, in each case solely as it relates to the SAP
business of the Company; (ii) customer lists, current and anticipated customer
requirements, price lists, market studies, business plans, computer software and
programs (including object code and source code); (iii) any and all information
concerning the SAP business and affairs of the Company (which includes
historical financial statements, financial projections and budgets, historical
and projected sales, capital spending budgets and plans, the names and
backgrounds of key personnel, personnel training and techniques and materials,
however documented; and (iv) any and all notes, analysis, compilations, studies,
summaries, and other material prepared by or for the
<PAGE> 2
Company containing or based, in whole or in part, on any information included in
the foregoing; (b) the business of the Company is international in scope; (c)
its products and services are marketed throughout the United States and parts of
Europe; (d) CCAi has required that Kelly make the covenants set forth in
Sections 3 and 4 of this Agreement as a condition to CCAi's purchase of the
Shares owned by Kelly; (e) the provisions of Sections 3 and 4 of this Agreement
are reasonable and necessary to protect and preserve the Company's business; and
(f) the Company would be irreparably damaged if Kelly were to breach the
covenants set forth in Sections 3 and 4 of this Agreement.
3. CONFIDENTIAL INFORMATION
Kelly acknowledges and agrees that all Confidential Information known
or obtained by Kelly, before the date hereof, is the property of the Company.
Therefore, except as otherwise provided herein (including paragraph 12), Kelly
agrees that Kelly will not, at any time, disclose to any unauthorized Persons or
use for his own account or for the benefit of any third party any Confidential
Information, whether Kelly has such information in Kelly's memory or embodied in
writing or other physical form, without CCAi's written consent, unless and to
the extent that the Confidential Information is or becomes generally known to
and available for use by the public other than as a result of Kelly's fault or
the fault of any other Person bound by a duty of confidentiality to CCAi or the
Company. Kelly agrees to deliver to CCAi at the time of execution of this
Agreement all documents, memoranda, notes, plans, records, reports, and other
documentation, models, components, devices, or computer software, whether
embodied in a disk or in other form (and all copies of all of the foregoing),
relating to the businesses, operations, or affairs of the Company and any other
Confidential Information of the Company that Kelly may then possess or have
under Kelly's control.
4. NONCOMPETITION
As an inducement for CCAi to enter into the Stock Purchase Agreement
and as additional consideration for the consideration to be paid to Kelly under
the Stock Purchase Agreement, Kelly agrees that:
(a) For a period of three years after the Closing, except as
otherwise provided herein (including paragraph 12):
(i) Kelly will not, directly or indirectly, engage or
invest in, own, manage, operate, finance, control, consult
with or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or
in any manner connected with, lend Kelly's name or any similar
name to, lend Kelly's credit to, or render services or advice
to, any business (A) that is a member of the SAP Alliance
Partners listed on EXHIBIT A hereto, or (B) that is involved
in any manner with the marketing, licensing, sales,
installation or any other activity regarding SAP products;
provided, however, that (i) Kelly may purchase or otherwise
acquire up to (but not more than) one percent of any class of
securities of any enterprise (but without otherwise
participating in the activities of such enterprise) if such
securities are listed
2
<PAGE> 3
on any national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act
of 1934, (ii) Kelly may acquire, hold and exercise the
Warrants (as defined in the Stock Purchase Agreement), and
(iii) Kelly may be employed by an SAP Alliance Partner if
Kelly is in no way involved in the marketing, licensing,
sales, installation or other activities regarding SAP
products. Kelly agrees that this covenant is reasonable with
respect to its duration, geographic area and scope.
(ii) Kelly will not, directly or indirectly, either
for himself or any other Person, (A) induce or attempt to
induce any employee of the Company to leave the employ of the
Company, (B) in any way interfere with the relationship
between the Company and any employee of the Company, (C)
employ, or otherwise engage as an employee, independent
contractor, or otherwise, any employee of the Company, or (D)
induce or attempt to induce any customer, supplier, licensee,
or business relation of the Company to cease doing business
with the Company, or in any way interfere with the
relationship between any customer of the Company; provided,
however, Kelly may solicit the administrative personnel of the
Company listed on Exhibit B; provided, further, Kelly may sell
products and/or service other than SAP products or services to
a customer or supplier of CCAi.
(iii) Kelly will not, directly or indirectly, either
for himself or any other Person, solicit the business of any
Person known to Kelly to be a customer of KLA as of the date
hereof which is listed on EXHIBIT C, whether or not Kelly had
personal contact with such Person.
(b) In the event of a breach by Kelly of any covenant set
forth in Subsection 4(a) of this Agreement, the term of such covenant
will be extended by the period of the duration of such breach.
(c) Kelly will not, at any time during or after the three year
period, disparage CCAi or the Company, or any of their shareholders,
directors, officers, employees, or agents.
(d) Kelly will, for a period of three years after the Closing,
within ten days after accepting any employment, advise CCAi of the
identity of any employer of Kelly. Company may serve notice upon each
such employer that Kelly is bound by this Agreement and furnish each
such employer with a copy of this Agreement or relevant portions
thereof.
3
<PAGE> 4
5. REMEDIES
If Kelly breaches any of the covenants set forth in Sections 3 or 4 of
this Agreement and such breach continues for a period of five (5) days after the
receipt by Kelly of written notice, the Company will be entitled to the
following remedies:
(a) damages from Kelly;
(b) to offset against any and all future amounts owing to
Kelly under the Stock Purchase Agreement and all amounts which the
Company claims under Subsection 5(a) of this Agreement; and
(c) in addition to its right to damages and any other rights
it may have, to obtain injunctive or other equitable relief to restrain
any breach or threatened breach or otherwise to specifically enforce
the provisions of Sections 3 and 4 of this Agreement, it being agreed
that money damages alone would be inadequate to compensate the Company
and would be an inadequate remedy for such breach.
6. SAP CONSULTING BOOK
The Company acknowledges that Kelly co-authored an SAP consulting book.
The Company will use its best efforts to cause Kelly's name to appear no less
than second in order in any place where the authors' names are listed in the
book, and the Company will consult with Kelly with respect to any updates and/or
modifications to the book. Furthermore, notwithstanding anything to the contrary
in this Agreement, the Company agrees that Kelly, at his own expense, has the
right to market and promote the book.
7. SUCCESSORS AND ASSIGNS
This Agreement will be binding upon the Company and Kelly and will
inure to the benefit of the Company and its affiliates, successors and assigns
and Kelly and Kelly's assigns, heirs and legal representatives.
8. WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power,
4
<PAGE> 5
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement can be discharged by one party, in whole or in part, by a waiver
or renunciation of the claim or right unless in writing signed by the other
party; (b) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (c) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement.
9. GOVERNING LAW
This Agreement will be governed by the laws of the State of Ohio
without regard to conflicts of laws principles.
10. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Ohio, County of Cuyahoga, or, if it has or
can acquire jurisdiction, in the United States District Court for the Northern
District of Ohio, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
11. SEVERABILITY
Whenever possible each provision and term of this Agreement will be
interpreted in a manner to be effective and valid but if any provision or term
of this Agreement is held to be prohibited by or invalid, then such provision or
term will be ineffective only to the extent of such prohibition or invalidity,
without invalidating or affecting in any manner whatsoever the remainder of such
provision or term or the remaining provisions or terms of this Agreement. If any
of the covenants set forth in Section 4 of this Agreement are held to be
unreasonable, arbitrary, or against public policy, such covenants will be
considered divisible with respect to scope, time, and geographic area, and in
such lesser scope, time and geographic area, will be effective, binding and
enforceable against Kelly.
12. ACKNOWLEDGEMENT
CCAi and the Company acknowledge that Kelly intends to seek employment
or create a new business entity in the computer software marketing, licensing,
installation and sale of products which may be directly or indirectly
competitive with the SAP products sold, licensed, installed, etc. by CCAi. CCAi
and the Company further acknowledge and agree that such activities (including
employment with SAP Alliance Partners and competitors of CCAi and the Company)
by Kelly shall
5
<PAGE> 6
not be considered a breach of Kelly's obligations hereunder; provided, however,
that such activities comply in all respects with all of the terms and conditions
of this Agreement.
13. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
14. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
15. NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by written notice to the other parties):
Kelly:
Mr. Anthony F. Kelly
787 Gallant Fox
Union, Kentucky 41091
with a copy to:
Deters, Benzinger & LaVelle, P.L.L.
Thomas More Park
2601 Turkeyfoot Road
Covington, Kentucky 41017
Attention: John C. LaVelle, Esq.
Facsimile No.: (606) 341-1469
6
<PAGE> 7
CCAi:
Conley, Canitano & Assoc., Inc.
5800 Landerbrook Drive
Mayfield Heights, Ohio 44124
Attention: Mr. Nicholas A. Canitano
Facsimile No.: (440) 684-6714
with a copy to:
John M. Saada, Jr., Esq.
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Facsimile No.: (216) 579-0212
16. ENTIRE AGREEMENT
This Agreement, the Stock Purchase Agreement and the Ancillary
Agreements (as such term is defined in the Stock Purchase Agreement) constitute
the entire agreement between the parties with respect to the subject matter of
this Agreement and supersede all prior written and oral agreements and
understandings between CCAi and Kelly with respect to the subject matter of this
Agreement. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement in Cleveland, Ohio, as of the date first above written.
CONLEY, CANITANO & ASSOC., INC. ANTHONY F. KELLY
By: /s/ Nicholas A. Canitano /s/ Anthony F. Kelly
---------------------------------- ------------------------------
Anthony F. Kelly
Title: Chairman & CEO
----------------------------------
8
<PAGE> 9
EXHIBIT A
SAP ALLIANCE PARTNERS
<PAGE> 10
EXHIBIT B
Joan Fedders
Jennifer McCubbins
Kim Chalfant
Ewin Gaby
10
<PAGE> 11
EXHIBIT C
G. Masana
Beltone
Brakebush
Allison Engines
Ferrara Pan
Getrag
General Motors - (GMO, SIIP, GMAC, GME)
Hercules
J.J. Keller
Kenna Metal
Kraft Foods - Chicago
Trans Link
U.S. Engineering
Acme Metal - Chicago
AMACO - Chicago
EDS - SBU's
- Automotive/GM
- Acme
- A/D - Allison
- Corporate (HR)
- Delph
Rubbermaid
SAP
11
<PAGE> 1
Exhibit 10.5
CCAi EMPLOYMENT AGREEMENT
This CCAi Employment Agreement is made as of April 23, 1998, by and between
Conley, Canitano & Assoc., Inc., an Ohio Corporation ("CCAi"), and Paul A.
Farmer (hereinafter "You" or "Employee").
CCAi is engaged in the general business of providing computer software
consulting services, including highly specialized services in connection with
software systems currently being marketed by SAP America, Inc., and SAP AG
("SAP") and Employee desires to be hired by and become an employee of CCAi.
Accordingly, CCAi and Employee agree as follows:
1. EMPLOYEE'S DUTIES
You agree to devote your full time to the business and affairs of CCAi and to
use Your best efforts to promote and enhance CCAi's interests in performing Your
job as described in the attached "Employee's Job Description". CCAi reserves the
right to amend, modify, supplement or revise the nature and scope of those
duties, obligations and responsibilities from time to time.
2. EMPLOYEE COMPENSATION
CCAi agrees that, in consideration of Your rendering services to CCAi according
to this Employment Agreement, You shall receive the compensation and benefits
described in the attached "Schedule of Employee's Compensation and Benefits".
CCAi reserves the right to amend, modify, supplement or otherwise revise the
compensation and benefits from time to time.
3. ACKNOWLEDGMENT OF CCAi's TRADE SECRETS
You acknowledge and agree that in the performance of Your employment duties, You
will be brought into frequent contact, either in person, by telephone or through
the mails, with CCAi's existing and potential customers. You also agree that
CCAi's trade secrets and confidential information that you gain during Your
association with CCAi, have been developed by CCAi through substantial
expenditures of time, effort and money and constitute CCAi's valuable and unique
property. You further understand and agree that this makes it necessary for the
protection of CCAi's business that You not compete with CCAi during Your
employment and not compete with CCAi for a reasonable period thereafter, as
further provided in the following Paragraphs.
4. LIMITED GEOGRAPHIC AND CUSTOMER BASED NON-COMPETITION
For a period of one (1) year following the termination of Your employment, if
You are terminated for Cause or leave the employment of CCAi on your own, You
will not, without the prior written consent of CCAi:
(a) enter into or engage in any business which competes with CCAi's
protected business within the Restricted Territory (as defined below);
or
(b) solicit customers, sources of referrals for customers, business,
patronage, orders for, or sell any products or services in competition
with, or for any business that competes with, CCAi's protected business
in the Restricted Territory; or
(c) divert, entice or otherwise take away any customers and/or sources
of referrals for
<PAGE> 2
customers, business, patronage or orders of CCAi within the Restricted
Territory, or attempt to do so; or
(d) promote or assist (financially or otherwise) any person, firm,
association, partnership, corporation or other entity engaged in any
business which competes with CCAi's protected business within the
Restricted Territory,
(e) for the purposes of this Paragraph 4, CCAi's protected business is
defined to be the provision of software consulting services in
connection with software systems marketed by SAP;
(f) for the purposes of this Paragraph 4, the Restricted Territory shall
be defined as and limited to a 50 mile radius from the Cleveland office
of CCAi or any additional "significant offices" of CCAi existing on the
date of termination of Your employment and all of the specific customer
accounts, for which you performed services on behalf of CCAi within the
12 month period immediately preceding termination. For purposes of this
Agreement, a "significant office" shall mean an office of CCAi which has
been in existence for at least six months and employs a human resources
representative, an account executive and an administrative support
person.
(g) for purposes of this Paragraph 4, CCAi shall only be deemed to have
provided written consent upon delivery to You of a specific
authorization signed on behalf of CCAi which specifies the type of
activity to which CCAi consents.
5. NON-COMPETITION PERIOD EXTENDED AS A RESULT OF VIOLATIONS
If a court determines that You have violated any of Your obligations under
Paragraph 4, then the period applicable to each obligation that You are
determined to have violated will automatically be extended by a period of time
equal in length to the period during which such violation(s) occurred.
6. SOLICITATION OF OTHER CCAi EMPLOYEES PROHIBITED
You agree not to directly or indirectly at any time solicit or induce or attempt
to solicit or induce any employee(s) or any sales representative(s), agent(s) or
consultant(s) of CCAi to terminate their employment, representation or other
association with CCAi.
7. CCAi'S CONFIDENTIAL INFORMATION
(a) You agree that both during and after Your employment with CCAi, You
will keep in strict confidence, and not, directly or indirectly,
disclose, furnish, disseminate, make available or (except in the
course of performing Your employment duties) use any of CCAi's trade
secrets or confidential business and technical information or those
of its customers or vendors. You understand that this obligation is
not limited by when or how You may have acquired such information.
(b) Such confidential information shall include, without limitation,
CCAi's unique selling methods and trade techniques, training,
marketing and selling manuals, promotional materials, training
courses and other training and instructional materials, vendor and
product information, customer and prospective customer lists,
referral lists, other customer and referral information and other
business information.
<PAGE> 3
(c) You specifically acknowledge that all such confidential information,
whether or not reduced to writing or maintained on any form of
electronic media, and whether compiled by CCAi and/or by You, derives
independent economic value from not being readily known to or
ascertainable by proper means by others who can obtain economic value
from its disclosure or use. You further acknowledge CCAi has made
reasonable efforts to maintain the secrecy of such information and that
such information is CCAi's sole property. You also acknowledge and agree
that any retention and use of such information by You during Your
employment with CCAi (except in the course of performing Your duties and
obligations hereunder) or after the termination of Your employment will
constitute a misappropriation of CCAi's trade secrets.
8. INVENTIONS AND COPYRIGHTS
(a) Employee hereby assigns and agrees to assign to CCAi, its
successors, assigns or nominees, all of his or her rights to any
discoveries, inventions and improvements, whether patentable or not,
made, conceived or suggested, either solely or jointly with others, by
Employee while in CCAi's employ, whether in the course of his or her
employment with the use of CCAi's time, material or facilities or that
is in any way within or related to the existing or contemplated scope of
CCAi's business, unless Employee obtains a written consent from CCAi
that any discovery, invention, or improvement shall remain the property
of Employee. Any discovery, invention or improvement relating to any
subject matter with which CCAi was concerned during Your employment and
made, conceived or suggested by You, either solely or jointly with
others, within one(1) year following termination of Your employment
under this Agreement or any successor agreements shall be irrebuttably
presumed to have been so made, conceived or suggested in the course of
such employment with the use of CCAi's time, materials or facilities,
unless Employee obtains a written consent from CCAi that any discovery,
invention or improvement shall remain the property of Employee. Upon
request by CCAi with respect to any such discoveries, inventions or
improvements, You will execute and deliver to CCAi, at any time during
or after Your employment, all appropriate documents for use in applying
for, obtaining and maintaining such domestic and foreign patents as CCAi
may desire, and all proper assignments therefor, when so requested, at
the expense of CCAi, but without further or additional consideration.
(b) Employee acknowledges that to the extent permitted by law, all work
papers, reports, documentation, drawings, photographs, negatives, tapes
and masters therefor, prototypes and other materials (hereinafter,
"items"), including, without limitation, any and all such items
generated and maintained on any form of electronic media, generated by
Employee during his or her employment with CCAi shall be considered a
"work made for hire" and that ownership of any and all copyrights in any
and all such items shall belong to CCAi.
<PAGE> 4
9. RETURN OF CCAi PROPERTY
You agree that upon termination of Your employment with CCAi, for any reason,
You will return to CCAi, in good condition, all of CCAi's materials (including
without limitation, the originals and all copies) that contain, reflect,
summarize, describe, analyze, refer to or re!ate to any items of information
listed in paragraph 7(b) of this Agreement. In the event that such items are not
so returned, CCAi will have the right to charge You for all reasonable damages,
costs, attorneys' fees and other expenses incurred in searching for, taking,
removing and/or recovering such property.
10. OBLIGATION TO NOTIFY FUTURE EMPLOYER OF THIS AGREEMENT
During Your employment and for one (1) year thereafter, You agree to communicate
the contents of this Agreement to any person, firm, association, partnership,
corporation or other entity by which You intend to be employed, associated with,
or represent and which is engaged in a business that is competitive to CCAi's
business.
11. INADEQUATE REMEDY AT LAW
You acknowledge and agree that the remedy at law available to CCAi for breach of
any of Your obligations under this Agreement would be inadequate. You therefore
agree that, in addition to any other rights or remedies that CCAi may have at
law or in equity, temporary and permanent injunctive relief may be granted in
any proceeding which may be brought to enforce any provision contained in
Paragraphs 3, 4, 6, 7, 8, and 9, inclusive, of this Agreement, without the
necessity of proof of actual damage.
12. REASONABLENESS AND CONSIDERATION
You acknowledge that Your obligations under this Agreement are reasonable in the
context of the nature of CCAi's business and the competitive injuries likely to
be sustained by CCAi if You violate such obligations. You further acknowledge
that this Agreement is made in consideration of, and is adequately supported by
CCAi's agreement to employ, or to continue to employ You, or to grant additional
compensation or benefits to You, as the case may be, which You acknowledge
constitutes new and/or good, valuable and sufficient consideration.
13. TERMINATION
(a) You may terminate this Agreement at any time, but, if you are
actively engaged on a client assignment You agree to provide thirty days
notice to CCAi, before the last day of employment, unless otherwise
mutually agreed.
(b) CCAi will have the right to terminate Your employment at any time,
for any reason, with or without cause. In the event CCAi terminates Your
employment, then CCAi will pay You such amounts, if any, required by
CCAi's severance policy, if any, applicable to You, less any amounts
owed by you to CCAi. However, You hereby waive Your rights to such
payment if: You voluntarily terminate your employment or are terminated
for "cause". "Cause" shall mean: (i) misappropriating any funds or
property of CCAi, committing fraud or embezzlement or engaging in any
criminal or illegal activity have a material adverse effect on CCAi (ii)
except for
<PAGE> 5
providing services to CCAi in exchange for compensation in accordance
with the terms of this Agreement, attempting to obtain material personal
gain, profit or enrichment at the expense of CCAi or from any
transaction in which the Employee has an interest which is known by the
Employee to be adverse to the interest of CCAi; (iii) being convicted of
a felony; (iv) committing any material breach of this Agreement with
CCAi; provided such breach continues for a period of 30 days after CCAi
shall have notified the Employee in writing of such breach; (v)
performing or committing any act intended by Employee to cause a
material adverse effect on CCAi, including, without limitation, acts of
sexual harassment, provided such act continues unremedied for a period
of 30 days after CCAi shall have notified the Employee in writing of
such act; or (vi) non-performance of Employee's job responsibilities,
provided such nonperformance continues unremedied for a period of 30
days after CCAi shall have notified Employee in writing of such act.
(c) This Agreement shall continue in effect until terminated as provided
in this Paragraph. Notwithstanding any such termination, any covenant or
provision of this Agreement which is contemplated to extend beyond the
termination of this Agreement or of Employee's employment hereunder
shall survive any such termination, as further provided in Paragraph 17.
14. MODIFICATIONS TO BE IN WRITING
No modification, waiver, amendment or addition to any of the terms of this
Agreement shall be effective unless set forth in a writing signed by You and
CCAi. CCAi's failure to enforce any provision of this Agreement shall not be
construed to be a waiver of such provision or of CCAi's right thereafter to
enforce each and every provision hereof.
15. ASSIGNMENT
This Agreement is not assignable by either party without the prior written
consent of the other, except that CCAi may assign it to any assignee of or
successor to substantially all of the business or assets of CCAi or any direct
or indirect subsidiary thereof.
16. SUPERSEDES PRIOR AGREEMENTS
This Agreement supersedes all previous agreements, written or oral, between
Employee and the Company or its predecessors.
17. SEVERABILITY
All provisions, terms, conditions, paragraphs, agreements and covenants
("Provisions") contained in this Agreement are severable and, in the event any
one of them shall be held to be invalid by any court of competent jurisdiction,
this Agreement shall be interpreted as if such Provision was not contained
herein, and such determination shall not otherwise affect the validity of any
other Provisions. This and all other Provisions of this Agreement shall be and
remain applicable as provided herein, irrespective of any termination of Your
employment hereunder, whether by You or by CCAi, voluntary or involuntary, or
for cause or without cause, and irrespective of any other termination or
expiration of this or any other written or oral agreement or arrangement (or any
extensions thereof) with CCAi.
<PAGE> 6
18. OHIO LAW
This Agreement shall become effective as of the date set forth above and shall
be governed by, and construed in accordance with, the internal substantive laws
of the State of Ohio. You agree that the state and federal courts located in the
State of Ohio will have jurisdiction in any action, suit or proceeding against
You based on or arising out of this Agreement and You hereby: (a) submit to the
personal jurisdiction of such courts; (b) consent to service of process in
connection with any action, suit or proceeding against You; and (c) waive any
other requirement (whether imposed by statute, rule of court or otherwise) with
respect to personal jurisdiction, venue or service of process.
19. TITLES
The titles and headings used herein are solely for organizational purposes and
are not intended to have any substantive meaning.
You agree and represent that, prior to signing this Agreement, You have read,
fully understand and voluntarily agree to the terms and conditions as stated
above.
<PAGE> 7
IN WITNESS WHEREOF, employee, having read and fully understood each of the
foregoing provisions, and CCAi, hereto have executed this Employment Agreement
as of the month, day and year first written above.
EMPLOYEE:
/s/ Paul A. Farmer
------------------------------------
Paul A. Farmer
CCAi:
Accepted For
Conley, Canitano & Assoc., Inc.
at Cleveland, Ohio
by: /s/ Karen M. Conley
---------------------------------
Karen M. Conley
Executive Vice-President
and: /s/ Annette M. Canitano
---------------------------------
Annette M. Canitano
Executive Vice-President
<PAGE> 1
Exhibit 10.6
RESTRICTED STOCK AGREEMENT
--------------------------
This AGREEMENT (the "Agreement") is made as of May 11, 1998 (the "Date
of Grant") by and between Conley, Canitano & Assoc., Inc., an Ohio corporation
(the "Company"), and Paul A. Farmer (together with any successors in interest,
the "Grantee").
1. GRANT OF RESTRICTED STOCK. Subject to and upon the terms, conditions,
and restrictions set forth in this Agreement and in the Company's 1997 Equity
and Performance Incentive Plan (the "Plan"), the Company hereby grants to the
Grantee as of the Date of Grant 7,695 shares of Restricted Stock. The Restricted
Stock shall be fully paid and nonassessable and shall be represented by a
certificate registered in the name of the Grantee and bearing a legend referring
to the restrictions hereinafter set forth. The Grantee shall pay the Company
$46.70 for each share of Restricted Stock (the "Purchase Price"), payable on the
Date of Grant by issuing a Promissory Note to the Company in the form attached
hereto as Exhibit A.
2. RESTRICTIONS ON TRANSFER OF RESTRICTED STOCK. The shares of
Restricted Stock may not be transferred, sold, pledged, exchanged, assigned or
otherwise encumbered or disposed of by the Grantee, except to the Company, until
they have become nonforfeitable in accordance with Section 3; provided, however,
that the Grantee's interest in the Restricted Stock may be transferred at any
time by will or the laws of descent and distribution. Any purported transfer,
encumbrance or other disposition of the Restricted Stock that is in violation of
this Section 2 shall be null and void, and the other party to any such purported
transaction shall not obtain any rights to or interest in the Restricted Stock.
3. VESTING OF RESTRICTED STOCK. On each anniversary of the Date of
Grant, the number of shares of Restricted Stock equal to thirty three and one
third percent (33.3%) multiplied by the initial number of shares of Restricted
Stock specified in this Agreement shall become nonforfeitable on a cumulative
basis until all of the shares of Restricted Stock have become nonforfeitable,
subject to the Grantee's remaining in the continuous employ of the Company. For
the purposes of this Agreement the continuous employment of the Grantee with the
Company shall not be deemed to have been interrupted, and the Grantee shall not
be deemed to have ceased to be an employee of the Company, by reason of the
transfer of the Grantee's employment among the Company and its Subsidiaries or a
leave of absence of not more than 30 days unless otherwise approved by the Board
or a committee thereof
4. ACCELERATION OF RESTRICTED STOCK AND EFFECT OF CERTAIN TRANSACTIONS.
Notwithstanding anything herein to the contrary, all the Restricted Stock
covered by this Agreement will become immediately nonforfeitable in the event of
a Change in Control of the Company.
5. COMPANY'S RIGHT OF REPURCHASE.
(a) REPURCHASE RIGHT. The Company shall have the right (the
"Repurchase Right") to repurchase some or all of the Restricted Stock which have
become nonforfeitable ("Vested Shares") from the Grantee, upon the occurrence of
any of the events specified in Section 5(b) below (the "Repurchase Event"). The
Repurchase Right may be exercised by the Company
<PAGE> 2
within 180 days following the date of such event (the "Repurchase Period"). The
Repurchase Right shall be exercised by the Company by giving the holder written
notice on or before the last day of the Repurchase Period of its intention to
exercise the Repurchase Right, and, together with such notice, tendering to the
holder an amount equal to the greater of the Purchase Price or the fair market
value of the shares, determined as provided in Section 5(c). The Company may
assign the Repurchase Right to one or more persons. Upon exercise of the
Repurchase Right in the manner provided in this Section 5(a), the Grantee shall
deliver to the Company the stock certificate or certificates representing the
Restricted Stock being repurchased, duly endorsed and free and clear of any and
all liens, charges and encumbrances.
If shares of Restricted Stock are not purchased under the Repurchase
Right, the Grantee will hold any such shares in his possession subject to all of
the provisions of this Section 5 and Section 6 hereof
(b) COMPANY'S RIGHT TO EXERCISE REPURCHASE RIGHT. The Company shall
have the Repurchase Right in the event that any of the following events shall
occur;
(i) The termination of the Grantee's employment with the
Company and its Subsidiaries for any reason whatsoever,
regardless of the circumstances thereof, and including
without limitation upon death, disability, retirement,
discharge or resignation for any reason, whether
voluntary or involuntarily; or
(ii) The (x) filing of a voluntary petition under any
bankruptcy or insolvency law, or a petition for the
appointment of a receiver or the making of an assignment
for the benefit of creditors, with respect to the
Grantee, or (y) the Grantee being subjected
involuntarily to a petition or assignment or to an
attachment or other legal or equitable interest with
respect to his or her assets, which involuntary petition
or assignment or attachment is not discharged within 60
days after its date and (z) the Grantee being subject to
a transfer of Restricted Stock by operation of law,
except by reason of death.
(c) DETERMINATION OF FAIR MARKET VALUE. The fair market value of the
Restricted Stock shall be, for purposes of this Section 5 and Section 6,
determined as of the date of the Repurchase Event by a Special Committee of the
Company's Board of Directors. The Special Committee shall meet annually and
determine the Company's fair market value in the event the Company has not
conducted an initial public offering of its equity securities.
(d) EXPIRATION OF COMPANY'S REPURCHASE RIGHT. The Repurchase Right
shall remain in effect until the closing of the first public offering of the
Company's equity securities registered under the Securities Act of 1933, as
amended, or any successor statute, or such other event as a result of which
outstanding equity securities of the Company (or any successor entity) shall be
publicly traded (an "Initial Public Offering").
-2-
<PAGE> 3
6. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT. If the Company does not elect to purchase any
Vested Shares within the period specified in Section 5(a) and thereafter the
Grantee desires to transfer all or any part of the Vested Shares to any person
other than the Company (an "Offeror"), the Grantee shall: (i) obtain in writing
an irrevocable and unconditional bona fide offer (the "Offer") for the purchase
thereof from the Offeror; and (ii) give written notice (the "Option Notice") to
the Company setting forth the Grantee's desire to transfer such shares, which
Option Notice shall be accompanied by a photocopy of the Offer and shall set
forth the name and address of the Offeror and the price and terms of the Offer.
Upon receipt of the Option Notice, the Company shall have an assignable option
to purchase any or all of such Vested Shares (the "Company Option Shares")
specified in the Option Notice, such option to be exercisable by giving, within
10 days after receipt of the Option Notice, a written counter notice to the
Grantee. If the Company elects to purchase any or all of such Company Option
Shares, it shall be obligated to purchase, and the Grantee shall be obligated to
sell to the Company, such Company Option Shares at the price and terms indicated
in the Offer within 30 days from the date of delivery by the Company of such
counter-notice.
(b) SALE OF VESTED SHARES TO OFFEROR. The Grantee may, for 60 days
after the expiration of the 10-day option period as set forth in Section 6(a),
sell to the Offeror, pursuant to the terms of the Offer, any or all of such
Company Option Shares not purchased or agreed to be purchased by the Company or
its assignee. If any or all of such Company Option Shares are not sold pursuant
to an Offer within the time permitted above, the unsold Company Option Shares
shall remain subject to the terms of Section 5 and Section 6.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there shall be
any change in the Common Stock of the Company through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination or
exchange of shares, or the like, the restrictions contained in this Section 6
shall apply with equal force to additional and/or substitute securities, if any,
received by the Grantee in exchange for, or by virtue of his ownership of Vested
Shares.
(d) FAILURE TO DELIVER VESTED SHARES. If the Grantee fails or
refuses to deliver on a timely basis duly endorsed certificates representing
Company Option Shares to be sold to the Company or its assignee pursuant to this
Section 6, the Company shall have the right to deposit the purchase price for
such Company Option Shares in a special account with any bank or trust company,
giving notice of such deposit to the Grantee, whereupon such Company Option
Shares shall be deemed to have been purchased by the Company. All such monies
shall be held by the bank or trust company for the benefit of the Grantee. All
monies deposited with the bank or trust company but remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust company to
the Company on demand, and the Grantee shall thereafter look only to the Company
for payment. The Company may place a legend on any certificate for Vested Shares
delivered to the Grantee reflecting the restrictions on transfer provided in
this Section 6.
-3-
<PAGE> 4
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first
refusal rights of the Company set forth above shall remain in effect until the
closing of an Initial Public Offering.
7. FORFEITURE OF RESTRICTED STOCK. Subject to Section 3, and except as
the Board may determine on a case-by-case basis, any shares of Restricted Stock
that have not theretofore become nonforfeitable shall be forfeited if the
Grantee ceases to be continuously employed by the Company at any time prior to
the applicable vesting date. In the event of a termination for cause, all shares
of Restricted Stock on which the restrictions described in Section 2 have not
lapsed shall be forfeited. For this purpose, cause shall mean that the Grantee
has committed prior to termination of employment any of the following acts:
(a) an intentional act of fraud, embezzlement, theft, moral
turpitude, or any other material violation of law in connection with the
Grantee's duties or in the course of the Grantee's employment;
(b) intentional wrongful damage to material assets of the Company;
(c) intentional wrongful disclosure of material confidential
information of the Company;
(d) intentional wrongful engagement in any competitive activity that
would constitute a material breach of the duty of loyalty; or
(e) intentional breach of any stated material employment policy of
the Company.
In the event of a forfeiture, the Company shall pay to the Grantee the lesser of
(i) the fair market value of the forfeited shares or (ii) Purchase Price and the
certificate(s) representing the shares of Restricted Stock shall be cancelled.
8. DIVIDEND, VOTING AND OTHER RIGHTS. Except as otherwise provided
herein, the Grantee shall have all of the rights of a shareholder with respect
to the shares of Restricted Stock, including the right to vote such shares and
receive any dividends that may be paid thereon; provided, however, that any
additional Common Shares or other securities that the Grantee may become
entitled to receive pursuant to a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, separation or reorganization or
any other change in the capital structure of the Company shall be subject to the
same restrictions as the shares of Restricted Stock.
9. RETENTION OF STOCK CERTIFICATE(S) BY THE COMPANY. The certificate(s)
representing the Restricted Stock shall be held in custody by the Company,
together with a stock power endorsed in blank by the Grantee with respect
thereto, until those shares have become nonforfeitable in accordance with
Section 3. In order for the Grant under this Agreement to be effective, the
Grantee must sign and return the attached stock powers to the attention of the
Company's President.
-4-
<PAGE> 5
10. NO EMPLOYMENT CONTRACT. Nothing contained in this Agreement shall
confer upon the Grantee any right with respect to continuance of employment by
the Company, nor limit or affect in any manner the right of the Company to
terminate the employment or adjust the compensation of the Grantee.
11. TAXES AND WITHHOLDING. To the extent that the Company shall be
required to withhold any federal, state, local or foreign taxes in connection
with the issuance or vesting of any restricted or nonrestricted Common Shares or
other securities pursuant to this Agreement, and the amounts payable to the
Company for such withholding are insufficient, it shall be a condition to the
issuance or vesting of the Common Shares, as the case may be, that the Grantee
shall pay such taxes or make provisions that are satisfactory to the Company for
the payment thereof The Grantee may elect to satisfy all or any part of any such
withholding obligation by surrendering to the Company a portion of the Vested
Shares that are issued or transferred to the Grantee hereunder, and the Common
Shares so surrendered by the Grantee shall be credited against any such
withholding obligation at the fair market value per Common Share of such shares
on the date of such surrender.
12. COMPLIANCE WITH LAW. The Company shall make reasonable efforts to
comply with all applicable federal and state securities laws; provided, however,
notwithstanding any other provision of this Agreement, the Company shall not be
obligated to issue any restricted or nonrestricted Common Shares or other
securities pursuant to this Agreement if the issuance thereof would result in a
violation of any such law.
13. AMENDMENTS. Any amendment to the Plan shall be deemed to be an
amendment to this Agreement to the extent that the amendment is applicable
hereto; provided, however, that no amendment shall adversely affect the rights
of the Grantee under this Agreement without the Grantee's consent.
14. SEVERABILITY. In the event that one or more of the provisions of
this Agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated shall be deemed to be separable from
the other provisions hereof and the remaining provisions hereof shall continue
to be valid and fully enforceable.
15. RELATION TO PLAN. This Agreement is subject to the terms and
conditions of the Plan. In the event of any inconsistency between the provisions
of this Agreement and the Plan, the Plan shall govern. Capitalized terms used
herein without definition shall have the meanings assigned to them in the Plan.
The Board, acting pursuant to the Plan, as constituted from time to time, shall,
except as expressly provided otherwise herein, have the right to determine any
questions that arise in connection with this Agreement.
16. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Ohio.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by its duly authorized officer and Grantee has also executed this
Agreement in duplicate, as of the day and year first above written.
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Nicholas A. Canitano
------------------------------------
Title: Chairman & CEO
---------------------------------
The undersigned Grantee hereby (i) acknowledges receipt of an executed
original of this Agreement and (ii) accepts the right to receive the Common
Shares or other securities covered hereby, subject to the terms and conditions
of the Plan and the terms and conditions hereinabove set forth.
/s/ Paul A. Farmer
---------------------------------------
Paul A. Farmer
Date: 5-11-98
----------------------------------
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<PAGE> 7
Exhibit A
PROMISSORY NOTE
---------------
$359,356.50 May 11, 1998
Paul A. Farmer (the "Grantee"), FOR VALUE RECEIVED, hereby promises to
pay to the order of Conley, Canitano & Assoc., Inc., an Ohio corporation (the
"Company "), the principal amount of Three Hundred Fifty-Nine Thousand Three
Hundred Fifty-Six Dollars and Fifty Cents ($359,356.50), in lawful money of the
United States of America. Such principal amount is due and payable in full on
May 11, 2004 (the "Maturity Date").
The Grantee also promises to pay interest on the unpaid principal amount
hereof in like money at the office of the Company at an annual rate of 6%; said
interest to accrue for the period beginning on the date hereof and ending on and
including the Maturity Date or an earlier date on which the principal amount
hereof is paid in full. The accrued interest is payable on (i) June 1 and
December 1 of each year prior to the Maturity Date beginning on December 1,1998,
and (Ii) the Maturity Date. Interest shall be calculated based on a 360-day year
of twelve 304ay months, but in no event shall the rate of interest exceed the
maximum rate, if any, allowable under law.
The Grantee may at any time and from time to time prepay the unpaid
principal amount hereof, in whole or in part, without premium or penalty.
The Grantee shall prepay this Promissory Note in an amount equal to each
bonus, if any, paid by the Company, or any affiliate or subsidiary of the
Company to the Grantee on or prior to the Maturity Date (it being understood
that all such prepayments shall be mede net of any and all withholding taxes
associated with each such bonus).
At any time during the continuance of any Event of Default (as defmed
below), the Company, by written notice to the Grantee, may declare the principal
of and accrued interest in respect of this Promissory Note to be, whereupon the
same will become, forthwith due and payable without presentment, demand, protest
or other notice of any kind, all of which are hereby expressly waived by the
Grantee provided that if an Event of Default described in clause (li) below
occurs in respect of the Grantee, the result which would otherwise occur only
upon the giving of written notice by the Company to the Grantee as specified in
this paragraph will occur automatically without the giving of any such notice.
For the purposes of this Promissory Note, the term "Event of Default" means (i)
the failure by the Grantee to pay when due any amount owed to the Company under
this Promissory Note; or (ii) the Grantee's flling a petition or otherwise
voluntarily commencing a case or proceeding or filing an answer or other
pleading in any proceeding seeking relief under any federal or state bankruptcy,
imolvency or debtors' reorganization law, being the voluntary or involuntary
subject of an order for relief by any court under any such law, or being
adjudicated a "bankrupt," "debtor" or "insolvent" under any such law, or there
being appointed under any such law, a "trustee," "receiver" or "custodian" to
manage the Grantee's business or properties, or there being commenced under any
such law a case or proceeding proposing such an order for relief, adjudication
or appointment with respect to the Grantee or the Grantee's business, which
proceeding is consented to by the Grantee or which is not dismissed within 90
days after being commenced or (iii) the Grantee ceases to be continuously
employed by the Company; provided, however, in the event the Grantee ceases to
be continuously employed within one year following a Change in Control (as
defined in the Company's 1997 Equity and Performance Incentive Plan) of the
Company, this Note shall not be due and payable until six months after Grantee
ceases to be an employee, advisor or consultant of the Company.
The Grantee hereby waives presentment, protest or notice of any kind in
connection with this Note. This Note must be construed in accordance with and be
governed by the law of the State of Ohio.
/s/ Paul A. Farmer
---------------------------------------
Paul A. Farmer
<PAGE> 1
Exhibit 10.7
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES UNDERLYING THIS WARRANT MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH
SALE, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION SHALL HAVE
BEEN REGISTERED UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS OR UNTIL THE COMPANY SHALL HAVE RECEIVED A LEGAL
OPINION SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, THAT SUCH
SECURITIES MAY BE LEGALLY SOLD OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION AND COMPLIANCE.
WARRANT
-------
To Purchase 6,508.866 Shares
of Common Stock, par value $.001, of
CONLEY, CANITANO & ASSOC., INC.
April 3, 1998
THIS IS TO CERTIFY that, for value received, Ronnie Crumpler
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Conley, Canitano & Assoc., Inc., an Ohio corporation (the "Company") at any
time on or after the Exercise Date of this Warrant, [insert number] of shares of
Common Stock (the "Underlying Warrant Shares") at an Exercise Price of $.001 per
share and to exercise the other rights, powers and privileges hereinafter
provided, all on the terms and subject to the conditions hereinafter set forth.
Pursuant to the terms of the Stock Purchase Agreement, dated as of
April 3, 1998, (the "Purchase Agreement"), by and among the Company, Kelly-Levey
& Associates, Inc., a Kentucky corporation ("KLA") and certain of the principal
shareholders of KLA, the Company purchased all of the outstanding common shares
of KLA. As contemplated by the Purchase Agreement, this Warrant is one of three
Warrants (the "Warrants") of the same form and having the same terms as this
Warrant issued to the former three principal shareholders of KLA, entitling the
holders thereof (the "Holders") to purchase up to an aggregate of 26,000 shares
of Common Stock
1. DEFINITIONS. The terms defined in this Section 1 shall have the
following respective meanings:
"COMMON STOCK" shall mean the common stock, par value $.001, of the
Company.
"COMPANY" shall mean Conley, Canitano & Assoc., Inc., an Ohio
corporation.
<PAGE> 2
"CORPORATION" shall include an association, partnership, joint stock
company, business trust or other similar organization.
"EXERCISE DATE" shall mean the two year anniversary of the Closing (as
that term is defined in the Purchase Agreement).
"EXERCISE PRICE" shall mean $.001 per share of Common Stock.
"HOLDER" shall have the meaning set forth in the preamble hereto.
"HOLDERS" shall have the meaning set forth in the preamble hereto.
"NEW WARRANT" shall have the meaning set forth in Section 3(b) hereof.
"NOTICE OF EXERCISE" shall mean the form of Notice of Exercise
appearing at the end of this Warrant.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"UNDERLYING WARRANT SHARES" shall mean the shares of Common Stock
issued or issuable, as the case may be, upon exercise of this Warrant,
including, without limitation, any shares of Common Stock issuable with respect
thereto by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation, other
reorganization or otherwise.
"WARRANT" shall mean this Warrant.
"WARRANTS" shall have the meaning set forth in the preamble hereto.
2. EXERCISE OF WARRANT.
(a) RIGHT TO EXERCISE WARRANT AT EXERCISE DATE. On or any time
after the Exercise Date, Holder shall have the right, at its option, to exercise
this Warrant in whole. Except as provided in Section 3(b), no partial exercise
of the Warrant is permitted.
(b) RIGHT TO EXERCISE WARRANT IF INITIAL PUBLIC OFFERING.
Holder shall have the right, at its option, to exercise this Warrant in whole
before the Exercise Date if at any time before the Exercise Date the Company
consummates the Company's first underwritten offering to the public pursuant to
an effective registration statement under the Securities Act provided that (i)
such registration statement covers the offer and sale of Common Stock of which
the aggregate net proceeds attributable to sales for the account of the Company
exceed $35,000,000, at a price per share equal to at least $110.00 (as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, stock dividend, or similar event) and (ii) such Common Stock
is listed for trading on the New York Stock Exchange, Inc., the American Stock
Exchange or the Nasdaq National Market (an "Initial Public Offering").
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<PAGE> 3
(c) MANNER OF EXERCISE OF WARRANT. This Warrant may be
exercised five days after written notice to the Company of Holder's intent to
exercise, by presentation and surrender hereof to the Company and payment of the
Exercise Price for the Underlying Warrant Shares. Upon receipt by the Company of
this Warrant at the office of Company, in proper form for exercise, accompanied
by (i) payment of the Exercise Price (which may be in the form of a check),
along with the completed and signed Warrant Exercise Form attached hereto or
(ii) consistent with applicable law, through the surrender of rights by Holder
of a sufficient number of the Underlying Warrant Shares to pay the Exercise
Price, along with the completed and signed Cashless Exercise Form attached
hereto. The Company shall issue and send by hand delivery, by courier or by
first class mail (postage prepaid) to the Holder, at the address designated by
Holder, a certificate or certificates for the number of shares of Common Stock
to which Holder is entitled upon exercise of the Warrant.
3. PUT RIGHT.
(a) PUT RIGHT. Notwithstanding Section 2, Holder shall have
the option, exercisable by it on or any time after the Exercise Date if the
Company has not consummated an Initial Public Offering on or before the Exercise
Date, to require the Company to purchase, and in such case the Company shall
purchase, the Underlying Warrant Shares for $76.93 per share (the "Put Price").
(b) PURCHASE PURSUANT TO PUT RIGHT. Holder may exercise its
right to require the Company to purchase the Underlying Warrant Shares by
written notice to the Company and presentation and surrender of the Warrant. The
Company shall purchase the Underlying Warrant Shares and pay Holder in the
following manner:
(i) Up to 25% of the Put Price would be payable
within ten (10) days after the Company receives Holder's
notice that Holder is requiring the Company to purchase the
Underlying Warrant Shares. The number of shares of Common
Stock represented by this Warrant will be decreased
proportionately and the Company will execute and deliver to
the Holder of this Warrant a new Warrant (the "New Warrant")
conveying the right to purchase that reduced number of shares
of Common Stock. The New Warrant would contain the same terms
as those set forth herein.
(ii) The New Warrant, or the Warrant if applicable,
would be subject to the Put Right, at the option of the
Holder, into the remaining balance of the Put Price at any
time after the first anniversary of the Exercise Date.
(c) EXPIRATION OF PUT RIGHT. The right of Holder put the
Underlying Warrant Shares to the Company set forth in Section 3(a) shall expire
at the consummation of an Initial Public Offering.
4. FRACTIONAL SHARES. Notwithstanding any other provision of this
Warrant, the Company shall not be obligated to issue fractional shares of Common
Stock upon exercise of this
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<PAGE> 4
Warrant. Instead of fractional shares of Common Stock that would otherwise be
issuable to the Holder, the Company may pay cash to the Holder.
5. RESERVATION OF SHARES; STOCK FULLY PAID. The Company represents,
warrants, and agrees that there currently is and at all time there shall be
authorized and reserved for issuance upon exercise of the Warrants such number
of shares of Common Stock as shall be required for issuance or delivery upon
exercise hereof; and that all shares of Common Stock issuable upon exercise of
the Warrants will, upon issuance, be duly and validly issued, fully paid, and
non-assessable.
6. ANTIDILUTION PROVISIONS.
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If the
Company at any time and from time to time subsequent to the date hereof: (i)
declares a dividend upon, or makes any distribution in respect of, any of its
stock, payable in shares of Common Stock or (ii) subdivides its outstanding
shares of Common Stock into a larger number of shares of Common Stock, or (iii)
combines its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, then the number of shares of Common Stock purchasable hereunder
shall immediately be increased or decreased, proportionally.
(b) RECLASSIFICATIONS, REORGANIZATIONS, CONSOLIDATIONS OR
MERGERS. If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or sale of all or substantially all of the Company's assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive securities, cash or other assets with respect to or
in exchange for such Common Stock, then the Holder shall thereafter only have
the right to exercise this Warrant and receive the securities (including shares
of Common Stock if such would not have been extinguished), cash or other assets
that it would have received if it had exercised this Warrant for shares of
Common Stock immediately prior to such event.
(c) NOTICE OF ADJUSTMENT. Within ten (10) days of any
adjustment of the number of shares of Common Stock issuable upon the exercise of
this Warrant, the Company shall send to the Holder written notice of such
adjustment and the corresponding increase or decrease, as the case may be, in
the number of shares issuable upon exercise of this Warrant. The notice shall
set forth in reasonable detail the method of calculation and the facts upon
which such calculation is based, all of which shall be certified as true and
correct by the treasurer of the Company.
7. REGISTRATION.
(a) RIGHT TO INCLUDE UNDERLYING WARRANT SHARES. If at any time
or times after the date hereof the Company shall seek to file a registration
statement under the Securities Act in connection with a public offering of
securities by the Company, a public offering of securities by shareholders of
the Company or both, the Company will give prompt written notice thereof to
Holders at least thirty (30) days prior to the anticipated initial filing date
of such registration statement. Upon the written request of Holder given to
Company within ten (10) days after the
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<PAGE> 5
receipt of any such notice from the Company, the Company will use its reasonable
best efforts to effect the registration under the Securities Act of the
Underlying Warrant Shares which the Company has been so requested to register by
the Holder thereof, so that the Underlying Warrant Shares are entitled to the
same registration rights as all other shares of Common Stock to be registered
under the Securities Act by the Company. The provisions of this Section will not
apply to Underlying Warrant Shares that are freely tradable pursuant to Rule
144(k) under the Securities Act (or any successor provision thereto) as
evidenced by an opinion of counsel to the Company addressed to the Holder
thereof which opinion is reasonably satisfactory to counsel to the Holder or a
registration effected solely to implement (i) an employee benefit plan, or (ii)
a transaction to which Rule 145 or any similar rule of the Securities and
Exchange Commission (the "SEC") under the Securities Act is applicable. The
Company may withdraw any registration initiated by the Company pursuant to this
Section 7(a) at any time before it becomes effective, or postpone such offering
without obligation or liability to the Holders.
(b) PRIORITY IN REGISTRATION. If a registration pursuant to
this Section 7 involves an underwritten offering and the managing underwriter or
underwriters in good faith advises the Company that, in its opinion, the number
of securities which the Company, the Holders and any other parties intend to
include in such registration exceeds the largest number of securities which can
be sold in such offering without having an adverse effect on such offering
(including the price at which such securities can be sold), then the Company
will include in such registration (i) first, if the registration was initiated
by parties to whom the Company has granted registration rights, other than the
Holders ("Other Holders") exercising demand registration rights, 100% of the
securities such Other Holders propose to sell (except to the extent the terms of
such Other Holders' registration rights provide otherwise); (ii) second, 100% of
the securities the Company proposes to sell for its own account; (iii) third, to
the extent that the number of securities which such Other Holders exercising
demand registration rights and the Company propose to sell is less than the
number of securities which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, such number of
Registerable Securities which the Investor Holders have requested to be included
in such registration pursuant to incidental or "piggyback" registration rights
granted to Investor Holders pursuant to Section 7 of the Stock Purchase and
Shareholders' Agreement, dated as of October 15, 1997, by and among the Company,
certain of the principal shareholders of the Company and certain Investors (the
"Investor Purchase Agreement"), which, in the opinion of such managing
underwriter or underwriters, can be sold without having the adverse effect
referred to above; and (iv) fourth, to the extent that the number of securities
which such Other Holders exercising demand registration rights, Investor Holders
exercising incidental or "piggyback" registration rights, and the Company
propose to sell is less than the number of securities which the Company has been
advised can be sold in such offering without having the adverse effect referred
to above, such number of Underlying Warrant Shares which the Holders have
requested to be included in such registration and such number of securities
which Other Holders have requested to be included in such registration, in each
case pursuant to Section 7(a) hereof or other "piggyback" or incidental
registration rights and which, in the opinion of such managing underwriter or
underwriters, can be sold without having the adverse effect referred to above,
such number of Underlying Warrant Shares and securities to be included on a pro
rata basis among all requesting Holders and Other Holders on the basis of the
relative number of shares of Common Stock beneficially owned (as such term is
used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
-5-
<PAGE> 6
"Exchange Act")) by such Holders and Other Holders; provided that if the number
of Underlying Warrant Shares requested to be included in such registration by
the Holders pursuant to Section 7(a) hereof and permitted to be included in such
registration by the Holders pursuant to this Section 7(b) exceeds the number
which the Company has been advised can be sold in such offering without having
the adverse effect referred to above, the number of such Underlying Warrant
Shares to be included in such registration by the Holders shall be allocated pro
rata among such Holders on the basis of the relative number of Underlying
Warrant Shares each such Holder has requested to be included in such
registration. For the purposes of this Section 7(b), "Investor Holders" shall
have the same meaning as assigned to the term "Investor" in the Investor
Purchase Agreement, and the term "Registerable Securities" shall have the same
meaning as assigned to such term in the Investor Purchase Agreement.
8. FURTHER OBLIGATIONS OF THE COMPANY UPON REGISTRATION. Whenever the
Company is required hereunder to register any Underlying Warrant Shares, it
agrees that it shall also do the following:
(a) Pay all expenses of the Company for such registrations and
offerings (exclusive of underwriting discounts and commissions);
(b) Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder may
reasonably request to facilitate the public offering of its Underlying Warrant
Shares;
(c) Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources) to
register or qualify the securities covered by said registration statement under
the securities or "blue sky" laws of such jurisdictions as any selling Holder
may reasonably request, provided that the Company shall not be required to
register or qualify the securities in any jurisdictions which require it to
qualify to do business therein;
(d) Immediately notify each selling Holder, at any time when a
prospectus relating to his or her Underlying Warrant Shares is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Underlying Warrant Shares, such prospectus will not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(e) Cause all such Underlying Warrant Shares to be listed on
each securities exchange or quotation system on which similar securities issued
by the Company are then listed or quoted;
(f) Otherwise use its best efforts to comply with the
securities laws of the United States and other applicable jurisdictions and all
applicable rules and regulations of the
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<PAGE> 7
SEC and comparable governmental agencies in other applicable jurisdictions and
make generally available to its holders, in each case as soon as practicable,
but not later than 45 days after the close of the period covered thereby, an
earnings statement of the Company which will satisfy the provisions of Section
11(a) of the Securities Act; and
9. OBLIGATIONS OF THE HOLDER UPON REGISTRATION. Whenever the Company is
required hereunder to register any Underlying Warrant Shares, Holder agrees that
it shall do the following:
(a) Enter into any reasonable underwriting agreement required
by the proposed underwriter, if any, in such form and containing such terms as
are customary; provided, however, that no Holder shall be required to make any
representations or warranties other than with respect to its title to the
Underlying Warrant Shares and any written information provided by the Holder to
the Company, and if the underwriter requires that representations or warranties
be made and that indemnification be provided, the Company shall make all such
representations and warranties and provide all such indemnities, including,
without limitation, in respect of the Company's business, operations and
financial information and the disclosures relating thereto in the prospectus;
and
(b) Otherwise cooperate with the underwriter or underwriters,
the SEC and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any securities under Section 7.
10. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, and hold harmless each Holder
from and against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees) arising out of or based upon any untrue
or alleged untrue statement of material fact contained in any registration
statement, any amendment or supplement thereto, any prospectus 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 arise out of or are based upon any such untrue statement or
omission based upon information with respect to such Holder furnished in writing
to the Company by or on behalf of such Holder expressly for use therein.
(b) INDEMNIFICATION BY HOLDERS. Each Holder will furnish to
the Company in writing such information with respect to the name and address of
such Holder and such other information as may be reasonably required for use in
connection with any such registration statement or prospectus and agrees to
indemnify, to the full extent permitted by law, the Company, its directors,
officers, employees, agents and trustees and each person who controls the
Company (within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act) against any losses, claims, damages, liabilities and expenses
arising out of or based upon any untrue statement of material fact or any
omission of a material fact required to be stated in the registration statement
or prospectus or any amendment thereof or supplement thereto or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that
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<PAGE> 8
such untrue or alleged untrue statement is contained in or such omission or
alleged omission relates to any information with respect to such Holder so
furnished in writing or the accuracy of which was confirmed in writing by such
Holder specifically for inclusion in any prospectus or registration statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such person will claim indemnification or contribution
and, unless in the judgment of counsel of such indemnified party a conflict of
interest may exist between such indemnified party and the indemnifying party
with respect to such claim, permit the indemnifying party to assume the defense
of such claim. Whether or not such defense is assumed by the indemnifying party,
the indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel with respect to
such claim, unless the judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other such indemnified parties
with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels.
For the purpose of this Section 10, the term "conflict of interest" shall mean
that there are one or more legal defenses available to the indemnified party
that are different from or additional to those available to the indemnifying
party or such other indemnified parties, as applicable, such different or
additional defenses make joint representation inappropriate.
(d) CONTRIBUTION. If the indemnification from the indemnifying
party provided for in this Section 10 is unavailable or insufficient to hold
harmless an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party or parties, on the one
hand, and the indemnified party or parties, on the other hand, in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party or parties and indemnified parties shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact, has been
made by, or relates to information supplied by, such indemnifying party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 10(c), any reasonable legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
11. LEGEND ON CERTIFICATES. Each certificate for Underlying Warrant
Shares issued upon exercise of this Warrant, unless at the time of exercise such
shares are registered under the Securities Act, shall bear the following legend:
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<PAGE> 9
"This security has not been registered under the Securities
Act of 1933, as amended, and may not be sold, pledged, hypothecated,
transferred or otherwise disposed of unless subsequently registered
under said Act or unless an exemption from such registration is
available. This security may not be sold, pledged, hypothecated,
transferred or otherwise disposed of unless such sale, pledge,
hypothecation, transfer or other disposition shall have been registered
under said Act and in compliance with any applicable state securities
laws or until the Company shall have received a legal opinion
satisfactory in form and substance to the Company, that such security
may be legally sold or otherwise transferred without such registration
and compliance."
Any certificate for shares issued at any time in exchange or
substitution for any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution pursuant to a registration
statement under the Securities Act) shall also bear such legend unless, in the
opinion of counsel selected by the holder of such legended certificate (who may
be an employee of such holder) and reasonably acceptable to the Company, or
based on a letter from the staff of the Securities and Exchange Commission, the
securities represented thereby need no longer be subject to restrictions on
resale under the Securities Act.
12. EXPIRATION. This Warrant and the rights of the Holder under this
Warrant will expire on the ten year anniversary of the Closing.
13. EXERCISE IN COMPLIANCE WITH SECURITIES LAWS. The Warrant issued
hereunder shall not be exercisable if such exercise would involve a violation of
any applicable federal or state securities law, and the Company hereby agrees to
use its best efforts to cooperate with each Holder so as to comply promptly with
such securities laws at the time any exercise is requested. The Warrant issued
hereunder shall not be exercisable unless under such laws at the time of
exercise the Underlying Warrant Shares or other securities purchasable under the
Warrant are exempt, are the subject matter of an exempt transaction, or are
registered in accordance with such laws.
14. ASSIGNMENT OR TRANSFER OF WARRANT This Warrant and the rights of
the Holder under this Warrant may not be assigned or transferred, except if by
will or as provided in the laws of descent and distribution.
15. LOSS OF WARRANT. If this Warrant is lost or destroyed, the Company
shall, without charge, execute and deliver a new Warrant, with terms as set
forth herein, in the name of Holder upon receipt of a reasonably satisfactory
affidavit of loss and indemnity agreement, and this Warrant shall promptly be
canceled.
16. RIGHTS OF HOLDER. Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Company, either at law or in equity, and
the rights of Holder are limited to those expressed in this Warrant.
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<PAGE> 10
17. NOTICES. All notices, payments, requests, demands, and other
communications required or permitted under this Warrant shall be made in
accordance with the provisions of the Purchase Agreement.
18. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of Ohio.
19. FURTHER ASSURANCES. The parties agree to execute, acknowledge, and
deliver any and all such other documents and to take any and all such other
actions as they may, in the reasonable opinion of the Company or Holder, be
necessary or convenient to more efficiently carry out any and all of the
purposes of this Warrant.
20. SEVERABILITY. Any provision of this Warrant that shall be
prohibited by law or otherwise held invalid shall be ineffective only to the
extent of such prohibition or invalidity and shall not invalidate or otherwise
render ineffective any or all of the remaining provisions of this Warrant.
[Signatures on Following Page]
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<PAGE> 11
IN WITNESS WHEREOF, CONLEY, CANITANO & ASSOC., INC. has caused this
Warrant to be executed as an instrument under seal as of the date first above
written.
CONLEY, CANITANO & ASSOC., INC.
By:
-------------------------------------
Name:
Title:
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<PAGE> 12
FORM OF NOTICE OF EXERCISE
--------------------------
(To be executed only upon full exercise
of the within Warrant)
The undersigned registered Holder of the within Warrant irrevocably
exercises the within Warrant for and purchases _______ shares of Common Stock of
CONLEY, CANITANO & ASSOC., INC. and herewith makes payment therefor in the
amount of $.001 per share, all at the price and on the terms and conditions
specified in the within Warrant, and requests that a certificate (or ____
certificates in denominations of ______ shares) for such shares hereby purchased
be issued in the name of and delivered to (choose one) (a) the undersigned or
(b) _____________, whose address is ___________________________ .
Dated: _______________ __, ________.
[ ]
By:
-------------------------------------
Ronnie Crumpler
NOTICE: The signature on this Notice of Exercise must correspond with the name
as written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatever. The within
Warrant shall not be exercisable if such exercise would involve a
violation of any applicable federal or state securities laws.
-12-
<PAGE> 13
FORM OF CASHLESS EXERCISE
-------------------------
(To be executed only upon full exercise
of the within Warrant)
The undersigned registered Holder of the within Warrant irrevocably
exercises the within Warrant for and purchases _______ shares of Common Stock of
CONLEY, CANITANO & ASSOC., INC. and herewith surrenders its rights with respect
to that number of shares required to pay the Exercise Price, all on the terms
and conditions specified in the within Warrant, and requests that a certificate
(or ____ certificates in denominations of ______ shares) for such shares hereby
purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) _____________, whose address is ___________________________ .
Dated: _______________ __, ________.
[ ]
By:
-------------------------------------
Ronnie Crumpler
NOTICE: The signature on this Form of Cashless Exercise must correspond with
the name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change whatever.
The within Warrant shall not be exercisable if such exercise would
involve a violation of any applicable federal or state securities laws.
<PAGE> 14
FORM OF NOTICE OF MANDATORY PUT
-------------------------------
(To be executed only upon Company's purchase of
of the Underlying Warrant Shares)
The undersigned registered Holder of the within Warrant irrevocably
requires that CONLEY, CANITANO & ASSOC., INC. purchase __ shares of Common Stock
and herewith makes payment therefor in the amount of $______, on the terms and
conditions specified in the within Warrant, and requests that a New Warrant
representing ____ shares hereby be issued in the name of and delivered to the
undersigned.
Dated: _______________ __, ________.
[ ]
By:
-------------------------------------
Ronnie Crumpler
NOTICE: The signature on this Notice of Mandatory Put must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change whatever.
The within Warrant shall not be exercisable if such exercise would
involve a violation of any applicable federal or state securities laws.
<PAGE> 1
Exhibit 10.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES UNDERLYING THIS WARRANT MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH
SALE, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION SHALL HAVE
BEEN REGISTERED UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS OR UNTIL THE COMPANY SHALL HAVE RECEIVED A LEGAL
OPINION SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, THAT SUCH
SECURITIES MAY BE LEGALLY SOLD OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION AND COMPLIANCE.
WARRANT
-------
To Purchase 6,508.866 Shares
of Common Stock, par value $.001, of
CONLEY, CANITANO & ASSOC., INC.
April 3, 1998
THIS IS TO CERTIFY that, for value received, Gary Levey ("Holder"), is
entitled to purchase, subject to the provisions of this Warrant, from Conley,
Canitano & Assoc., Inc., an Ohio corporation (the "Company") at any time on or
after the Exercise Date of this Warrant, [insert number] of shares of Common
Stock (the "Underlying Warrant Shares") at an Exercise Price of $.001 per share
and to exercise the other rights, powers and privileges hereinafter provided,
all on the terms and subject to the conditions hereinafter set forth.
Pursuant to the terms of the Stock Purchase Agreement, dated as of
April 3, 1998, (the "Purchase Agreement"), by and among the Company, Kelly-Levey
& Associates, Inc., a Kentucky corporation ("KLA") and certain of the principal
shareholders of KLA, the Company purchased all of the outstanding common shares
of KLA. As contemplated by the Purchase Agreement, this Warrant is one of three
Warrants (the "Warrants") of the same form and having the same terms as this
Warrant issued to the former three principal shareholders of KLA, entitling the
holders thereof (the "Holders") to purchase up to an aggregate of 26,000 shares
of Common Stock
1. DEFINITIONS. The terms defined in this Section 1 shall have the
following respective meanings:
"COMMON STOCK" shall mean the common stock, par value $.001, of the
Company.
"COMPANY" shall mean Conley, Canitano & Assoc., Inc., an Ohio
corporation.
<PAGE> 2
"CORPORATION" shall include an association, partnership, joint stock
company, business trust or other similar organization.
"EXERCISE DATE" shall mean the two year anniversary of the Closing (as
that term is defined in the Purchase Agreement).
"EXERCISE PRICE" shall mean $.001 per share of Common Stock.
"HOLDER" shall have the meaning set forth in the preamble hereto.
"HOLDERS" shall have the meaning set forth in the preamble hereto.
"NEW WARRANT" shall have the meaning set forth in Section 3(b) hereof.
"NOTICE OF EXERCISE" shall mean the form of Notice of Exercise
appearing at the end of this Warrant.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"UNDERLYING WARRANT SHARES" shall mean the shares of Common Stock
issued or issuable, as the case may be, upon exercise of this Warrant,
including, without limitation, any shares of Common Stock issuable with respect
thereto by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation, other
reorganization or otherwise.
"WARRANT" shall mean this Warrant.
"WARRANTS" shall have the meaning set forth in the preamble hereto.
2. Exercise of Warrant.
--------------------
(a) RIGHT TO EXERCISE WARRANT AT EXERCISE DATE. On or any time
after the Exercise Date, Holder shall have the right, at its option, to exercise
this Warrant in whole. Except as provided in Section 3(b), no partial exercise
of the Warrant is permitted.
(b) RIGHT TO EXERCISE WARRANT IF INITIAL PUBLIC OFFERING.
Holder shall have the right, at its option, to exercise this Warrant in whole
before the Exercise Date if at any time before the Exercise Date the Company
consummates the Company's first underwritten offering to the public pursuant to
an effective registration statement under the Securities Act provided that (i)
such registration statement covers the offer and sale of Common Stock of which
the aggregate net proceeds attributable to sales for the account of the Company
exceed $35,000,000, at a price per share equal to at least $110.00 (as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, stock dividend, or similar event) and (ii) such Common Stock
is listed for trading on the New York Stock Exchange, Inc., the American Stock
Exchange or the Nasdaq National Market (an "Initial Public Offering").
-2-
<PAGE> 3
(c) MANNER OF EXERCISE OF WARRANT. This Warrant may be
exercised five days after written notice to the Company of Holder's intent to
exercise, by presentation and surrender hereof to the Company and payment of the
Exercise Price for the Underlying Warrant Shares. Upon receipt by the Company of
this Warrant at the office of Company, in proper form for exercise, accompanied
by (i) payment of the Exercise Price (which may be in the form of a check),
along with the completed and signed Warrant Exercise Form attached hereto or
(ii) consistent with applicable law, through the surrender of rights by Holder
of a sufficient number of the Underlying Warrant Shares to pay the Exercise
Price, along with the completed and signed Cashless Exercise Form attached
hereto. The Company shall issue and send by hand delivery, by courier or by
first class mail (postage prepaid) to the Holder, at the address designated by
Holder, a certificate or certificates for the number of shares of Common Stock
to which Holder is entitled upon exercise of the Warrant.
3. Put Right.
----------
(a) PUT RIGHT. Notwithstanding Section 2, Holder shall have
the option, exercisable by it on or any time after the Exercise Date if the
Company has not consummated an Initial Public Offering on or before the Exercise
Date, to require the Company to purchase, and in such case the Company shall
purchase, the Underlying Warrant Shares for $76.93 per share (the "Put Price").
(b) PURCHASE PURSUANT TO PUT RIGHT. Holder may exercise its
right to require the Company to purchase the Underlying Warrant Shares by
written notice to the Company and presentation and surrender of the Warrant. The
Company shall purchase the Underlying Warrant Shares and pay Holder in the
following manner:
(i) Up to 25% of the Put Price would be payable
within ten (10) days after the Company receives Holder's
notice that Holder is requiring the Company to purchase the
Underlying Warrant Shares. The number of shares of Common
Stock represented by this Warrant will be decreased
proportionately and the Company will execute and deliver to
the Holder of this Warrant a new Warrant (the "New Warrant")
conveying the right to purchase that reduced number of shares
of Common Stock. The New Warrant would contain the same terms
as those set forth herein.
(ii) The New Warrant, or the Warrant if applicable,
would be subject to the Put Right, at the option of the
Holder, into the remaining balance of the Put Price at any
time after the first anniversary of the Exercise Date.
(c) EXPIRATION OF PUT RIGHT. The right of Holder put the
Underlying Warrant Shares to the Company set forth in Section 3(a) shall expire
at the consummation of an Initial Public Offering.
4. FRACTIONAL SHARES. Notwithstanding any other provision of this
Warrant, the Company shall not be obligated to issue fractional shares of Common
Stock upon exercise of this
-3-
<PAGE> 4
Warrant. Instead of fractional shares of Common Stock that would otherwise be
issuable to the Holder, the Company may pay cash to the Holder.
5. RESERVATION OF SHARES; STOCK FULLY PAID. The Company represents,
warrants, and agrees that there currently is and at all time there shall be
authorized and reserved for issuance upon exercise of the Warrants such number
of shares of Common Stock as shall be required for issuance or delivery upon
exercise hereof; and that all shares of Common Stock issuable upon exercise of
the Warrants will, upon issuance, be duly and validly issued, fully paid, and
non-assessable.
6. Antidilution Provisions.
------------------------
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If the
Company at any time and from time to time subsequent to the date hereof: (i)
declares a dividend upon, or makes any distribution in respect of, any of its
stock, payable in shares of Common Stock or (ii) subdivides its outstanding
shares of Common Stock into a larger number of shares of Common Stock, or (iii)
combines its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, then the number of shares of Common Stock purchasable hereunder
shall immediately be increased or decreased, proportionally.
(b) RECLASSIFICATIONS, REORGANIZATIONS, CONSOLIDATIONS OR
MERGERS. If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or sale of all or substantially all of the Company's assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive securities, cash or other assets with respect to or
in exchange for such Common Stock, then the Holder shall thereafter only have
the right to exercise this Warrant and receive the securities (including shares
of Common Stock if such would not have been extinguished), cash or other assets
that it would have received if it had exercised this Warrant for shares of
Common Stock immediately prior to such event.
(c) NOTICE OF ADJUSTMENT. Within ten (10) days of any
adjustment of the number of shares of Common Stock issuable upon the exercise of
this Warrant, the Company shall send to the Holder written notice of such
adjustment and the corresponding increase or decrease, as the case may be, in
the number of shares issuable upon exercise of this Warrant. The notice shall
set forth in reasonable detail the method of calculation and the facts upon
which such calculation is based, all of which shall be certified as true and
correct by the treasurer of the Company.
7. Registration.
-------------
(a) RIGHT TO INCLUDE UNDERLYING WARRANT SHARES. If at any time
or times after the date hereof the Company shall seek to file a registration
statement under the Securities Act in connection with a public offering of
securities by the Company, a public offering of securities by shareholders of
the Company or both, the Company will give prompt written notice thereof to
Holders at least thirty (30) days prior to the anticipated initial filing date
of such registration statement. Upon the written request of Holder given to
Company within ten (10) days after the
-4-
<PAGE> 5
receipt of any such notice from the Company, the Company will use its reasonable
best efforts to effect the registration under the Securities Act of the
Underlying Warrant Shares which the Company has been so requested to register by
the Holder thereof, so that the Underlying Warrant Shares are entitled to the
same registration rights as all other shares of Common Stock to be registered
under the Securities Act by the Company. The provisions of this Section will not
apply to Underlying Warrant Shares that are freely tradable pursuant to Rule
144(k) under the Securities Act (or any successor provision thereto) as
evidenced by an opinion of counsel to the Company addressed to the Holder
thereof which opinion is reasonably satisfactory to counsel to the Holder or a
registration effected solely to implement (i) an employee benefit plan, or (ii)
a transaction to which Rule 145 or any similar rule of the Securities and
Exchange Commission (the "SEC") under the Securities Act is applicable. The
Company may withdraw any registration initiated by the Company pursuant to this
Section 7(a) at any time before it becomes effective, or postpone such offering
without obligation or liability to the Holders.
(b) PRIORITY IN REGISTRATION. If a registration pursuant to
this Section 7 involves an underwritten offering and the managing underwriter or
underwriters in good faith advises the Company that, in its opinion, the number
of securities which the Company, the Holders and any other parties intend to
include in such registration exceeds the largest number of securities which can
be sold in such offering without having an adverse effect on such offering
(including the price at which such securities can be sold), then the Company
will include in such registration (i) first, if the registration was initiated
by parties to whom the Company has granted registration rights, other than the
Holders ("Other Holders") exercising demand registration rights, 100% of the
securities such Other Holders propose to sell (except to the extent the terms of
such Other Holders' registration rights provide otherwise); (ii) second, 100% of
the securities the Company proposes to sell for its own account; (iii) third, to
the extent that the number of securities which such Other Holders exercising
demand registration rights and the Company propose to sell is less than the
number of securities which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, such number of
Registerable Securities which the Investor Holders have requested to be included
in such registration pursuant to incidental or "piggyback" registration rights
granted to Investor Holders pursuant to Section 7 of the Stock Purchase and
Shareholders' Agreement, dated as of October 15, 1997, by and among the Company,
certain of the principal shareholders of the Company and certain Investors (the
"Investor Purchase Agreement"), which, in the opinion of such managing
underwriter or underwriters, can be sold without having the adverse effect
referred to above; and (iv) fourth, to the extent that the number of securities
which such Other Holders exercising demand registration rights, Investor Holders
exercising incidental or "piggyback" registration rights, and the Company
propose to sell is less than the number of securities which the Company has been
advised can be sold in such offering without having the adverse effect referred
to above, such number of Underlying Warrant Shares which the Holders have
requested to be included in such registration and such number of securities
which Other Holders have requested to be included in such registration, in each
case pursuant to Section 7(a) hereof or other "piggyback" or incidental
registration rights and which, in the opinion of such managing underwriter or
underwriters, can be sold without having the adverse effect referred to above,
such number of Underlying Warrant Shares and securities to be included on a pro
rata basis among all requesting Holders and Other Holders on the basis of the
relative number of shares of Common Stock beneficially owned (as such term is
used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
-5-
<PAGE> 6
"Exchange Act")) by such Holders and Other Holders; provided that if the number
of Underlying Warrant Shares requested to be included in such registration by
the Holders pursuant to Section 7(a) hereof and permitted to be included in such
registration by the Holders pursuant to this Section 7(b) exceeds the number
which the Company has been advised can be sold in such offering without having
the adverse effect referred to above, the number of such Underlying Warrant
Shares to be included in such registration by the Holders shall be allocated pro
rata among such Holders on the basis of the relative number of Underlying
Warrant Shares each such Holder has requested to be included in such
registration. For the purposes of this Section 7(b), "Investor Holders" shall
have the same meaning as assigned to the term "Investor" in the Investor
Purchase Agreement, and the term "Registerable Securities" shall have the same
meaning as assigned to such term in the Investor Purchase Agreement.
8. FURTHER OBLIGATIONS OF THE COMPANY UPON REGISTRATION. Whenever the
Company is required hereunder to register any Underlying Warrant Shares, it
agrees that it shall also do the following:
(a) Pay all expenses of the Company for such registrations and
offerings (exclusive of underwriting discounts and commissions);
(b) Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder may
reasonably request to facilitate the public offering of its Underlying Warrant
Shares;
(c) Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources) to
register or qualify the securities covered by said registration statement under
the securities or "blue sky" laws of such jurisdictions as any selling Holder
may reasonably request, provided that the Company shall not be required to
register or qualify the securities in any jurisdictions which require it to
qualify to do business therein;
(d) Immediately notify each selling Holder, at any time when a
prospectus relating to his or her Underlying Warrant Shares is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Underlying Warrant Shares, such prospectus will not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(e) Cause all such Underlying Warrant Shares to be listed on
each securities exchange or quotation system on which similar securities issued
by the Company are then listed or quoted;
(f) Otherwise use its best efforts to comply with the
securities laws of the United States and other applicable jurisdictions and all
applicable rules and regulations of the
-6-
<PAGE> 7
SEC and comparable governmental agencies in other applicable jurisdictions and
make generally available to its holders, in each case as soon as practicable,
but not later than 45 days after the close of the period covered thereby, an
earnings statement of the Company which will satisfy the provisions of Section
11(a) of the Securities Act; and
9. OBLIGATIONS OF THE HOLDER UPON REGISTRATION. Whenever the Company is
required hereunder to register any Underlying Warrant Shares, Holder agrees that
it shall do the following:
(a) Enter into any reasonable underwriting agreement required
by the proposed underwriter, if any, in such form and containing such terms as
are customary; provided, however, that no Holder shall be required to make any
representations or warranties other than with respect to its title to the
Underlying Warrant Shares and any written information provided by the Holder to
the Company, and if the underwriter requires that representations or warranties
be made and that indemnification be provided, the Company shall make all such
representations and warranties and provide all such indemnities, including,
without limitation, in respect of the Company's business, operations and
financial information and the disclosures relating thereto in the prospectus;
and
(b) Otherwise cooperate with the underwriter or underwriters,
the SEC and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any securities under Section 7.
10. Indemnification.
----------------
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, and hold harmless each Holder
from and against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees) arising out of or based upon any untrue
or alleged untrue statement of material fact contained in any registration
statement, any amendment or supplement thereto, any prospectus 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 arise out of or are based upon any such untrue statement or
omission based upon information with respect to such Holder furnished in writing
to the Company by or on behalf of such Holder expressly for use therein.
(b) INDEMNIFICATION BY HOLDERS. Each Holder will furnish to
the Company in writing such information with respect to the name and address of
such Holder and such other information as may be reasonably required for use in
connection with any such registration statement or prospectus and agrees to
indemnify, to the full extent permitted by law, the Company, its directors,
officers, employees, agents and trustees and each person who controls the
Company (within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act) against any losses, claims, damages, liabilities and expenses
arising out of or based upon any untrue statement of material fact or any
omission of a material fact required to be stated in the registration statement
or prospectus or any amendment thereof or supplement thereto or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that
-7-
<PAGE> 8
such untrue or alleged untrue statement is contained in or such omission or
alleged omission relates to any information with respect to such Holder so
furnished in writing or the accuracy of which was confirmed in writing by such
Holder specifically for inclusion in any prospectus or registration statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such person will claim indemnification or contribution
and, unless in the judgment of counsel of such indemnified party a conflict of
interest may exist between such indemnified party and the indemnifying party
with respect to such claim, permit the indemnifying party to assume the defense
of such claim. Whether or not such defense is assumed by the indemnifying party,
the indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel with respect to
such claim, unless the judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other such indemnified parties
with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels.
For the purpose of this Section 10, the term "conflict of interest" shall mean
that there are one or more legal defenses available to the indemnified party
that are different from or additional to those available to the indemnifying
party or such other indemnified parties, as applicable, such different or
additional defenses make joint representation inappropriate.
(d) CONTRIBUTION. If the indemnification from the indemnifying
party provided for in this Section 10 is unavailable or insufficient to hold
harmless an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party or parties, on the one
hand, and the indemnified party or parties, on the other hand, in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party or parties and indemnified parties shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact, has been
made by, or relates to information supplied by, such indemnifying party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 10(c), any reasonable legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
11. LEGEND ON CERTIFICATES. Each certificate for Underlying Warrant
Shares issued upon exercise of this Warrant, unless at the time of exercise such
shares are registered under the Securities Act, shall bear the following legend:
-8-
<PAGE> 9
"This security has not been registered under the Securities
Act of 1933, as amended, and may not be sold, pledged, hypothecated,
transferred or otherwise disposed of unless subsequently registered
under said Act or unless an exemption from such registration is
available. This security may not be sold, pledged, hypothecated,
transferred or otherwise disposed of unless such sale, pledge,
hypothecation, transfer or other disposition shall have been registered
under said Act and in compliance with any applicable state securities
laws or until the Company shall have received a legal opinion
satisfactory in form and substance to the Company, that such security
may be legally sold or otherwise transferred without such registration
and compliance."
Any certificate for shares issued at any time in exchange or
substitution for any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution pursuant to a registration
statement under the Securities Act) shall also bear such legend unless, in the
opinion of counsel selected by the holder of such legended certificate (who may
be an employee of such holder) and reasonably acceptable to the Company, or
based on a letter from the staff of the Securities and Exchange Commission, the
securities represented thereby need no longer be subject to restrictions on
resale under the Securities Act.
12. EXPIRATION. This Warrant and the rights of the Holder under this
Warrant will expire on the ten year anniversary of the Closing.
13. EXERCISE IN COMPLIANCE WITH SECURITIES LAWS. The Warrant issued
hereunder shall not be exercisable if such exercise would involve a violation of
any applicable federal or state securities law, and the Company hereby agrees to
use its best efforts to cooperate with each Holder so as to comply promptly with
such securities laws at the time any exercise is requested. The Warrant issued
hereunder shall not be exercisable unless under such laws at the time of
exercise the Underlying Warrant Shares or other securities purchasable under the
Warrant are exempt, are the subject matter of an exempt transaction, or are
registered in accordance with such laws.
14. ASSIGNMENT OR TRANSFER OF WARRANT This Warrant and the rights of
the Holder under this Warrant may not be assigned or transferred, except if by
will or as provided in the laws of descent and distribution.
15. LOSS OF WARRANT. If this Warrant is lost or destroyed, the Company
shall, without charge, execute and deliver a new Warrant, with terms as set
forth herein, in the name of Holder upon receipt of a reasonably satisfactory
affidavit of loss and indemnity agreement, and this Warrant shall promptly be
canceled.
16. RIGHTS OF HOLDER. Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Company, either at law or in equity, and
the rights of Holder are limited to those expressed in this Warrant.
-9-
<PAGE> 10
17. NOTICES. All notices, payments, requests, demands, and other
communications required or permitted under this Warrant shall be made in
accordance with the provisions of the Purchase Agreement.
18. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of Ohio.
19. FURTHER ASSURANCES. The parties agree to execute, acknowledge, and
deliver any and all such other documents and to take any and all such other
actions as they may, in the reasonable opinion of the Company or Holder, be
necessary or convenient to more efficiently carry out any and all of the
purposes of this Warrant.
20. SEVERABILITY. Any provision of this Warrant that shall be
prohibited by law or otherwise held invalid shall be ineffective only to the
extent of such prohibition or invalidity and shall not invalidate or otherwise
render ineffective any or all of the remaining provisions of this Warrant.
[Signatures on Following Page]
-10-
<PAGE> 11
IN WITNESS WHEREOF, CONLEY, CANITANO & ASSOC., INC. has caused this
Warrant to be executed as an instrument under seal as of the date first above
written.
CONLEY, CANITANO & ASSOC., INC.
By:
-----------------------------------
Name:
Title:
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<PAGE> 12
FORM OF NOTICE OF EXERCISE
--------------------------
(To be executed only upon full exercise
of the within Warrant)
The undersigned registered Holder of the within Warrant irrevocably
exercises the within Warrant for and purchases _______ shares of Common Stock of
CONLEY, CANITANO & ASSOC., INC. and herewith makes payment therefor in the
amount of $.001 per share, all at the price and on the terms and conditions
specified in the within Warrant, and requests that a certificate (or ____
certificates in denominations of ______ shares) for such shares hereby purchased
be issued in the name of and delivered to (choose one) (a) the undersigned or
(b) _____________, whose address is ___________________________ .
Dated: _______________ __, ________.
[ ]
By
--------------------------------
Gary Levey
NOTICE: The signature on this Notice of Exercise must correspond with
the name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatever. The within Warrant shall not be exercisable
if such exercise would involve a violation of any applicable
federal or state securities laws.
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<PAGE> 13
FORM OF CASHLESS EXERCISE
-------------------------
(To be executed only upon full exercise
of the within Warrant)
The undersigned registered Holder of the within Warrant irrevocably
exercises the within Warrant for and purchases _______ shares of Common Stock of
CONLEY, CANITANO & ASSOC., INC. and herewith surrenders its rights with respect
to that number of shares required to pay the Exercise Price, all on the terms
and conditions specified in the within Warrant, and requests that a certificate
(or ____ certificates in denominations of ______ shares) for such shares hereby
purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) _____________, whose address is ___________________________ .
Dated: _______________ __, ________.
[ ]
By
---------------------------------
Gary Levey
NOTICE: The signature on this Form of Cashless Exercise must
correspond with the name as written upon the face of the
within Warrant in every particular, without alteration or
enlargement or any change whatever. The within Warrant shall
not be exercisable if such exercise would involve a violation
of any applicable federal or state securities laws.
<PAGE> 14
FORM OF NOTICE OF MANDATORY PUT
-------------------------------
(To be executed only upon Company's purchase of
of the Underlying Warrant Shares)
The undersigned registered Holder of the within Warrant irrevocably
requires that CONLEY, CANITANO & ASSOC., INC. purchase __ shares of Common Stock
and herewith makes payment therefor in the amount of $______, on the terms and
conditions specified in the within Warrant, and requests that a New Warrant
representing ____ shares hereby be issued in the name of and delivered to the
undersigned.
Dated: _______________ __, ________.
[ ]
By
---------------------------------
Gary Levey
NOTICE: The signature on this Notice of Mandatory Put must correspond
with the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement or any
change whatever. The within Warrant shall not be exercisable
if such exercise would involve a violation of any applicable
federal or state securities laws.
<PAGE> 1
Exhibit 10.9
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES UNDERLYING THIS WARRANT MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH
SALE, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION SHALL HAVE
BEEN REGISTERED UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE
STATE SECURITIES LAWS OR UNTIL THE COMPANY SHALL HAVE RECEIVED A LEGAL
OPINION SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, THAT SUCH
SECURITIES MAY BE LEGALLY SOLD OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION AND COMPLIANCE.
WARRANT
-------
To Purchase 6,508.866 Shares
of Common Stock, par value $.001, of
CONLEY, CANITANO & ASSOC., INC.
April 3, 1998
THIS IS TO CERTIFY that, for value received, Anthony Kelly ("Holder"),
is entitled to purchase, subject to the provisions of this Warrant, from Conley,
Canitano & Assoc., Inc., an Ohio corporation (the "Company") at any time on or
after the Exercise Date of this Warrant, [insert number] of shares of Common
Stock (the "Underlying Warrant Shares") at an Exercise Price of $.001 per share
and to exercise the other rights, powers and privileges hereinafter provided,
all on the terms and subject to the conditions hereinafter set forth.
Pursuant to the terms of the Stock Purchase Agreement, dated as of
April 3, 1998, (the "Purchase Agreement"), by and among the Company, Kelly-Levey
& Associates, Inc., a Kentucky corporation ("KLA") and certain of the principal
shareholders of KLA, the Company purchased all of the outstanding common shares
of KLA. As contemplated by the Purchase Agreement, this Warrant is one of three
Warrants (the "Warrants") of the same form and having the same terms as this
Warrant issued to the former three principal shareholders of KLA, entitling the
holders thereof (the "Holders") to purchase up to an aggregate of 26,000 shares
of Common Stock
1. DEFINITIONS. The terms defined in this Section 1 shall have the
following respective meanings:
"COMMON STOCK" shall mean the common stock, par value $.001, of the
Company.
"COMPANY" shall mean Conley, Canitano & Assoc., Inc., an Ohio
corporation.
<PAGE> 2
"CORPORATION" shall include an association, partnership, joint stock
company, business trust or other similar organization.
"EXERCISE DATE" shall mean the two year anniversary of the Closing (as
that term is defined in the Purchase Agreement).
"EXERCISE PRICE" shall mean $.001 per share of Common Stock.
"HOLDER" shall have the meaning set forth in the preamble hereto.
"HOLDERS" shall have the meaning set forth in the preamble hereto.
"NEW WARRANT" shall have the meaning set forth in Section 3(b) hereof.
"NOTICE OF EXERCISE" shall mean the form of Notice of Exercise
appearing at the end of this Warrant.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"UNDERLYING WARRANT SHARES" shall mean the shares of Common Stock
issued or issuable, as the case may be, upon exercise of this Warrant,
including, without limitation, any shares of Common Stock issuable with respect
thereto by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation, other
reorganization or otherwise.
"WARRANT" shall mean this Warrant.
"WARRANTS" shall have the meaning set forth in the preamble hereto.
2. Exercise of Warrant.
--------------------
(a) RIGHT TO EXERCISE WARRANT AT EXERCISE DATE. On or any time
after the Exercise Date, Holder shall have the right, at its option, to exercise
this Warrant in whole. Except as provided in Section 3(b), no partial exercise
of the Warrant is permitted.
(b) RIGHT TO EXERCISE WARRANT IF INITIAL PUBLIC OFFERING.
Holder shall have the right, at its option, to exercise this Warrant in whole
before the Exercise Date if at any time before the Exercise Date the Company
consummates the Company's first underwritten offering to the public pursuant to
an effective registration statement under the Securities Act provided that (i)
such registration statement covers the offer and sale of Common Stock of which
the aggregate net proceeds attributable to sales for the account of the Company
exceed $35,000,000, at a price per share equal to at least $110.00 (as
appropriately adjusted for any stock split, combination, reorganization,
recapitalization, stock dividend, or similar event) and (ii) such Common Stock
is listed for trading on the New York Stock Exchange, Inc., the American Stock
Exchange or the Nasdaq National Market (an "Initial Public Offering").
-2-
<PAGE> 3
(c) MANNER OF EXERCISE OF WARRANT. This Warrant may be
exercised five days after written notice to the Company of Holder's intent to
exercise, by presentation and surrender hereof to the Company and payment of the
Exercise Price for the Underlying Warrant Shares. Upon receipt by the Company of
this Warrant at the office of Company, in proper form for exercise, accompanied
by (i) payment of the Exercise Price (which may be in the form of a check),
along with the completed and signed Warrant Exercise Form attached hereto or
(ii) consistent with applicable law, through the surrender of rights by Holder
of a sufficient number of the Underlying Warrant Shares to pay the Exercise
Price, along with the completed and signed Cashless Exercise Form attached
hereto. The Company shall issue and send by hand delivery, by courier or by
first class mail (postage prepaid) to the Holder, at the address designated by
Holder, a certificate or certificates for the number of shares of Common Stock
to which Holder is entitled upon exercise of the Warrant.
3. Put Right.
----------
(a) PUT RIGHT. Notwithstanding Section 2, Holder shall have
the option, exercisable by it on or any time after the Exercise Date if the
Company has not consummated an Initial Public Offering on or before the Exercise
Date, to require the Company to purchase, and in such case the Company shall
purchase, the Underlying Warrant Shares for $76.93 per share (the "Put Price").
(b) PURCHASE PURSUANT TO PUT RIGHT. Holder may exercise its
right to require the Company to purchase the Underlying Warrant Shares by
written notice to the Company and presentation and surrender of the Warrant. The
Company shall purchase the Underlying Warrant Shares and pay Holder in the
following manner:
(i) Up to 25% of the Put Price would be payable
within ten (10) days after the Company receives Holder's
notice that Holder is requiring the Company to purchase the
Underlying Warrant Shares. The number of shares of Common
Stock represented by this Warrant will be decreased
proportionately and the Company will execute and deliver to
the Holder of this Warrant a new Warrant (the "New Warrant")
conveying the right to purchase that reduced number of shares
of Common Stock. The New Warrant would contain the same terms
as those set forth herein.
(ii) The New Warrant, or the Warrant if applicable,
would be subject to the Put Right, at the option of the
Holder, into the remaining balance of the Put Price at any
time after the first anniversary of the Exercise Date.
(c) EXPIRATION OF PUT RIGHT. The right of Holder put the
Underlying Warrant Shares to the Company set forth in Section 3(a) shall expire
at the consummation of an Initial Public Offering.
4. FRACTIONAL SHARES. Notwithstanding any other provision of this
Warrant, the Company shall not be obligated to issue fractional shares of Common
Stock upon exercise of this
-3-
<PAGE> 4
Warrant. Instead of fractional shares of Common Stock that would otherwise be
issuable to the Holder, the Company may pay cash to the Holder.
5. RESERVATION OF SHARES; STOCK FULLY PAID. The Company represents,
warrants, and agrees that there currently is and at all time there shall be
authorized and reserved for issuance upon exercise of the Warrants such number
of shares of Common Stock as shall be required for issuance or delivery upon
exercise hereof; and that all shares of Common Stock issuable upon exercise of
the Warrants will, upon issuance, be duly and validly issued, fully paid, and
non-assessable.
6. Antidilution Provisions.
------------------------
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If the
Company at any time and from time to time subsequent to the date hereof: (i)
declares a dividend upon, or makes any distribution in respect of, any of its
stock, payable in shares of Common Stock or (ii) subdivides its outstanding
shares of Common Stock into a larger number of shares of Common Stock, or (iii)
combines its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, then the number of shares of Common Stock purchasable hereunder
shall immediately be increased or decreased, proportionally.
(b) RECLASSIFICATIONS, REORGANIZATIONS, CONSOLIDATIONS OR
MERGERS. If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or sale of all or substantially all of the Company's assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive securities, cash or other assets with respect to or
in exchange for such Common Stock, then the Holder shall thereafter only have
the right to exercise this Warrant and receive the securities (including shares
of Common Stock if such would not have been extinguished), cash or other assets
that it would have received if it had exercised this Warrant for shares of
Common Stock immediately prior to such event.
(c) NOTICE OF ADJUSTMENT. Within ten (10) days of any
adjustment of the number of shares of Common Stock issuable upon the exercise of
this Warrant, the Company shall send to the Holder written notice of such
adjustment and the corresponding increase or decrease, as the case may be, in
the number of shares issuable upon exercise of this Warrant. The notice shall
set forth in reasonable detail the method of calculation and the facts upon
which such calculation is based, all of which shall be certified as true and
correct by the treasurer of the Company.
7. Registration.
-------------
(a) RIGHT TO INCLUDE UNDERLYING WARRANT SHARES. If at any time
or times after the date hereof the Company shall seek to file a registration
statement under the Securities Act in connection with a public offering of
securities by the Company, a public offering of securities by shareholders of
the Company or both, the Company will give prompt written notice thereof to
Holders at least thirty (30) days prior to the anticipated initial filing date
of such registration statement. Upon the written request of Holder given to
Company within ten (10) days after the
-4-
<PAGE> 5
receipt of any such notice from the Company, the Company will use its reasonable
best efforts to effect the registration under the Securities Act of the
Underlying Warrant Shares which the Company has been so requested to register by
the Holder thereof, so that the Underlying Warrant Shares are entitled to the
same registration rights as all other shares of Common Stock to be registered
under the Securities Act by the Company. The provisions of this Section will not
apply to Underlying Warrant Shares that are freely tradable pursuant to Rule
144(k) under the Securities Act (or any successor provision thereto) as
evidenced by an opinion of counsel to the Company addressed to the Holder
thereof which opinion is reasonably satisfactory to counsel to the Holder or a
registration effected solely to implement (i) an employee benefit plan, or (ii)
a transaction to which Rule 145 or any similar rule of the Securities and
Exchange Commission (the "SEC") under the Securities Act is applicable. The
Company may withdraw any registration initiated by the Company pursuant to this
Section 7(a) at any time before it becomes effective, or postpone such offering
without obligation or liability to the Holders.
(b) PRIORITY IN REGISTRATION. If a registration pursuant to
this Section 7 involves an underwritten offering and the managing underwriter or
underwriters in good faith advises the Company that, in its opinion, the number
of securities which the Company, the Holders and any other parties intend to
include in such registration exceeds the largest number of securities which can
be sold in such offering without having an adverse effect on such offering
(including the price at which such securities can be sold), then the Company
will include in such registration (i) first, if the registration was initiated
by parties to whom the Company has granted registration rights, other than the
Holders ("Other Holders") exercising demand registration rights, 100% of the
securities such Other Holders propose to sell (except to the extent the terms of
such Other Holders' registration rights provide otherwise); (ii) second, 100% of
the securities the Company proposes to sell for its own account; (iii) third, to
the extent that the number of securities which such Other Holders exercising
demand registration rights and the Company propose to sell is less than the
number of securities which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, such number of
Registerable Securities which the Investor Holders have requested to be included
in such registration pursuant to incidental or "piggyback" registration rights
granted to Investor Holders pursuant to Section 7 of the Stock Purchase and
Shareholders' Agreement, dated as of October 15, 1997, by and among the Company,
certain of the principal shareholders of the Company and certain Investors (the
"Investor Purchase Agreement"), which, in the opinion of such managing
underwriter or underwriters, can be sold without having the adverse effect
referred to above; and (iv) fourth, to the extent that the number of securities
which such Other Holders exercising demand registration rights, Investor Holders
exercising incidental or "piggyback" registration rights, and the Company
propose to sell is less than the number of securities which the Company has been
advised can be sold in such offering without having the adverse effect referred
to above, such number of Underlying Warrant Shares which the Holders have
requested to be included in such registration and such number of securities
which Other Holders have requested to be included in such registration, in each
case pursuant to Section 7(a) hereof or other "piggyback" or incidental
registration rights and which, in the opinion of such managing underwriter or
underwriters, can be sold without having the adverse effect referred to above,
such number of Underlying Warrant Shares and securities to be included on a pro
rata basis among all requesting Holders and Other Holders on the basis of the
relative number of shares of Common Stock beneficially owned (as such term is
used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the
-5-
<PAGE> 6
"Exchange Act")) by such Holders and Other Holders; provided that if the number
of Underlying Warrant Shares requested to be included in such registration by
the Holders pursuant to Section 7(a) hereof and permitted to be included in such
registration by the Holders pursuant to this Section 7(b) exceeds the number
which the Company has been advised can be sold in such offering without having
the adverse effect referred to above, the number of such Underlying Warrant
Shares to be included in such registration by the Holders shall be allocated pro
rata among such Holders on the basis of the relative number of Underlying
Warrant Shares each such Holder has requested to be included in such
registration. For the purposes of this Section 7(b), "Investor Holders" shall
have the same meaning as assigned to the term "Investor" in the Investor
Purchase Agreement, and the term "Registerable Securities" shall have the same
meaning as assigned to such term in the Investor Purchase Agreement.
8. FURTHER OBLIGATIONS OF THE COMPANY UPON REGISTRATION. Whenever the
Company is required hereunder to register any Underlying Warrant Shares, it
agrees that it shall also do the following:
(a) Pay all expenses of the Company for such registrations and
offerings (exclusive of underwriting discounts and commissions);
(b) Furnish to each selling Holder such copies of each
preliminary and final prospectus and such other documents as such Holder may
reasonably request to facilitate the public offering of its Underlying Warrant
Shares;
(c) Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources) to
register or qualify the securities covered by said registration statement under
the securities or "blue sky" laws of such jurisdictions as any selling Holder
may reasonably request, provided that the Company shall not be required to
register or qualify the securities in any jurisdictions which require it to
qualify to do business therein;
(d) Immediately notify each selling Holder, at any time when a
prospectus relating to his or her Underlying Warrant Shares is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Underlying Warrant Shares, such prospectus will not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(e) Cause all such Underlying Warrant Shares to be listed on
each securities exchange or quotation system on which similar securities issued
by the Company are then listed or quoted;
(f) Otherwise use its best efforts to comply with the
securities laws of the United States and other applicable jurisdictions and all
applicable rules and regulations of the
-6-
<PAGE> 7
SEC and comparable governmental agencies in other applicable jurisdictions and
make generally available to its holders, in each case as soon as practicable,
but not later than 45 days after the close of the period covered thereby, an
earnings statement of the Company which will satisfy the provisions of Section
11(a) of the Securities Act; and
9. OBLIGATIONS OF THE HOLDER UPON REGISTRATION. Whenever the Company is
required hereunder to register any Underlying Warrant Shares, Holder agrees that
it shall do the following:
(a) Enter into any reasonable underwriting agreement required
by the proposed underwriter, if any, in such form and containing such terms as
are customary; provided, however, that no Holder shall be required to make any
representations or warranties other than with respect to its title to the
Underlying Warrant Shares and any written information provided by the Holder to
the Company, and if the underwriter requires that representations or warranties
be made and that indemnification be provided, the Company shall make all such
representations and warranties and provide all such indemnities, including,
without limitation, in respect of the Company's business, operations and
financial information and the disclosures relating thereto in the prospectus;
and
(b) Otherwise cooperate with the underwriter or underwriters,
the SEC and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any securities under Section 7.
10. Indemnification.
----------------
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, and hold harmless each Holder
from and against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees) arising out of or based upon any untrue
or alleged untrue statement of material fact contained in any registration
statement, any amendment or supplement thereto, any prospectus 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 arise out of or are based upon any such untrue statement or
omission based upon information with respect to such Holder furnished in writing
to the Company by or on behalf of such Holder expressly for use therein.
(b) INDEMNIFICATION BY HOLDERS. Each Holder will furnish to
the Company in writing such information with respect to the name and address of
such Holder and such other information as may be reasonably required for use in
connection with any such registration statement or prospectus and agrees to
indemnify, to the full extent permitted by law, the Company, its directors,
officers, employees, agents and trustees and each person who controls the
Company (within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act) against any losses, claims, damages, liabilities and expenses
arising out of or based upon any untrue statement of material fact or any
omission of a material fact required to be stated in the registration statement
or prospectus or any amendment thereof or supplement thereto or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that
-7-
<PAGE> 8
such untrue or alleged untrue statement is contained in or such omission or
alleged omission relates to any information with respect to such Holder so
furnished in writing or the accuracy of which was confirmed in writing by such
Holder specifically for inclusion in any prospectus or registration statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such person will claim indemnification or contribution
and, unless in the judgment of counsel of such indemnified party a conflict of
interest may exist between such indemnified party and the indemnifying party
with respect to such claim, permit the indemnifying party to assume the defense
of such claim. Whether or not such defense is assumed by the indemnifying party,
the indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel with respect to
such claim, unless the judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other such indemnified parties
with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels.
For the purpose of this Section 10, the term "conflict of interest" shall mean
that there are one or more legal defenses available to the indemnified party
that are different from or additional to those available to the indemnifying
party or such other indemnified parties, as applicable, such different or
additional defenses make joint representation inappropriate.
(d) CONTRIBUTION. If the indemnification from the indemnifying
party provided for in this Section 10 is unavailable or insufficient to hold
harmless an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party or parties, on the one
hand, and the indemnified party or parties, on the other hand, in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party or parties and indemnified parties shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact, has been
made by, or relates to information supplied by, such indemnifying party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 10(c), any reasonable legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
11. LEGEND ON CERTIFICATES. Each certificate for Underlying Warrant
Shares issued upon exercise of this Warrant, unless at the time of exercise such
shares are registered under the Securities Act, shall bear the following legend:
-8-
<PAGE> 9
"This security has not been registered under the Securities
Act of 1933, as amended, and may not be sold, pledged, hypothecated,
transferred or otherwise disposed of unless subsequently registered
under said Act or unless an exemption from such registration is
available. This security may not be sold, pledged, hypothecated,
transferred or otherwise disposed of unless such sale, pledge,
hypothecation, transfer or other disposition shall have been registered
under said Act and in compliance with any applicable state securities
laws or until the Company shall have received a legal opinion
satisfactory in form and substance to the Company, that such security
may be legally sold or otherwise transferred without such registration
and compliance."
Any certificate for shares issued at any time in exchange or
substitution for any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution pursuant to a registration
statement under the Securities Act) shall also bear such legend unless, in the
opinion of counsel selected by the holder of such legended certificate (who may
be an employee of such holder) and reasonably acceptable to the Company, or
based on a letter from the staff of the Securities and Exchange Commission, the
securities represented thereby need no longer be subject to restrictions on
resale under the Securities Act.
12. EXPIRATION. This Warrant and the rights of the Holder under this
Warrant will expire on the ten year anniversary of the Closing.
13. EXERCISE IN COMPLIANCE WITH SECURITIES LAWS. The Warrant issued
hereunder shall not be exercisable if such exercise would involve a violation of
any applicable federal or state securities law, and the Company hereby agrees to
use its best efforts to cooperate with each Holder so as to comply promptly with
such securities laws at the time any exercise is requested. The Warrant issued
hereunder shall not be exercisable unless under such laws at the time of
exercise the Underlying Warrant Shares or other securities purchasable under the
Warrant are exempt, are the subject matter of an exempt transaction, or are
registered in accordance with such laws.
14. ASSIGNMENT OR TRANSFER OF WARRANT This Warrant and the rights of
the Holder under this Warrant may not be assigned or transferred, except if by
will or as provided in the laws of descent and distribution.
15. LOSS OF WARRANT. If this Warrant is lost or destroyed, the Company
shall, without charge, execute and deliver a new Warrant, with terms as set
forth herein, in the name of Holder upon receipt of a reasonably satisfactory
affidavit of loss and indemnity agreement, and this Warrant shall promptly be
canceled.
16. RIGHTS OF HOLDER. Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Company, either at law or in equity, and
the rights of Holder are limited to those expressed in this Warrant.
-9-
<PAGE> 10
17. NOTICES. All notices, payments, requests, demands, and other
communications required or permitted under this Warrant shall be made in
accordance with the provisions of the Purchase Agreement.
18. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with and governed by the laws of the State of Ohio.
19. FURTHER ASSURANCES. The parties agree to execute, acknowledge, and
deliver any and all such other documents and to take any and all such other
actions as they may, in the reasonable opinion of the Company or Holder, be
necessary or convenient to more efficiently carry out any and all of the
purposes of this Warrant.
20. SEVERABILITY. Any provision of this Warrant that shall be
prohibited by law or otherwise held invalid shall be ineffective only to the
extent of such prohibition or invalidity and shall not invalidate or otherwise
render ineffective any or all of the remaining provisions of this Warrant.
[Signatures on Following Page]
-10-
<PAGE> 11
IN WITNESS WHEREOF, CONLEY, CANITANO & ASSOC., INC. has caused this
Warrant to be executed as an instrument under seal as of the date first above
written.
CONLEY, CANITANO & ASSOC., INC.
By:
-----------------------------------
Name:
Title:
-11-
<PAGE> 12
FORM OF NOTICE OF EXERCISE
--------------------------
(To be executed only upon full exercise
of the within Warrant)
The undersigned registered Holder of the within Warrant irrevocably
exercises the within Warrant for and purchases _______ shares of Common Stock of
CONLEY, CANITANO & ASSOC., INC. and herewith makes payment therefor in the
amount of $.001 per share, all at the price and on the terms and conditions
specified in the within Warrant, and requests that a certificate (or ____
certificates in denominations of ______ shares) for such shares hereby purchased
be issued in the name of and delivered to (choose one) (a) the undersigned or
(b) _____________, whose address is ___________________________ .
Dated: _______________ __, ________.
[ ]
By
--------------------------------
Anthony Kelly
NOTICE: The signature on this Notice of Exercise must correspond with
the name as written upon the face of the within Warrant in
every particular, without alteration or enlargement or any
change whatever. The within Warrant shall not be exercisable
if such exercise would involve a violation of any applicable
federal or state securities laws.
-12-
<PAGE> 13
FORM OF CASHLESS EXERCISE
-------------------------
(To be executed only upon full exercise
of the within Warrant)
The undersigned registered Holder of the within Warrant irrevocably
exercises the within Warrant for and purchases _______ shares of Common Stock of
CONLEY, CANITANO & ASSOC., INC. and herewith surrenders its rights with respect
to that number of shares required to pay the Exercise Price, all on the terms
and conditions specified in the within Warrant, and requests that a certificate
(or ____ certificates in denominations of ______ shares) for such shares hereby
purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) _____________, whose address is ___________________________ .
Dated: _______________ __, ________.
[ ]
By
---------------------------------
Anthony Kelly
NOTICE: The signature on this Form of Cashless Exercise must
correspond with the name as written upon the face of the
within Warrant in every particular, without alteration or
enlargement or any change whatever. The within Warrant shall
not be exercisable if such exercise would involve a violation
of any applicable federal or state securities laws.
<PAGE> 14
FORM OF NOTICE OF MANDATORY PUT
-------------------------------
(To be executed only upon Company's purchase of
of the Underlying Warrant Shares)
The undersigned registered Holder of the within Warrant irrevocably
requires that CONLEY, CANITANO & ASSOC., INC. purchase __ shares of Common Stock
and herewith makes payment therefor in the amount of $______, on the terms and
conditions specified in the within Warrant, and requests that a New Warrant
representing ____ shares hereby be issued in the name of and delivered to the
undersigned.
Dated: _______________ __, ________.
[ ]
By
---------------------------------
Anthony Kelly
NOTICE: The signature on this Notice of Mandatory Put must correspond
with the name as written upon the face of the within Warrant
in every particular, without alteration or enlargement or any
change whatever. The within Warrant shall not be exercisable
if such exercise would involve a violation of any applicable
federal or state securities laws.
<PAGE> 1
Exhibit 10.10
WARRANT ESCROW AGREEMENT
------------------------
THIS ESCROW AGREEMENT is entered into as of this 3rd day of April,
1998, by and among ANTHONY F. KELLY, RONNIE CRUMPLER and GARY LEVEY (the "Share
holders"), CONLEY, CANITANO & ASSOC., INC., an Ohio corporation ("CCAi"), and
BURKE & COMPANY, P.L.L. ("Escrow Agent").
W I T N E S S E T H :
WHEREAS, CCAi and the Shareholders have prior to the execution of this
Escrow Agreement entered into a Stock Purchase Agreement dated April 3, 1998
(the "Agreement");
WHEREAS, pursuant to the terms of the Agreement, the Shareholders have
agreed that Warrants representing 19,526.598 underlying shares of CCAi Common
Stock shall be held in escrow pursuant to the terms of this Escrow Agreement
(the "Escrowed Shares"); and
WHEREAS, in accordance with the provisions of the Agreement, Burke &
Company, P.L.L. is designated to act as Escrow Agent for the parties hereto
under the terms of this Escrow Agreement and pursuant to the terms of the
Agreement, the pertinent provisions of which are incorporated herein by
reference.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. APPOINTMENT OF ESCROW AGENT. CCAi and the Shareholders hereby
appoint Burke & Company, P.L.L. as Escrow Agent and Burke & Company, P.L.L.
hereby agrees to serve as Escrow Agent pursuant to the terms of this Escrow
Agreement and the Agreement.
2. DEPOSIT OF ESCROW SHARES. Pursuant to the terms of the Agreement,
the Shareholders agree to assign, transfer and deliver all of the Escrowed
Shares to the Escrow Agent. Thereafter, Escrow Agent shall hold the Escrowed
Shares pursuant to the terms of this
<PAGE> 2
- 2 -
Escrow Agreement and the Agreement. The Escrow Agent shall also hold any and all
Escrowed Funds pursuant to the terms of this Escrow Agreement. The term
"Escrowed Funds" shall include all cash dividends paid on or stock splits
declared with respect to the Escrowed Shares and interest or other amounts
earned on such dividends and proceeds realized by the Escrow Agent upon the sale
of all or a portion of the Escrowed Shares.
3. ADMINISTRATION AND INVESTMENT OF STOCK CERTIFICATES AND ESCROWED
FUNDS. The Escrow Agent agrees to receive and hold in escrow the Escrowed Shares
and/or Escrowed Funds pursuant to the terms of the Agreement and this Escrow
Agreement and to perform the acts and duties imposed upon them under the terms
and conditions of both this Escrow Agreement and the Agreement. Upon written
request of the Shareholders, the Escrow Agent shall sell all or a portion of the
Escrowed Shares pursuant to instructions provided by the Shareholders provided
such sale can be made pursuant to the terms of the Agreement. The Escrow Agent
shall invest and reinvest the Escrowed Funds in savings accounts, money market
funds, other short-term investment vehicles which will not incur a penalty upon
withdrawal and which are FDIC insured instruments of United States banks,
short-term securities issued by the United States Government, or other
investments if authorized by both CCAi and the Shareholders in writing. All
dividends paid on the Escrowed Shares and all interest, dividends and other
amounts earned or paid on the Escrowed Funds shall be held by the Escrow Agent
until released pursuant to this Escrow Agreement.
4. DISBURSEMENT OF ESCROWED FUNDS AND ESCROWED SHARES; TERMINATION OF
ESCROW AGREEMENT. Pursuant to the terms of the Agreement, the Escrow Agent may
satisfy any and all claims of CCAi for which CCAi is entitled to reimbursement
or indemnification pursuant to the
<PAGE> 3
- 3 -
terms of the Agreement (collectively a "Claim" or "Claims") by transferring all
or a portion of the Escrowed Shares or Escrowed Funds to CCAi to satisfy all
such Claims. Any such transfer may only be made upon the agreement of the Escrow
Agent or pursuant to a valid court order, binding arbitration award or
authorization as provided for herein or in Section 10 of the Agreement. In
satisfying such Claims the Escrow Agent shall first disburse the Escrowed Shares
or a portion thereof to CCAi. To the extent any such Claim is not fully
satisfied after disbursing all of the Escrowed Shares, the Escrow Agent shall
disburse the Escrowed Funds or the portion thereof necessary to satisfy any such
Claim to CCAi. The Escrowed Shares shall be valued at the greater of (a)
$1,502,046; or (b) if CCAi has consummated an initial public offering, then the
Escrowed Shares shall be valued at the closing price of the CCAi common stock on
the date three (3) trading days prior to the date any such Claim is paid or
satisfied, subject to adjustment to reflect any stock split or stock dividend
paid on the Escrowed Shares, as the case may be, (the "CCAi Share Value") for
purposes of satisfying all such Claims. Upon written notification from CCAi and
the Shareholders, or upon the eighteen (18) month anniversary of this Escrow
Agreement, whichever is earlier, the Escrow Agent shall disburse the balance of
the Escrowed Shares and Escrowed Funds to the Shareholders or, if the
Shareholders have died, to their respective estate. Notwithstanding the
foregoing, the Shareholders may satisfy any claims by a cash payment rather than
use of the Escrowed Shares. Notwithstanding the foregoing, if on the date of
distribution of the Escrow Shares to the Shareholders as set forth above, there
shall be a pending Claim, there shall be withheld from the Escrowed Shares
distribution and retained in escrow that number of Escrowed Shares having a
value (determined on the basis of the CCAi Share Value) and Escrowed Funds if
necessary, equal to the amount reasonably estimated by CCAi to cover the
<PAGE> 4
- 4 -
reimbursement or indemnification obligation of the Shareholders for any such
pending Claims. CCAi shall notify the Shareholders and Escrow Agent in writing
of any Claim or any such pending Claims prior to the scheduled termination of
this Escrow Agreement. Upon the disbursement of all Escrowed Funds and/or
delivery of the Escrowed Shares, including those which continue to be held in
Escrow after the eighteenth (18) month anniversary of this Escrow Agreement,
this Escrow Agreement shall be terminated.
5. DIVIDENDS AND VOTING RIGHTS, ETC. Any cash dividends which may be
declared and paid by CCAi in respect of the Escrowed Shares shall be paid by
CCAi to the Escrow Agent and held as part of the Escrowed Funds pursuant to the
terms of this Escrow Agreement. The Shareholders shall have the right to vote
the Escrowed Shares during the time such shares are held in escrow pursuant
hereto. All shares of CCAi Common Stock payable in respect of the Escrowed
Shares as a result of any stock split or other non-cash distribution (including
a stock dividend) shall be deposited with the Escrow Agent by the Shareholders,
together with appropriate stock powers executed by the Shareholders.
6. DEPOSIT RECORDS. The Escrow Agent shall forward all account records
or statements related to the Escrowed Shares or Escrowed Funds and interest
earned thereon to CCAi and the Shareholders promptly upon receipt of the same.
The Escrow Agent shall deliver to CCAi and the Shareholders, upon final
disbursement, a complete accounting of all transactions relating to this Escrow
Agreement. The Shareholders shall be responsible for any income tax or other
tax, federal and state, levied upon interest earned on the Escrowed Funds or
dividends declared on the Escrowed Shares.
<PAGE> 5
- 5 -
7. Provisions Concerning Escrow Agent.
-----------------------------------
a. The Escrow Agent shall be entitled to rely, and shall be
protected in acting or refraining from acting, upon any instruction, document or
instrument furnished to them hereunder and believed by them to be genuine and
believed by them to have been signed or presented by CCAi or the Shareholders.
Nothing herein contained shall be deemed to impose upon the Escrow Agent any
duty to exercise discretion, it being the intention hereof that the Escrow Agent
shall not be obligated to act except upon written instructions or direction. The
Escrow Agent shall not be liable for any action (or refraining from any action)
taken by it in good faith and believed by it to be authorized or within the
rights or powers conferred upon it in this Escrow Agreement or the Agreement.
The Escrow Agent may consult with counsel of its choice and shall be fully
protected and indemnified in acting or refraining to act in good faith in
accordance with the opinion of such counsel.
b. The Escrow Agent shall be entitled to reimbursement for
such out-of-pocket expenses, including, but not limited to, reasonable
attorneys' fees incurred in connection with the performance of their duties
hereunder on an equal basis between CCAi and the Shareholders. The Escrow Agent
shall not collect any fee from the Escrowed Shares or Escrowed Funds. CCAi shall
pay any fee of the Escrow Agent.
c. CCAi and the Shareholders each agree to indemnify and hold
the Escrow Agent harmless against any and all loss, damage, liability or expense
incurred arising out of or in connection with the acceptance of its position as
Escrow Agent and the administration of this Escrow Agreement, including the
costs and expenses of defending against any claim in connection with the
performance of their duties hereunder; provided, however, that the Escrow Agent
shall
<PAGE> 6
- 6 -
not be indemnified for any loss, damage, liability or expense caused by or
arising out of the Escrow Agent's recklessness, willful misconduct or failure to
act in good faith.
d. It shall be the Escrow Agent's responsibility for the
safekeeping of the Escrowed Funds and Escrowed Shares, the disbursement and
delivery of such Escrowed Funds and Escrowed Shares in accordance with this
Escrow Agreement and the Agreement, and the maintenance of records in accordance
with this Escrow Agreement, and the Escrow Agent shall not be required to take
any other action with reference to any matters which might arise in connection
with the Escrowed Funds, the Escrowed Shares or this Escrow Agreement.
e. If any disagreement should arise between CCAi and the
Shareholders with respect to this Escrow Agreement, the Escrowed Funds or
Escrowed Shares or if the Escrow Agent is not in agreement as to the amount of
any reimbursement CCAi is entitled to or any other matter that may arise
hereunder, or if the Escrow Agent can not determine the proper action to be
taken, the Escrow Agent shall have the absolute right at its election to do
either or both of the following: (i) withhold or stop all performance under this
Escrow Agreement (save and except the safekeeping of the Escrowed Funds and
Escrowed Shares) until the Escrow Agent is satisfied that such disagreement has
been resolved; or (ii) file a suit in interpleader and obtain an order from a
court of appropriate jurisdiction requiring all persons involved to litigate in
such court their respective claims arising out of or in connection with the
Escrowed Funds or the Escrowed Shares.
f. The Escrow Agent is authorized to disregard any and all
notices or instructions given it by CCAi or the Shareholders, or by any other
person, firm or corporation, except only such notices or instructions as are
provided for herein or any order or process of any
<PAGE> 7
- 7 -
court with jurisdiction. If any property held hereunder is at any time attached,
garnished, or levied upon under any court order or by federal, state or local
taxing authorities, or in case the payment, assignment, transfer, conveyance or
delivery of any such property shall be stayed or enjoined by any court order, or
in case any order, judgment or decree shall be made or entered by any court
affecting such property or any part thereof, then and in any of such events, the
Escrow Agent is authorized to rely upon and comply with any such order, writ,
levy, judgment or decree which it is advised by legal counsel of its own
choosing is binding upon it; and if it complies with any such order, writ, levy,
judgement or decree, it shall not be liable to any of the parties hereto, or any
other person, firm or corporation, by reason of such compliance even though such
order, writ, levy, judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated.
g. The Escrow Agent shall not be required or have a duty to
notify any person of any payment or the maturity of any security held hereunder
nor shall they be required to take any legal action to enforce payment of any
security held hereunder.
h. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents or securities now or hereafter deposited hereunder, or of endorsement
thereon, or for any lack of endorsement thereon, or for any description therein,
nor shall it be responsible or liable in any respect on account of the identity,
authority or rights of the persons executing or delivering or purporting to
execute or deliver any such document, security, endorsement or escrow
instructions.
i. Upon resignation of the Escrow Agent, the Shareholders and
CCAi may mutually appoint a successor Escrow Agent.
<PAGE> 8
- 8 -
8. Miscellaneous.
--------------
a. This Escrow Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio. The parties hereto agree that the
courts of the State of Ohio shall have exclusive jurisdiction to resolve any
disputes hereunder.
b. This Escrow Agreement shall be binding upon and shall inure
to the benefit of the parties hereto, their heirs, administrators,
representatives, successors and assigns.
c. All notices and communications hereunder shall be in
writing and shall be deemed to be duly given if delivered in accordance with the
giving of notice requirements set forth in the Agreement.
d. This Escrow Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
e. All capitalized terms used in this Escrow Agreement which
are not otherwise defined herein shall have the meaning assigned to them in the
Agreement unless the context hereof otherwise requires.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK. SIGNATURE PAGE TO FOLLOW.]
<PAGE> 9
- 9 -
IN WITNESS WHEREOF, the parties have signed this Escrow Agreement as of
the date first above written.
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Annette M. Canitano
---------------------------------
Name: Annette M. Canitano
Title: Executive Vice President
SHAREHOLDERS:
/s/ Anthony F. Kelly
---------------------------------
ANTHONY F. KELLY
/s/ Ronnie Crumpler
---------------------------------
RONNIE CRUMPLER
/s/ Gary Levey
---------------------------------
GARY LEVEY
ESCROW AGENT:
BURKE & COMPANY, P.L.L.
BY: /s/ Patrick Burke
--------------------------------
ITS: Managing Partner
-------------------------------
<PAGE> 1
Exhibit 10.11
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS OPTION AGREEMENT AND THE
SECURITIES UNDERLYING THIS OPTION AGREEMENT MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SUCH SALE,
PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION SHALL HAVE BEEN
REGISTERED UNDER SAID ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS OR UNTIL THE COMPANY SHALL HAVE RECEIVED A LEGAL
OPINION SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, THAT SUCH
SECURITIES MAY BE LEGALLY SOLD OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION AND COMPLIANCE.
OPTION AGREEMENT
----------------
This OPTION AGREEMENT (the "Option") is being entered into as of the
___ day of _________ _____, by and between CONLEY, CANITANO & ASSOC., INC., an
Ohio corporation (the "Company") and __________ (the "Option Holder").
RECITALS
--------
A. The Option Holder is an employee of the Company and provides
valuable services to the Company; and
B. In consideration of the Option Holder's continuing service to the
Company, the Company agreed to grant to the Option Holder the option (the
"Option") to purchase shares of the Company's common stock, par value $.001 (the
"Common Stock"); and
C. The Company has granted other employees of the Company options to
purchase shares of the Common Stock, on the same terms and conditions set forth
in this Option. These other holders and the Option Holder are sometimes
collectively referred to herein as the "Option Holders."
NOW THEREFORE, subject to the terms and conditions hereinafter set
forth, the Company hereby grants to the Option Holder the Option to purchase
____ shares of the Company's Common Stock (the "Option Shares"), at the exercise
price of $.001 per share (the "Exercise Price").
1. Vesting of Option.
------------------
(a) VESTING AT EXERCISE DATE. The Option shall be exercisable
in whole on or anytime after April __, 2000 (the "Exercise Date").
<PAGE> 2
(b) VESTING IF INITIAL PUBLIC OFFERING. Option Holder shall
have the right, at its option, to exercise this Option in whole before the
Exercise Date if at any time before the Exercise Date the Company consummates
the closing of the Company's first underwritten offering to the public pursuant
to an effective registration statement under the Securities Act of 1933, as
amended (the "Securities Act") provided that (i) such registration statement
covers the offer and sale of Common Stock of which the aggregate net proceeds
attributable to sales for the account of the Company exceed $35,000,000, at a
price per share equal to at least $110.00 (as appropriately adjusted for any
stock split, combination, reorganization, recapitalization, stock dividend, or
similar event) and (ii) such Common Stock is listed for trading on the New York
Stock Exchange, Inc., the American Stock Exchange or the Nasdaq National Market
(an "Initial Public Offering").
(c) MANNER OF EXERCISE OF OPTION. This Option may be exercised
five days after written notice to the Company of Option Holder's intent to
exercise, by presentation and surrender hereof to the Company and payment of the
Exercise Price for the Option Shares. Upon receipt by the Company of this Option
at the office of Company, in proper form for exercise, accompanied by (i)
payment of the Exercise Price (which may be in the form of a check), along with
the completed and signed Option Exercise Form attached hereto or (ii) consistent
with applicable law, through the surrender of rights by Option Holder of a
sufficient number of the Option Shares to pay the Exercise Price, along with the
completed and signed Cashless Exercise Form attached hereto. The Company shall
issue and send by hand delivery, by courier or by first class mail (postage
prepaid) to Option Holder, at the address designated by Option Holder, a
certificate or certificates for the number of shares of Common Stock to which
Option Holder is entitled upon exercise of the Option.
3. Put Right.
----------
(a) PUT RIGHT. Notwithstanding Section 2, Option Holder shall
have the right, exercisable by it on or any time after the Exercise Date if the
Company has not consummated an Initial Public Offering on or before the Exercise
Date, to require the Company to purchase, and in such case the Company shall
purchase, the Option Shares for $76.93 per share (the "Put Price").
(b) PURCHASE PURSUANT TO PUT RIGHT. Option Holder may exercise
its right to require the Company to purchase the Option Shares by written notice
to the Company and presentation and surrender of the Option. The Company shall
purchase the Option Shares and pay Option Holder in the following manner:
(i) Up to 25% of the Put Price would be payable
within ten (10) days after the Company receives Option
Holder's notice that Option Holder is requiring the Company to
purchase the Option Shares. The number of shares of Common
Stock represented by this Option will be decreased
proportionately and the Company will execute and deliver to
the Option Holder a new Option (the "New Option") conveying
the right to purchase that reduced number of shares of Common
Stock. The New Option would contain the same terms as those
set forth herein.
-2-
<PAGE> 3
(ii) The New Option, or the Option if applicable,
would be subject to the Put Right, at the option of the Option
Holder, into the remaining balance of the Put Price, at any
time after the first anniversary of the Exercise Date.
(c) EXPIRATION OF PUT RIGHT. The right of Option Holder to the
put right to the Company of the Option Shares set forth in Section 3(a) shall
expire at the consummation of an Initial Public Offering.
4. FRACTIONAL SHARES. Notwithstanding any other provision of this
Option, the Company shall not be obligated to issue fractional shares of Common
Stock upon exercise of this Option. Instead of any fractional shares of Common
Stock that would otherwise be issuable to the Option Holder, the Company may pay
cash to the Option Holder.
5. RESERVATION OF SHARES; STOCK FULLY PAID. The Company represents,
warrants, and agrees that there currently is and at all time there shall be
authorized and reserved for issuance upon exercise of the Option such number of
shares of Common Stock as shall be required for issuance or delivery upon
exercise hereof; and that all shares of Common Stock issuable upon exercise of
the Option will, upon issuance, be duly and validly issued, fully paid, and
non-assessable.
6. Antidilution Provisions.
------------------------
(a) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If the
Company at any time and from time to time subsequent to the date hereof: (i)
declares a dividend upon, or makes any distribution in respect of, any of its
stock, payable in shares of Common Stock, or (ii) subdivides its outstanding
shares of Common Stock into a larger number of shares of Common Stock, or (iii)
combines its outstanding shares of Common Stock into a smaller number of shares
of Common Stock, then the number of shares of Common Stock purchasable hereunder
shall immediately be increased or decreased, proportionally.
(b) RECLASSIFICATIONS, REORGANIZATIONS, CONSOLIDATIONS OR
MERGERS. If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or sale of all or substantially all of the Company's assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive securities, cash or other assets with respect to or
in exchange for such Common Stock, then the Option Holder shall thereafter only
have the right to exercise this Option and receive the securities (including
shares of Common Stock if such would not have been extinguished), cash or other
assets that it would have received if it had exercised this Option for shares of
Common Stock immediately prior to such event.
(c) NOTICE OF ADJUSTMENT. Within ten (10) days of any
adjustment of the number of shares of Common Stock issuable upon the exercise of
this Option, the Company shall give to the Option Holder written notice of such
adjustment and the corresponding increase or decrease, as the case may be, in
the number of shares issuable upon exercise of this Option. The notice shall set
forth in reasonable detail the method of calculation and the facts upon which
such
-3-
<PAGE> 4
calculation is based, all of which shall be certified as true and correct by the
treasurer of the Company.
7. Registration.
-------------
(a) RIGHT TO INCLUDE OPTION SHARES. If at any time or times
after the date hereof the Company shall seek to file a registration statement
under the Securities Act in connection with a public offering of securities by
the Company, a public offering of securities by shareholders of the Company or
both, the Company will give prompt written notice thereof to Option Holders at
least thirty (30) days prior to the anticipated initial filing date of such
registration statement. Upon the written request of Option Holder given to
Company within ten (10) days after the receipt of any such notice from the
Company, the Company will use its reasonable best efforts to effect the
registration under the Securities Act of the Option Shares which the Company has
been so requested to register by the Option Holder thereof, so that the Option
Shares are entitled to the same registration rights as all other shares of
Common Stock to be registered under the Securities Act by the Company. The
provisions of this Section will not apply to Option Shares that are freely
tradable pursuant to Rule 144(k) under the Securities Act (or any successor
provision thereto) as evidenced by an opinion of counsel to the Company
addressed to the Holder thereof which opinion is reasonably satisfactory to
counsel to the Holder thereof or to a registration effected solely to implement
(i) an employee benefit plan, or (ii) a transaction to which Rule 145 or any
similar rule of the Securities and Exchange Commission (the "SEC") under the
Securities Act is applicable. The Company may withdraw any registration
initiated by the Company pursuant to this Section 7(a) at any time before it
becomes effective, or postpone such offering without obligation or liability to
the Option Holders.
(b) PRIORITY IN REGISTRATION. If a registration pursuant to
this Section 7 involves an underwritten offering and the managing underwriter or
underwriters in good faith advises the Company that, in its opinion, the number
of securities which the Company, the Option Holders and any other parties intend
to include in such registration exceeds the largest number of securities which
can be sold in such offering without having an adverse effect on such offering
(including the price at which such securities can be sold), then the Company
will include in such registration (i) first, if the registration was initiated
by parties to whom the Company has granted registration rights, other than the
Option Holders ("Other Holders") exercising demand registration rights, 100% of
the securities such Other Holders propose to sell (except to the extent the
terms of such Other Holders' registration rights provide otherwise); (ii)
second, 100% of the securities the Company proposes to sell for its own account;
(iii) third, to the extent that the number of securities which such Other
Holders exercising demand registration rights and the Company propose to sell is
less than the number of securities which the Company has been advised can be
sold in such offering without having the adverse effect referred to above, such
number of Registerable Securities which the Investor Holders have requested to
be included in such registration pursuant to incidental or "piggyback"
registration rights granted to Investor Holders pursuant to Section 7 of the
Stock Purchase and Shareholders' Agreement, dated as of October 15, 1997, by and
among the Company, certain of the principal shareholders of the Company and
certain Investors (the "Investor Purchase Agreement"), which, in the opinion of
such managing underwriter or underwriters, can be sold without having the
adverse effect referred to above; and (iv) fourth, to the extent that the number
of securities which such Other Holders
-4-
<PAGE> 5
exercising demand registration rights, Investor Holders exercising incidental or
"piggyback" registration rights, and the Company propose to sell is less than
the number of securities which the Company has been advised can be sold in such
offering without having the adverse effect referred to above, such number of
securities which the holders of Warrants of the Company, dated as of April 3,
1998 and the Option Holders (collectively, the "Other Investors") have requested
to be included in such registration pursuant to Section 7(a) hereof, which, in
the opinion of such managing underwriter or underwriters, can be sold without
having the adverse effect referred to above, such number of securities to be
included on a pro rata basis among all requesting Other Investors on the basis
of the relative number of shares of Common Stock beneficially owned (as such
term is used in Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) by such Other Investors; provided that if the number of
shares requested to be included in such registration by the Other Investors
pursuant to Section 7(a) hereof and permitted to be included in such
registration by the Other Investors pursuant to this Section 7(b) exceeds the
number which the Company has been advised can be sold in such offering without
having the adverse effect referred to above, the number of such shares to be
included in such registration by the Other Investors shall be allocated pro rata
among such Other Investors on the basis of the relative number of shares each
such Other Investor has requested to be included in such registration. For the
purposes of this Section 7(b), "Investor Holders" shall have the same meaning as
assigned to the term "Investor" in the Investor Purchase Agreement, and the term
"Registerable Securities" shall have the same meaning as assigned to such term
in the Investor Purchase Agreement.
8. FURTHER OBLIGATIONS OF THE COMPANY UPON REGISTRATION. Whenever the
Company is required hereunder to register any Option Shares, it agrees that it
shall also do the following:
(a) Pay all expenses of the Company for such registrations and
offerings (exclusive of underwriting discounts and commissions);
(b) Furnish to each selling Option Holder such copies of each
preliminary and final prospectus and such other documents as such Option Holder
may reasonably request to facilitate the public offering of its Option Shares;
(c) Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources) to
register or qualify the securities covered by said registration statement under
the securities or "blue sky" laws of such jurisdictions as any selling Option
Holder may reasonably request, provided that the Company shall not be required
to register or qualify the securities in any jurisdictions which require it to
qualify to do business therein;
(d) Immediately notify each selling Option Holder, at any time
when a prospectus relating to his or her Option Shares is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such selling Option Holder, prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Option
-5-
<PAGE> 6
Shares, such prospectus will not contain any untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein not
misleading;
(e) Cause all such Option Shares to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed or quoted;
(f) Otherwise use its best efforts to comply with the
securities laws of the United States and other applicable jurisdictions and all
applicable rules and regulations of the SEC and comparable governmental agencies
in other applicable jurisdictions and make generally available to its holders,
in each case as soon as practicable, but not later than 45 days after the close
of the period covered thereby, an earnings statement of the Company which will
satisfy the provisions of Section 11(a) of the Securities Act; and
9. OBLIGATIONS OF THE COMPANY UPON REGISTRATION. Whenever the Company
is required hereunder to register any Option Shares, it agrees that it shall
also do the following:
(a) Enter into any reasonable underwriting agreement required
by the proposed underwriter, if any, in such form and containing such terms as
are customary; provided, however, that no Option Holder shall be required to
make any representations or warranties other than with respect to its title to
the Option Shares and any written information provided by the Option Holder to
the Company, and if the underwriter requires that representations or warranties
be made and that indemnification be provided, the Company shall make all such
representations and warranties and provide all such indemnities, including,
without limitation, in respect of the Company's business, operations and
financial information and the disclosures relating thereto in the prospectus;
and
(b) Otherwise cooperate with the underwriter or underwriters,
the SEC and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any securities under Section 7.
10. Indemnification.
----------------
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, and hold harmless each Option
Holder from and against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees) arising out of or based upon any untrue
or alleged untrue statement of material fact contained in any registration
statement, any amendment or supplement thereto, any prospectus 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 arise out of or are based upon any such untrue statement or
omission based upon information with respect to such Option Holder furnished in
writing to the Company by or on behalf of such Option Holder expressly for use
therein.
(b) INDEMNIFICATION BY OPTION HOLDERS. Each Option Holder will
furnish to the Company in writing such information with respect to the name and
address of such Option Holder
-6-
<PAGE> 7
and such other information as may be reasonably required for use in connection
with any such registration statement or prospectus and agrees to indemnify, to
the full extent permitted by law, the Company, its directors, officers,
employees, agents and trustees and each person who controls the Company (within
the meaning of either Section 15 of the Act or Section 20 of the Exchange Act)
against any losses, claims, damages, liabilities and expenses arising out of or
based upon any untrue statement of material fact or any omission of a material
fact required to be stated in the registration statement or prospectus or any
amendment thereof or supplement thereto or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
or alleged untrue statement is contained in or such omission or alleged omission
relates to any information with respect to such Option Holder so furnished in
writing or the accuracy of which was confirmed in writing by such Option Holder
specifically for inclusion in any prospectus or registration statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification agrees to give prompt written notice to the
indemnifying party after the receipt by such person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such person will claim indemnification or contribution
and, unless in the judgment of counsel of such indemnified party a conflict of
interest may exist between such indemnified party and the indemnifying party
with respect to such claim, permit the indemnifying party to assume the defense
of such claim. Whether or not such defense is assumed by the indemnifying party,
the indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. If the indemnifying party is
not entitled to, or elects not to, assume the defense of a claim, it will not be
obligated to pay the fees and expenses of more than one counsel with respect to
such claim, unless the judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other such indemnified parties
with respect to such claim, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels.
For the purpose of this Section 10, the term "conflict of interest" shall mean
that there are one or more legal defenses available to the indemnified party
that are different from or additional to those available to the indemnifying
party or such other indemnified parties, as applicable, such different or
additional defenses make joint representation inappropriate.
(d) CONTRIBUTION. If the indemnification from the indemnifying
party provided for in this Section 10 is unavailable or insufficient to hold
harmless an indemnified party hereunder in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party or parties, on the one
hand, and the indemnified party or parties, on the other hand, in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
fault of such indemnifying party or parties and indemnified parties shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact, has
-7-
<PAGE> 8
been made by, or relates to information supplied by, such indemnifying party as
a result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 10(c), any reasonable legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
11. LEGEND ON CERTIFICATES. Each certificate for Option Shares issued
upon exercise of this Option, unless at the time of exercise such shares are
registered under the Securities Act, shall bear the following legend:
"This security has not been registered under the Securities
Act of 1933, as amended, and may not be sold, pledged, hypothecated,
transferred or otherwise disposed of unless subsequently registered
under said Act or unless an exemption from such registration is
available. This security may not be sold, pledged, hypothecated,
transferred or otherwise disposed of unless such sale, pledge,
hypothecation, transfer or other disposition shall have been registered
under said Act and in compliance with any applicable state securities
laws or until the Company shall have received a legal opinion
satisfactory in form and substance to the Company, that such security
may be legally sold or otherwise transferred without such registration
and compliance."
Any certificate for shares issued at any time in exchange or
substitution for any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution pursuant to a registration
statement under the Securities Act) shall also bear such legend unless, in the
opinion of counsel selected by the holder of such legended certificate (who may
be an employee of such holder) and reasonably acceptable to the Company, or
based on a letter from the staff of the SEC, the securities represented thereby
need no longer be subject to restrictions on resale under the Securities Act.
12. EXPIRATION. This Option and the rights of the Option Holder under
this Option will expire on the ten year anniversary of the Closing.
13. EXERCISE IN COMPLIANCE WITH SECURITIES LAWS. The Option issued
hereunder shall not be exercisable if such exercise would involve a violation of
any applicable federal or state securities law, and the Company hereby agrees to
use its best efforts to cooperate with each Option Holder so as to comply
promptly with such securities laws at the time any exercise is requested. The
Option issued hereunder shall not be exercisable unless under such laws at the
time of exercise the Option Shares or other securities purchasable under the
Option are exempt, are the subject matter of an exempt transaction, or are
registered in accordance with such laws.
14. ASSIGNMENT OR TRANSFER OF OPTION This Option and the rights of the
Option Holder may not be assigned or transferred, except if by will or as
provided in the laws of descent and distribution.
15. LOSS OF OPTION. If this Option is lost or destroyed, the Company
shall, without charge, execute and deliver a new Option, with terms as set forth
herein, in the name of the
-8-
<PAGE> 9
Option Holder upon receipt of a reasonably satisfactory affidavit of loss and
indemnity agreement, and this Option shall promptly be canceled.
16. RIGHTS OF OPTION HOLDER. Option Holder shall not, by virtue hereof,
be entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of Option Holder are limited to those expressed in this
Option.
17. NOTICES. All notices, payments, requests, demands, and other
communications required or permitted under this Option shall be in writing and,
unless otherwise expressly provided herein, shall be deemed to duly given and
received for all purposes when delivered by hand, telecopy, telex or other
method of facsimile, or five (5) days after being sent by registered or
certified mail, return receipt requested, postage prepaid or two (2) days after
being sent by overnight delivery providing receipt of delivery, to the following
addresses:
If to the Company:
Conley, Canitano & Assoc., Inc.
CCAi Renaissance Centre
5800 Landerbrook Drive
Mayfield Heights, Ohio 44124
Facsimile No. (440) 684-6700
Attention: Nicholas A. Canitano
With a copy to Company's counsel:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Facsimile No. (216) 579-0212
Attention: John M. Saada, Jr., Esq.
If to Option Holder:
------------------------------
------------------------------
------------------------------
With a copy to Option Holder's counsel:
------------------------------
------------------------------
------------------------------
18. GOVERNING LAW. This Option shall be construed and enforced in
accordance with and governed by the laws of the State of Ohio.
-9-
<PAGE> 10
19. FURTHER ASSURANCES. The parties agree to execute, acknowledge, and
deliver any and all such other documents and to take any and all such other
actions as they may, in the reasonable opinion of the Company or Option Holder,
be necessary or convenient to more efficiently carry out any and all of the
purposes of this Option.
20. SEVERABILITY. Any provision of this Option that shall be prohibited
by law or otherwise held invalid shall be ineffective only to the extent of such
prohibition or invalidity and shall not invalidate or otherwise render
ineffective any or all of the remaining provisions of this Option.
-10-
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Option to be
executed as an instrument under seal as of the date first above written.
CONLEY, CANITANO & ASSOC., INC.
By:
--------------------------------------
Name:
Title:
OPTION HOLDER
By:
--------------------------------------
Name:
Title:
-11-
<PAGE> 12
FORM OF NOTICE OF EXERCISE
--------------------------
(To be executed only upon full exercise
of the within Option)
The undersigned registered Option Holder of the within Option
irrevocably exercises the within Option for and purchases _______ shares of
Common Stock of CONLEY, CANITANO & ASSOC., INC. and herewith makes payment
therefor in the amount of $.001 per share, all at the price and on the terms and
conditions specified in the within Option, and requests that a certificate (or
____ certificates in denominations of ______ shares) for such shares hereby
purchased be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) _____________, whose address is ___________________________ .
Dated: _______________ __, ________.
[ ]
By
------------------------------------
(Signature of Option Holder)
NOTICE: The signature on this Notice of Exercise must correspond with
the name as written upon the face of the within Option in
every particular, without alteration or enlargement or any
change whatever. The within Option shall not be exercisable if
such exercise would involve a violation of any applicable
federal or state securities laws.
<PAGE> 13
FORM OF CASHLESS EXERCISE
-------------------------
(To be executed only upon full exercise
of the within Option)
The undersigned registered Option Holder of the within Option
irrevocably exercises the within Option for and purchases _______ shares of
Common Stock of CONLEY, CANITANO & ASSOC., INC. and herewith surrenders its
rights with respect to that number of shares required to pay the Exercise Price,
all on the terms and conditions specified in the within Option, and requests
that a certificate (or ____ certificates in denominations of ______ shares) for
such shares hereby purchased be issued in the name of and delivered to (choose
one) (a) the undersigned or (b) _____________, whose address is
___________________________ .
Dated: _______________ __, ________.
[ ]
By
------------------------------------
(Signature of Option Holder)
NOTICE: The signature on this Form of Cashless Exercise must
correspond with the name as written upon the face of the
within Option in every particular, without alteration or
enlargement or any change whatever. The within Option shall
not be exercisable if such exercise would involve a violation
of any applicable federal or state securities laws.
<PAGE> 14
FORM OF NOTICE OF MANDATORY PUT
-------------------------------
(To be executed only upon Company's purchase of
of the Option Shares)
The undersigned registered Option Holder of the within Option
irrevocably requires that CONLEY, CANITANO & ASSOC., INC. purchase __ shares of
Common Stock and herewith makes payment therefor in the amount of $______, on
the terms and conditions specified in the within Option, and requests that a New
Option representing ____ shares hereby be issued in the name of and delivered to
the undersigned. Dated: _______________ __, ________.
[ ]
By
------------------------------------
(Signature of Option Holder)
NOTICE: The signature on this Notice of Mandatory Put must correspond
with the name as written upon the face of the within Option in
every particular, without alteration or enlargement or any
change whatever. The within Option shall not be exercisable if
such exercise would involve a violation of any applicable
federal or state securities laws.
-14-
<PAGE> 1
Exhibit 10.12
KELLY-LEVEY & ASSOCIATES, INC.
RETENTION INCENTIVE BONUS PLAN
PREAMBLE
WHEREAS, Kelly-Levey & Associates, Inc. (the "Company") is negotiating
and finalizing a Stock Purchase Agreement (the "Purchase Agreement") with
Conley, Canitano & Assoc., Inc. ("CCAi") pursuant to which CCAi would purchase
all of the capital stock of the Company; and
WHEREAS, in order to consummate the transactions contemplated by the
Purchase Agreement, it is necessary and in the best interests of the Company,
its shareholders and employees that the Company adopt this Plan in order to
provide incentives to certain of the current employees of the Company to
continue to perform their duties and remain employees of the Company after the
closing of the transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, the Company hereby establishes the Kelly-Levey &
Associates, Inc. Retention Incentive Bonus Plan as hereinafter provided.
ARTICLE 1
GENERAL
1.1 EFFECTIVE DATE. The provisions of the Plan shall be effective as of
April 3, 1998 (the "Effective Date").
1.2 PURPOSE. The Plan is intended to be an unfunded plan solely for the
purpose of providing bonus payments to current Company employees based on such
employees continuing their employment with the Company during the Post Closing
Transaction Period.
ARTICLE 2
DEFINITIONS AND USAGE
2.1 DEFINITIONS. Wherever used in the Plan, the following words and
phrases shall have the meaning set forth below unless the context plainly
requires a different meaning:
(a) "AGREEMENT" means the executed Retention Incentive Bonus Plan
Agreement between the Company and an Eligible Employee
substantially in the form of the attached EXHIBIT A.
(b) "BOARD" means the members of the Board of Directors of the
Company.
(c) "BONUS PAYMENT" means the payments made to each Eligible
Employee under this Plan and the Agreement.
<PAGE> 2
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(d) "CAUSE" shall have the meaning ascribed to it in each
individual Participant's employment agreement with CCAi;
PROVIDED, HOWEVER, if such Participant's employment agreement
with CCAi does not define "cause", then "Cause" shall mean:
(i) misappropriating any fluids or property of CCAi,
committing fraud or embezzlement or engaging in any
criminal or illegal activity having a material
adverse effect on CCAi; (ii) except for providing
services to CCAi in exchange for compensation in
accordance with the terms of the Participant's
employment agreement, attempting to obtain material
personal gain, profit or enrichment at the expense of
CCAi or from any transaction in which the Participant
has an interest which is known by the Participant to
be adverse to the interest of CCAi; (iii) being
convicted of a felony; (iv) committing any material
breach of the Participant's employment agreement with
CCAi; provided such breach continues for a period of
30 days after CCAi shall have notified the
Participant in writing of such breach; or (v)
performing or committing any act intended by the
Participant to cause a material adverse effect on
CCAi, including, without limitation, acts of sexual
harassment, provided such act continues unremedied
for a period of 30 days after CCAi shall have
notified the Participant in writing of such act.
(e) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time.
(f) "COMPANY" means Kelly-Levey & Associates, Inc., or any
successor thereto, including CCAi.
(g) "EFFECTIVE DATE" means April 3, 1998.
(h) "ELIGIBLE EMPLOYEE" shall have the meaning ascribed to it in
Article 3.
(i) "ESCROW AGENT" means Burke & Company, P.L.L., as determined by
the Board.
(j) "PARTICIPANT" means an Eligible Employee of the Company who is
participating in the Plan.
(k) "PAYMENT DATE" means the date that the Company determines a
Participant's right to receive a Bonus Payment as more
particularly described in Section 6.3.
<PAGE> 3
-3-
(1) "PLAN" means this Kelly-Levey & Associates, Inc. Retention
Incentive Bonus Plan.
(m) "POST CLOSING TRANSACTION PERIOD" means the period commencing
after the closing of the transactions contemplated by the
Purchase Agreement (the "Closing") and ending on the
thirty (30) month anniversary of the Closing.
(m) "TERMINATION EVENT" shall have the meaning ascribed to it in
Section 8.1.
2.2 USAGE. Except where otherwise indicated by the context, any
masculine terminology used herein shall also include the feminine and vice
versa, and the definition of any term herein in the singular shall also include
the plural and vice versa.
ARTICLE 3
ELIGIBILITY
Employees of the Company who are employees of the Company as of the
close of business on April 3, 1998 ("Eligible Employee") will be eligible to
receive Bonus Payments under the Plan upon designation by the Board as evidenced
by an Agreement between such employee and the Company.
ARTICLE 4
ADMINISTRATION
4.1 The Plan shall be administered by the Escrow Agent. With respect to
each Bonus Payment, the Escrow Agent, in its sole discretion, shall determine
whether a Participant is entitled to receive each Bonus Payment hereunder.
4.2 Except as specifically limited by the provisions of the Plan, the
Escrow Agent. in its sole discretion, shall have the authority to:
(a) Distribute the Bonus Payments on such terms and conditions
consistent with this Plan and the Agreements;
(b) Interpret the provisions of the Plan and decide all questions
of fact arising in its application, including, without
limitation, determination of eligibility, Termination Events
and the right to receive Bonus Payment(s); and
(c) Prescribe such rules and procedures for plan administration
as, from time to time, it may deem advisable.
4.3 From time to time, and upon reasonable request by the Escrow Agent,
the Company shall provide the Escrow Agent with information regarding each
Participant, including, without limitation, such Participant's current address
and employment status (i.e. voluntarily terminated, terminated with Cause,
deceased, etc.).
<PAGE> 4
-4-
4.4 Any action, decision, interpretation or determination by the Escrow
Agent with respect to the application or administration of this Plan shall be
final and binding upon all persons, and need not be uniform with respect to its
determination of recipients, amount, timing, form, terms or provisions of Bonus
Payments.
4.5 The Escrow Agent shall not be liable for any action or
determination taken or made in good faith with respect to the Plan or any Bonus
Payment granted hereunder, and to the extent permitted by law, the Escrow Agent
shall be indemnified by the Company for any liability and expense which may
occur from any claim or cause of action pursuant to the provisions of Article
12.
ARTICLE 5
PARTICIPATION IN PLAN
5.1 PARTICIPATION. Each Eligible Employee may become a Participant by
entering into an Agreement in the manner provided in Section 5.2. Each
Participant shall continue as a Participant of the Plan until such Participant's
right to receive Bonus Payments under the Plan is terminated as set forth in
Article 8.
5.2 AGREEMENT. All Bonus Payments due hereunder shall be evidenced by a
written agreement executed between the Company and the Participant in such form
or forms as the Board deems appropriate. An Eligible Employee shall execute and
deliver the Agreement to the Company or the Escrow Agent on or before the
Effective Date which Agreement shall be effective as of the Effective Date. The
Agreement shall set forth each of the Bonus Payments the Participant is eligible
to receive pursuant to this Plan and any additional restrictions on such Bonus
Payments as the Board deems appropriate, including, without limitation, the
Termination Events set forth in Section 8.1.
ARTICLE 6
PAYMENT OF BONUS PAYMENT
6.1 ELIGIBILITY FOR PAYMENT. A Participant's eligibility to receive a
Bonus Payment is subject to the termination provisions of Article 8.
Eligibility shall be determined as of the Payment Dates set forth in Section
6.3. Subject to the termination provisions of Article 8, payment of an eligible
Participant's Bonus Payment shall be made within 30 days after the Payment Date.
Notwithstanding the foregoing, the liability of the Company to make the Bonus
Payments will accrue on the books of the Company as an obligation to the
Participant, but the Company is not required to set aside or designate any
particular assets for this purpose prior to the distribution of the Bonus
Payments.
6.2 AMOUNT OF BONUS PAYMENT. Each Participant's Bonus Payment(s) shall
be determined by the Board in its sole discretion as evidenced in writing in the
Agreement.
<PAGE> 5
-5-
6.3 PAYMENT DATES. Eligibility of a Participant and the right to
receive each of the Bonus Payments will be determined as of the close of
business on the following dates (the "Payment Dates"): (a) October 3, 1998; (b)
April 3, 1999; (c) April 3, 2000; and (d) October 3, 2000.
6.4 FORM OF BONUS PAYMENTS. Each Bonus Payment shall be paid in cash in
a single lump sum payment.
ARTICLE 7
DEATH OF PARTICIPANT
7.1 COMMENCEMENT OF BONUS PAYMENTS. Subject to the Termination Events
set forth in Section 8.1, if a Participant dies during the term of his
Agreement, then the Bonus Payment(s) otherwise payable with respect to the
Participant shall be paid to the Participant's beneficiary or beneficiaries upon
written notification to Escrow Agent of the Participant's death, all in
accordance with the terms of this Plan and the Agreement.
7.2 DESIGNATION OF BENEFICIARY. A Participant may designate, on a form
provided by the Board one or more primary and contingent beneficiaries to
receive all of the Bonus Payments which may be payable hereunder following the
Participant's death, and may designate the proportions in which such
beneficiaries are to receive such payments. A Participant may change such
designations from time to time by filing a new form, and the last written
designation filed with the Board and the Escrow Agent prior to the Participant's
death shall control. If a Participant falls to specifically designate a
beneficiary, or if no designated beneficiary survives the Participant, payment
shall be made by the Escrow Agent in the following order of priority:
(a) to the Participant's surviving spouse, or if none,
(b) to the Participant's estate.
ARTICLE 8
TERMINATION OF BONUS PAYMENTS
8.1 TERMINATION EVENTS. Notwithstanding anything to the contrary in
this Plan, a Participant's right to receive Bonus Payments under this Plan as
evidenced by his Agreement shall terminate immediately without further action by
the Company upon the happening of one of the following events (the "Termination
Events"):
(a) The Participant is terminated by the Company with Cause; or
(b) The Participant voluntarily terminates his employment with the
Company.
<PAGE> 6
-6-
8.2 DETERMINATION OF TERMINATION EVENT. The determination of whether a
Termination Event has occurred shall be made by the Escrow Agent, in its sole
discretion, as of the Payment Dates set forth in Section 6.3.
ARTICLE 9
TRANSFERABILITY OF BONUS PAYMENTS
The Participant shall not have the power to pledge, transfer, assign,
mortgage or otherwise encumber or dispose of in advance any interest in amounts
payable hereunder or any of the payments provided for herein, nor shall any
interest in amounts payable hereunder or in any payments be subject to seizure
for payments of any debts, judgments, alimony or separate maintenance, or be
reached or transferred by operation of law in the event of bankruptcy,
insolvency or otherwise.
ARTICLE 10
EFFECTIVE DATE
This Plan shall become effective as of the Effective Date, having been
adopted by the Board on March 25, 1998.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 EFFECTIVENESS. This Plan shall be effective and binding upon the
Company only upon the closing of the transactions contemplated by the Purchase
Agreement. If a closing of the transactions contemplated under the Purchase
Agreement does not occur, this Plan shall be null and void and of no force or
effect.
11.2 AMENDMENT AND TERMINATION. This Plan may not be amended or
terminated in any way that will reduce or adversely affect the Bonus Payment of
any Participant hereunder entitled to receive a Bonus Payment.
11.3 SUCCESSORS AND ASSIGNS. The provisions of the Plan are binding
upon and inure to the benefit of the Company, its successors and assigns, and
the Participant, his beneficiaries, heirs, legal representatives and assigns.
11.4 GOVERNING LAW. The Plan shall be subject to and construed in
accordance with the laws of the State of Ohio.
11.5 NO GUARANTEE OF EMPLOYMENT. Nothing contained in the Plan shall be
construed as a contract of employment or deemed to give any Participant the
right to be retained in the employ of the Company or any equity or other
interest in the assets, business or affairs of the Company. No
<PAGE> 7
-7-
Participant hereunder shall have a security interest in assets of the Company
used to make Bonus Payments.
11.6 SEVERABILITY. If any provision of the Plan shall be held illegal
or invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions of the Plan, but the Plan shall be construed and enforced
as if such illegal or invalid provision had never been included herein.
11.7 NOTIFICATION OF ADDRESSES. Each Participant shall file with the
Escrow Agent, from time to time, in writing, the post office address of the
Participant and each change of post office address. Any communication, statement
or notice addressed to the last post office address filed with the Escrow Agent
(or if no such address was filed with the Escrow Agent, then to the last post
office address of the Participant or beneficiary as shown on the Company's
records) shall be binding on the Participant for all purposes of the Plan and
neither the Escrow Agent nor the Company shall be obligated or required to
search for or ascertain the whereabouts of any Participant.
11.8 TAX WITHHOLDING/PAYMENT. No later than the date as of which an
amount received pursuant to this Plan first becomes includable in the gross
income of an individual for federal, state and local tax purposes, the
Participant shall pay to the Company, or make arrangements satisfactory to the
Board regarding the payment of, any federal, state or local taxes of any kind
required by law to be withheld with respect to such amount. The obligations of
the Company under the Plan shall be conditional on such payment or arrangements
and the Company shall, in its sole discretion and to the extent permitted by
law, have the right to deduct any such taxes from the Bonus Payment otherwise
due to the Participant.
11.9 NO GRANT OF BONUS PAYMENT. Nothing contained in this Plan or in
any action taken by the Board shall constitute the granting of Bonus Payments.
An Eligible Employee shall be entitled to receive a Bonus Payment only at such
time as a written Agreement shall have been executed and delivered to the
Company and such Participant's right to receive the Bonus Payments has not been
terminated in accordance with Article 8.
ARTICLE 12
INDEMNIFICATION
The Company shall indemnify and hold harmless the Escrow Agent from and
against any and all liabilities, costs, and expenses incurred by such persons as
a result of any act, or omission to act, in connection with the performance its
duties, responsibilities and obligations under this Plan and any Agreement,
other than such liabilities, costs and expenses as may result from the gross
negligence, bad faith, willful misconduct or criminal acts of the Escrow Agent.
<PAGE> 8
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The undersigned, pursuant to the approval of the Board on March 25,
1998, does herewith execute on behalf of the Company this Kelly-Levey &
Associates, Inc. Retention Incentive Bonus Plan.
KELLY-LEVEY AND ASSOCIATES, INC.
BY: /s/ Anthony F. Kelly
------------------------------------
Anthony F. Kelly, President
<PAGE> 1
Exhibit 10.13
KELLY-LEVEY & ASSOCIATES, INC.
RETENTION INCENTIVE BONUS PLAN AGREEMENT
1. Subject to the terms and conditions of the Kelly-Levey &
Associates, Inc. Retention Incentive Bonus Plan (the "Plan"), including the
Termination Events set forth therein, and the terms and conditions hereof,
KELLY-LEVEY & ASSOCIATES, INC. (the "Company") hereby agrees to pay to (the
"Participant") the Bonus Payments set forth in Paragraph 2.
2. Subject to the terms and conditions of the Plan, including, without
limitation, the Termination Events set forth in Section 8.1 of the Plan, the
Participant shall be eligible to receive the following Bonus Payments on the
following dates (the "Payment Dates"):
a. October 3, 1998 - $90,369
b. April 3, 1999-$46,153
c. April 3, 2000 -$46,153
d. October 3, 2000 - $55,384
The Bonus Payments shall be paid to the Participant within thirty (30)
days of the Payment Dates.
3. Participant shall be eligible to receive the foregoing Bonus
Payments so long as a Termination Event has not occurred with respect to such
Participant on or before such Payment Date.
4. This Agreement is not transferrable other than by will or by
operation of the laws of descent and distribution or as otherwise provided in
the attached Kelly-Levey & Associates, Inc. Retention Incentive Bonus Plan and
is subject to termination as provided in the Plan.
5. The Plan, a copy of which is attached hereto as Exhibit A, is hereby
incorporated herein by reference. To the extent that any terms of this Agreement
contrast with or contradict any terms or conditions of the Plan, the terms and
conditions of the Plan shall control. Capitalized terms used herein without
specific definition shall have the meanings respectively ascribed thereto in the
Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the 3rd day of April, 1998.
KELLY-LEVEY AND ASSOCIATES, INC.
BY: /s/ Anthony F. Kelly
------------------------------------
Anthony F. Kelly, President
------------------------------------
Participant
<PAGE> 1
Exhibit 10.14
RETENTION INCENTIVE BONUS ESCROW AGREEMENT
------------------------------------------
RETENTION INCENTIVE BONUS PLAN ESCROW AGREEMENT ("Escrow Agreement")
made as of April 3, 1998, by and among Conley, Canitano & Assoc., Inc., an Ohio
corporation ("CCAi"), Kelly-Levey & Associates, Inc., a Kentucky corporation
("KLA"), Burke & Company, P.L.L. (the "Employees' Representative") and Anthony
F. Kelly, Gary Levey, Ronnie Crumpler, Trevor Montgomery, Rob Petersen and Don
Kirby (collectively the "Contributors").
RECITALS
A. On April 3, 1998, pursuant to a Stock Purchase Agreement dated as of
April 3, 1998 (the "Purchase Agreement"), CCAi closed (the "Closing") the
purchase of all of the issued and outstanding capital stock of KLA.
B. The Purchase Agreement provides that CCAi will pay or cause to be
paid a total of Three Million Five Hundred Thousand Dollars ($3,500,000) into an
escrow account (the "Escrow Account") established by the Employees'
Representative for purposes of funding sums due certain of the employees of KLA
(each individually, an "Employee," and collectively the "Employees") under the
KLA Retention Incentive Bonus Plan (the "Plan"). CCM will pay, or cause to be
paid, a total of Three Million Five Hundred Thousand Dollars ($3,500,000) into
the Plan in four installments (individually, a "CCAi Bonus Plan Deposit" and
collectively, "CCAi Bonus Plan Deposits") as follows: (i) $700,000 on October 3,
1998; (ii) $875,000 on April 3, 1999; (iii) $875,000 on April 3, 2000 and (iv)
$1,050,000 on October 3, 2000.
C. The Contributors have agreed to pay or cause to be paid $796,494 at
Closing (the "Initial Deposit," and with the CCAi Bonus Plan Deposits, the
"Deposits") and additional amounts as required by a certain Memorandum of
Understanding by and among the Contributors dated as of April 3, 1998 (the
"Memorandum of Understanding").
D. The parties to this Escrow Agreement have agreed upon and wish to
set forth the terms and conditions with respect to the Deposits to be
distributed by the Employees' Representative.
NOW THEREFORE, the parties agree as follows:
1. CAPITALIZED TERMS. Capitalized terms used in this Escrow Agreement
but not otherwise defined shall have the meanings assigned such terms in the
Plan.
2. EMPLOYEES' REPRESENTATIVE. CCAi, KLA and the Contributors hereby
designate and appoint the Employees' Representative to serve in accordance with
the terms, conditions and provisions of this Escrow Agreement, and the
Employees' Representative hereby agrees to act as such upon the terms,
conditions and provisions provided in this Escrow Agreement.
3. DEPOSITS OF ESCROW AMOUNTS. Immediately following the Closing and
pursuant to a Closing Disbursement Agreement dated as of April 3, 1998, the
Contributors shall deposit the
<PAGE> 2
-2-
Initial Deposit into the Escrow Account. CCAi shall make the CCAi Bonus Plan
Deposits in the amounts and on the dates set forth above.
4. BONUS PLAN PAYMENTS.
(a) On each of the dates hereof, October 3, 1998, April 3, 1999, April
3, 2000 and October 3, 2000 (each, a "Payment Date" and collectively, the
"Payment Dates'), amounts are to be distributed by the Shareholders'
Representative to participants under the Plan (the "Participants") in such
amounts and at such times as set forth on EXHIBIT A, net of all withholding
taxes and deferrals under CCAi's 401k plan or other benefit plans (the "Bonus
Plan Payments"); provided, however, that if a Termination Event (as defined in
the Plan) has occurred with respect to a Participant, such Participant shall no
longer be entitled to receive any future Bonus Plan Payments.
(b) Promptly after a Termination Event has occurred with respect to a
Participant, CCAi will send a letter to the Escrow Agent stating the name of the
former Participant, the date on which such termination is to be effective and
the reasons for such termination. The letter shall be signed by an executive
officer of CCAi or KLA.
(c) If, after giving effect to the Initial Deposit and the CCAi Bonus
Plan Deposits, the Escrow Account does not contain sufficient funds to make a
scheduled Bonus Plan Payment, the additional amount required to make the Bonus
Plan Payment(s) shall be deposited into the Escrow Account by the Contributors
as required by and in accordance with the terms of the Memorandum of
Understanding.
(d) Beginning with the October 3, 1998 Bonus Plan Payment, and after
each such Payment Date, if, immediately alter the Escrow Agent has made all such
Bonus Plan Payments, any funds remain in the Escrow Account, such additional
funds shall be deposited in and distributed pursuant to the provisions of that
certain Disbursement Agreement dated as of April 3, 1998.
5. INVESTMENT OF ESCROW ACCOUNT. Prior to the October 3, 1998 Bonus
Plan Payment, the Employees' Representative shall invest and reinvest any
balance in the Escrow Account in the _____________________. Income and interest
paid upon Deposits shall be retained and disbursed in accordance with the terms
of this Escrow Agreement.
6. RESPONSIBILITIES OF THE EMPLOYEES' REPRESENTATIVE. The Employees'
Representative shall have no duties or responsibilities except those expressly
set forth herein. The Employees' Representative shall have no responsibility or
liability for the truth, accuracy or validity of any agreements referred to in
this Escrow Agreement (including, without limitation, Exhibit A or the Plan), or
for the performance of any such agreements by any parry thereto or for
interpretation of any of the provisions of any of such agreements. The
Employees' Representative shall not be liable for any action or determination
taken or made in good faith with respect to this Escrow Agreement or any other
agreements referenced herein. The liability of the Employees' Representative
hereunder shall be limited solely to bad faith, willful misconduct or gross
negligence on its part. The Employees' Representative shall be protected in
acting upon any certificate, notice or other
<PAGE> 3
-3-
instrument whatsoever received by the Employees' Representative under this
Escrow Agreement, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information therein contained, which the Employees' Representative in good faith
believes to be genuine and to have been signed or presented by a proper person
or persons.
If the Employees' Representative is uncertain as to its duties or
rights hereunder or receives instructions with respect to any funds to be
distributed pursuant to this Escrow Agreement which, in the opinion of the
Employees' Representative and its counsel, are in conflict with any of the
provisions of this Escrow Agreement, the Employees' Representative shall be
entitled to refrain from taking any action until it is directed otherwise in
writing by all of the other parties hereto or by an order of a court of
competent jurisdiction. The Employees' Representative shall be deemed to have no
notice of, or duties with respect to, any agreement or agreements with respect
to any property held by it in escrow pursuant to this Escrow Agreement other
than this Escrow Agreement or except as otherwise provided herein. This Escrow
Agreement sets forth the entire agreement relating to the matters set forth
herein between the parties hereto and the Employees' Representative. If any of
the terms and provisions of any other agreement (excluding any amendment to
this Escrow Agreement) between any of the parties hereto conflict or are
inconsistent with any of the terms and provisions of this Escrow Agreement. the
terms and provisions of this Escrow Agreement shall govern and control in all
respects.
7. RESIGNATION. The Employees' Representative shall have the right, in
its discretion, to resign as agent at any time, by giving at least 30 days'
prior written notice of such resignation to CCAi and KLA. The Employees'
Representative shall be discharged from all further duties hereunder upon the
expiration of such 30-day period provided, however, that during such 30-day
period, CCAi and KLA must appoint a successor escrow agent and cause the Escrow
Agent to transfer any funds remaining in the Escrow Account to such successor
escrow agent.
8. FEES AND EXPENSES. The Contributors shall be liable for the
Employees' Representative's fees and expenses for its services hereunder. For
services rendered under this Escrow Agreement, the Contributors shall pay the
Employees' Representative a fee of $_____.
9. NOTICES. All communications and disbursements required pursuant to
this Escrow Agreement shall be addressed to the Sellers' Representative, CCAi
and KLA, respectively as follows:
If to the Employees' Representative:
Burke & Company P.L.L.
2105 Grandin Road
Cincinnati, Ohio 45208
Attention: Patrick J. Burke
<PAGE> 4
-4-
If to CCAi or KLA:
Conley, Canitano & Assoc., Inc.
CCAi Renaissance Centre
5800 Landerbrook Drive
Mayfield Heights, OH 44124
Facsimile No. (440) 684-6700
Attention: Nicholas A. Canitano
With a copy to counsel:
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Facsimile No.: (216) 579-0212
Attention: John M. Saada, Jr., Esq.
If to Contributors:
Anthony F. Kelly
787 Gallant Fox
Union, Kentucky 41091
With a copy to counsel:
Deters, Benzinger & LaVelle, P.S.C.
Thomas More Park
2701 Turkeyfoot Road
Covington, Kentucky 41017
Attention: John C. LaVelle, Esq.
Ronnie Crumpler .
2720 Lakeshore Lane
Carrollton, Texas 75006
With a copy to counsel:
Thompson, Coe, Cousins & Irons, L.L.P.
200 Crescent Court, Eleventh Floor
Dallas, Texas 75201-1853
Attention: Michael A. McClelland, Esq.
<PAGE> 5
-5-
Gary Levey
11424 Kayak Court
Indianapolis, Indiana 46236
With a copy to counsel:
Siegel, Carter & Dassow, LLP
300 North Meridian Street
Suite 1800
Indianapolis, Indiana 46204
Attention: Robert T. Dassow, Esq.
Trevor Montgomery
3191 Somerville-Jacksonburg Road
Middletown, Ohio 45042
With a copy to counsel:
------------------------------------------
------------------------------------------
------------------------------------------
Rob Petersen
3108 North Southport Avenue
First Floor
Chicago, Illinois 60657
With a copy to counsel:
------------------------------------------
------------------------------------------
------------------------------------------
Don Kirby
984 Lakepointe Court
Union, Kentucky 41091
With a copy to counsel:
------------------------------------------
------------------------------------------
------------------------------------------
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
<PAGE> 6
-6-
Any notice, instructions or delivery under any of the provisions of
this Escrow Agreement shall be in writing and shall be delivered personally, or
sent by reputable courier service, delivery charges prepaid and proof of
delivery requested. Any such notice shall be deemed given (j) if delivered
personally, when so delivered to the applicable address set forth above in this
paragraph 9 or (ii) if sent by courier service to the applicable address set
forth above in this paragraph 9, two days after delivery to such courier
service. Notwithstanding any of the foregoing, no notice or instructions to the
Employees' Representative shall be deemed to have been received by the
Employees' Representative prior to actual receipt by the Employees'
Representative.
10. PARTIES IN INTEREST. This Escrow Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
executors, and administrators, successors and assigns.
11. CAPTIONS. The paragraph captions used herein are for reference
purposes only, and shall not in any way affect the meaning or interpretation of
this Escrow Agreement.
12. EXECUTION BY EMPLOYEES' REPRESENTATIVE. The execution of this
Escrow Agreement by the Employees' Representative shall constitute a receipt for
the Initial Deposit.
13. INDEMNIFICATION OF EMPLOYEES' REPRESENTATIVE. The Contributors,
jointly and severally, agree to hold the Employees' Representative harmless and
to indemnify the Employees' Representative against any loss, liability, claim or
demand arising out of or in connection with the performance of its obligations
in accordance with the provisions of this Escrow Agreement, except for bad
faith, gross negligence or willful misconduct of the Employees' Representative.
The foregoing indemnities in this paragraph 13 shall survive termination of this
Escrow Agreement.
14. DISAGREEMENTS. If any disagreement or dispute arises between the
parties to this Escrow Agreement concerning the meaning or validity of any
provision under this Escrow Agreement or concerning any other matter relating to
this Escrow Agreement, the Employees' Representative (a) shall be under no
obligation to act, except under process or order of court, or until it has been
adequately indemnified to its full satisfaction, and shall sustain no liability
for its failure to act pending such process or court order or indemnification,
and (b) may deposit, in its sole and absolute discretion, the Deposits or that
portion of the Deposits it then holds with any court of competent jurisdiction
and interplead the parties. Upon such deposit and filing of interpleader, the
Employees' Representative shall be relieved of all liability as to the Deposits
and shall be entitled to recover from the parties its reasonable attorneys' fees
and other costs incurred in commencing and maintaining such action.
15. THIRD-PARTY BENEFICIARIES. The Employees and their respective
successors, heirs, executors, administrators and other estate representatives
shall be third party beneficiaries of the provisions of this Escrow Agreement,
and shall be entitled to enforce the provisions hereof, in each such case as
fully and to the same extent as if they were parties to this Escrow Agreement.
Except as provided in the immediately preceding sentence, nothing in this Escrow
Agreement, express or implied, is intended to or shall confer upon any person
any legal or equitable right, benefit or remedy
<PAGE> 7
-7-
of any nature whatsoever under or by reason of this Escrow Agreement, and no
Person (other than as provided in the immediately preceding sentence) shall be
deemed to be a third parry beneficiary under or by reason of this Escrow
Agreement.
16. GOVERNING LAW. This Escrow Agreement shall be governed by and
construed in accordance with the domestic laws of the Ohio without giving effect
to any choice of law or conflict of law provision or rule (whether of the state
of Ohio or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the state of Ohio.
17. AMENDMENTS; COUNTERPARTS. This Escrow Agreement may be executed in
one or more counterparts, all of which together shall constitute one instrument
and cannot be amended or modified in any manner other than by a written
instrument duly executed by each parry hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK SIGNATURE PAGES TO FOLLOW.]
<PAGE> 8
-8-
IN WITNESS WHEREOF, the parties heretinto have duly caused this Escrow
Agreement to be executed as of the first day above written.
BURKE & COMPANY, P.L.L.,
as Employees' Representative
By: /s/ Patrick Burke
--------------------------------
Its: MANAGING PARTNER
-------------------------------
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Annette Canitano
--------------------------------
Its: Exec VP
-------------------------------
KELLY-LEVEY & ASSOCIATES, INC.
By: /s/ Anthony Kelly
--------------------------------
Its: President/CEO
-------------------------------
/s/ Anthony Kelly
-----------------------------------
Anthony Kelly
/s/ Ronnie Crumpler
-----------------------------------
Ronnie Crumpler
/s/ Gary Levey
-----------------------------------
Gary Levey
<PAGE> 9
-9-
/s/ Trevor Montgomery
-----------------------------------
Trevor Montgomery
/s/ Rob Petersen
-----------------------------------
Rob Petersen
/s/ Don Kirby
-----------------------------------
Don Kirby
<PAGE> 10
RETENTION INCENTIVE BONUS PLAN ESCROW AGREEMENT
-----------------------------------------------
EXHIBIT A
---------
<TABLE>
<CAPTION>
NAME OCTOBER 3,1998 APRIL 3, 1999 APRIL 3, 2000 OCTOBER 3, 2000
- ----- -------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Aliberti $ 33,334 $ 15,625 $ 15,625 $ 18,750
Balenciaga 90,369 46,153 46,153 55,384
Ballehr 40,138 20,237 20,237 24,285
Banta 33,334 15,625 15,625 18,750
Bearden 40,368 22,716 22,716 27,259
Belcher 33,334 15,625 15,625 18,750
Booze 33,334 15,625 15,625 18,750
Brennan, Charles 73,702 38,341 38,341 46,009
Brennan, Jennifer 73,702 38,341 38,341 46,009
Chalfant 21,662
Clifton 33,334 15,625 15,625 18,750
Collo 16,667 7,813 7,813 9,375
Crossman 16,667 7,813 7,813 9,375
Dickinson 47,370 22,584 22,584 27,101
Gaby 10,000 -- -- --
Geary 25,000 11,719 11,719 14,063
Goldfine 50,000 23,438 23,438 28,125
Gravitt 56,805 28,050 28,050 33,660
Heitz 3,333 1,563 1,563 1,875
Hiquet 47,370 22,584 22,584 27,101
Kelly -- 146,147* 146,146* 146,146*
Kendler 30,704 14,772 14,772 17,726
Kirby, Dave 25,000 11,719 11,719 14,063
Kirby, Don -- 14,322* 26,598* --
</TABLE>
<PAGE> 11
- ii -
<TABLE>
<CAPTION>
NAME OCTOBER 3,1998 APRIL 3, 1999 APRIL 3, 2000 OCTOBER 3, 2000
- ----- -------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Knorr 16,667 7,813 7,813 9,375
Luthy 40,368 22,716 22,716 27,259
Mason 33,334 15,625 15,625 18,750
McDonel 47,370 22,584 22,584 27,101
Meckert 25,000 11,719 11,719 14,063
Mohammad 50,000 23,438 23,438 28,125
Montgomery -- 17,970* 33,373* --
Nadeau 25,000 11,719 11,719 14,063
Pepper 11,900 18,285 18,285 21,942
Petersen -- 14,322* 26,598* --
Pollack 33,334 15,625 15,625 18,750
Renneker 53,518 26,983 26,983 32,379
Roenbaugh 47,370 22,584 22,584 27,101
Rottinghaus 56,805 28,050 28,050 33,660
Schulz 33,334 15,625 15,625 18,750
Sensel 33,334 15,625 15,625 18,750
Westberg 33,334 15,625 15,625 18,750
Williams 16,667 7,813 7,813 9,375
Wischer 50,000 23,438 23,438 28,125
Wolfe 37,854 47,140 47,140 56,568
Prado 3,333 1,563 1,563 1,875
TOTAL 1,484,049 942,699 982,653 1,046,067
</TABLE>
* Represents payment from CCAi for each individual's common stock of KLA
that was otherwise diverted at the Closing by such individuals to fund
the first 6 months payments to employees of KLA under the Bonus Plan.
Therefore, these amounts represent capital gain income, not ordinary
income and are not subject to employee related withholding taxes.
<PAGE> 1
Exhibit 10.15
EARNOUT AGREEMENT
-----------------
THIS AGREEMENT ("Agreement") is made this 3rd day of April 1998 among
CONLEY, CANITANO & ASSOC., INC., an Ohio corporation ("CCAi"), KELLY-LEVEY &
ASSOCIATES, INC., a Kentucky corporation (the "Company"), and ANTHONY KELLY,
GARY LEVEY, RONNIE CRUMPLER (collectively the "Controlling Shareholders").
R E C I T A L S:
----------------
WHEREAS, CCAi, the Company and the Controlling Shareholders are parties
to the Stock Purchase Agreement dated as of April 3, 1998 (the "Purchase
Agreement") pursuant to which CCAi acquired all of the capital stock of the
Company from the shareholders of the Company;
WHEREAS, each of the shareholders of the Company other than the
Controlling Shareholders are parties to Minority Share Purchase Agreements dated
as of April 3, 1998 (the "Minority Share Purchase Agreements") (the Purchase
Agreement and the Minority Share Purchase Agreements collectively referred to as
the "Purchase Agreement");
WHEREAS, pursuant to the terms of the Purchase Agreement, an additional
sum not to exceed One Million One Million One Hundred Twenty Six Thousand Five
Hundred Thirty Four Dollars ($1,126,534) (the "Kelly Earnout Consideration") is
payable to Anthony F. Kelly ("Kelly") subject to Kelly complying with the
Noncompetition Agreement between CCAi and Kelly, dated April 3, 1998 (the "Kelly
Non-Compete");
WHEREAS, pursuant to the terms of the Purchase Agreement, an additional
sum not to exceed Three Million Three Hundred Seventy Three Thousand Four
Hundred Sixty Six Dollars ($3,373,466) (the "Shareholders' Earnout
Consideration") (the Kelly Earnout Consideration and the Shareholders' Earnout
Consideration, collectively the "Earnout Consideration") is payable to the
shareholders of the Company other than Anthony F. Kelly (collectively the
"Shareholders") if certain target financial goals are met; and
WHEREAS, the parties desire to define the target financial goals for
the payment of the Earnout Consideration.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto do hereby
agree as follows:
1. DEFINITIONS. Wherever used in this Agreement, the following words and phrases
shall have the meaning set forth below unless the context plainly requires a
different meaning:
a. "AVERAGE BILLABLE DAYS" means 220 days per year.
<PAGE> 2
- 2 -
b. "CAUSE" shall have the meaning ascribed to it in each
individual Shareholder's employment agreement with
CCAi; PROVIDED, HOWEVER, if such Shareholder's
employment agreement with CCAi does not define
"Cause", then "Cause" shall mean:
(i) misappropriating any funds or property
of CCAi, committing fraud or embezzlement or
engaging in any criminal or illegal activity
having a material adverse effect on CCAi;
(ii) except for providing services to CCAi
in exchange for compensation in accordance
with the terms of the Shareholder's
employment agreement, attempting to obtain
material personal gain, profit or enrichment
at the expense of CCAi or from any
transaction in which the Shareholder has an
interest which is known by the Shareholder
to be adverse to the interest of CCAi; (iii)
being convicted of a felony; (iv) committing
any material breach of the Shareholder's
employment agreement with CCAi; provided
such breach continues for a period of 30
days after CCAi shall have notified the
Shareholder in writing of such breach; or
(v) performing or committing any act
intended by the Shareholder to cause a
material adverse effect on CCAi, including,
without limitation, acts of sexual
harassment, provided such act continues
unremedied for a period of 30 days after
CCAi shall have notified the Shareholder in
writing of such act.
c. "CCAI" means Conley, Canitano & Assoc., Inc.
d. "CCAI AVERAGE BILLABLE RATE" means $1,300 per day.
e. "CLOSING DATE" means April 3, 1998.
f. "CONTRIBUTION MARGIN" means 45%.
g. "EARNOUT PERIOD" means collectively the Year One
Earnout Period and the Year Two Earnout Period.
<PAGE> 3
- 3 -
h. "TARGET CONTRIBUTION MARGIN (IN DOLLARS)" means
collectively the Year One Target Contribution Margin
(in dollars) and the Year Two Target Contribution
Margin (in dollars).
i. "KELLY" means Anthony F. Kelly.
j. "KELLY EARNOUT CONSIDERATION" means $1,126,534,
payable in three equal annual payments of $375,511 on
April 3 of each year commencing on April 3, 1999 with
the third and final payment of $375,512 on April 3,
2001, as described in Section 2(a).
k. "KELLY EARNOUT PAYMENTS" shall have the meaning
ascribed to it in Section 2(a).
l. "KELLY PAYMENT DATES" shall have the meaning ascribed
to it in Section 2(a).
m. "KLA" OR THE "COMPANY" means Kelly-Levey &
Associates, Inc.
n. "KLA CONTRIBUTION MARGIN (IN DOLLARS)" means
collectively the Year One KLA Contribution Margin (in
dollars) and the Year Two KLA Contribution Margin (in
dollars).
o. "KLA EMPLOYEES" means those employees of KLA who sign
an employment agreement with CCAi as of April 3, 1998
and are full-time employees of CCAi, and all
additional employees who become employees or
representatives of CCAi as a result of a direct or
indirect referral by a KLA Employee.
p. "KLA CONTRIBUTION MARGIN (IN DOLLARS)" means the
applicable Year One or Year Two KLA Revenues less the
applicable Year One or Year Two KLA Employee Cost.
q. "KLA EMPLOYEE COST" means the total actual hourly
cost of each KLA Employee (other than Ronnie
Crumpler, Gary Levey, Brad Wolfe and John Banta)
during the applicable Earnout Period, as determined
using the Toni Moorman Formula.
r. "SHAREHOLDERS" means all of the shareholders of KLA
other than Anthony F. Kelly.
s. "SHAREHOLDER PAYMENT DATES" shall have the meaning
ascribed to it in Section 3(a).
<PAGE> 4
- 4 -
t. "SUCCESS FEE" means the net bonuses paid by a
customer in excess of normal time and expense
generated directly or indirectly by the KLA
Employees.
u. "TARGET CONTRIBUTION MARGIN (IN DOLLARS)" means
collectively the Year One Target Contribution Margin
(in dollars) and the Year Two Target Contribution
Margin (in dollars).
v. "TARGET REVENUES" means collectively the Year One
Target Revenues and the Year Two Target Revenues.
w. "TERMINATION EVENTS" means, with respect to any
Shareholder, the occurrence of one of the following
events: (i) the Shareholder is terminated by the
Company or CCAi with Cause; or (ii) the Shareholder
voluntarily terminates his or her employment with the
Company or CCAi.
x. "TONI MOORMAN FORMULA" means the total actual hourly
cost of all of the KLA Employees, determined for each
KLA Employee as follows:
(A) the KLA Employee's annual base salary;
divided by (B) 1840; multiplied by (C) 1.12;
plus (D) either (1) $11.50 for consultants;
(2) $17.50 for Managing Associates; or (3)
$15.50 for Application Associates.
y. "YEAR ONE BREAK EVEN CONTRIBUTION MARGIN" means
$2,841,696 plus the Year One KLA Turnover
Contribution Margin Adjustment.
z. "YEAR ONE EARNOUT PERIOD" means the earnout period
commencing April 4, 1998 and ending on April 3, 1999.
aa. "YEAR ONE EARNOUT RATIO" means
(A) (1) the Year One KLA Contribution
Margin, minus (2) the Year One Break Even
Contribution Margin; divided by (B) (1) the
Year One Target Contribution Margin; minus
(2) the Year One Break Even Contribution
Margin.
bb. "YEAR ONE KLA CONTRIBUTION MARGIN (IN DOLLARS)"
means:
(A) the Year One KLA Revenues; less (B) the
Year One KLA Employee Cost
cc. "YEAR ONE KLA EMPLOYEE CLIENT CONTRIBUTION MARGIN (IN
DOLLARS)" means:
<PAGE> 5
- 5 -
(A) all revenue derived during the Year One
Earnout Period from CCAi employees (other
than KLA Employees) on projects or with
clients referred or developed directly or
indirectly by KLA Employees; less the total
employee cost for all CCAi employees working
on the foregoing projects and/or clients
during the Year One Earnout Period, as
determined using the Toni Moorman Formula.
dd. "YEAR ONE KLA EMPLOYEE COSTS" means the total actual
cost of all KLA Employees other than Ronnie Crumpler,
Gary Levey, Brad Wolfe and John Banta during the Year
One Earnout Period as determined by the Toni Moorman
Formula.
ee. "YEAR ONE KLA REVENUES" means the actual revenue
generated by all of the KLA Employees during the Year
One Earnout Period determined as follows:
(A) the total actual hours billed by all KLA
Employees during the Year One Earnout
Period; multiplied by (B) the actual hourly
rate charged to customers for the services
performed by each KLA Employee during the
Year One Earnout Period; plus (C) ANY
ADDITIONAL SUCCESS FEES OR BONUSES GENERATED
BY THE KLA EMPLOYEES DURING THE YEAR ONE
EARNOUT PERIOD; plus (D) the Year One KLA
Employee Client Contribution Margin (in
dollars); plus (E) the Year One SAP Book
Revenues during the Year One Earnout Period.
ff. "YEAR ONE KLA TURNOVER CONTRIBUTION MARGIN
ADJUSTMENT" means that amount, if any, by which the
Year One Target Contribution Margin (in dollars)
shall be increased based upon the turnover of KLA
Employees during the Year One Earnout Period as
follows:
<TABLE>
<CAPTION>
Turnover/ Increase in Year One Target
Number of Contribution Margin
KLA Employees Per Employee*
------------- -------------
<S> <C>
less than 4 0
5-7 $50,000
8-9 $75,000
greater than 9 $150,000
</TABLE>
* The first 4 employees lost shall not count towards the Contribution
Margin increase.
<PAGE> 6
- 6 -
gg. "YEAR ONE SAP BOOK REVENUES" means all revenues
derived during the Year One Earnout Period from the
SAP/R/3 Book written by the KLA Employees.
hh. "YEAR ONE SHAREHOLDERS' EARNOUT CONSIDERATION" means
up to $1,180,713.
ii. "YEAR ONE TARGET CONTRIBUTION MARGIN (IN DOLLARS)"
means (A) $5,920,200 (45% of the Year One Target
Revenues); plus (B) the Year One KLA Turnover
Contribution Margin Adjustment, if any.
jj. "YEAR ONE TARGET REVENUE" means $13,156,000
determined as follows:
(A) 46 KLA Employees; multiplied by (B) the
Average Billable Days; multiplied by (C) the
CCAi Average Billable Rate.
kk. "YEAR TWO BREAK EVEN CONTRIBUTION MARGIN" means
$3,243,240 plus the Year Two KLA Turnover
Contribution Margin Adjustment.
ll. "YEAR TWO EARNOUT RATIO" means:
(A)(1) the Year Two KLA Contribution Margin;
minus (2) the Year Two Break Even
Contribution Margin, divided by (B)(1) the
Year Two Target Contribution Margin; minus
(2) the Year Two Break Even Contribution
Margin.
mm. "YEAR TWO KLA CONTRIBUTION MARGIN (IN DOLLARS)"
means:
(A) the Year Two KLA Revenues; less (B) the
Year Two KLA Employee Cost
nn. "YEAR TWO KLA EMPLOYEE CLIENT CONTRIBUTION MARGIN (IN
DOLLARS)" means:
(A) all revenue derived during the Year Two
Earnout Period from CCAi employees (other
than KLA Employees) on projects or with
clients referred or developed directly or
indirectly by KLA Employees less the total
employee costs for all CCAi employees
working on the foregoing projects and/or
clients during the Year Two Earnout Period,
as determined using the Toni Moorman
Formula.
<PAGE> 7
- 7 -
oo. "YEAR TWO KLA EMPLOYEE COSTS" means the total actual
cost of all KLA Employees other than Ronnie Crumpler,
Gary Levey, Brad Wolfe and John Banta during the Year
Two Earnout Period as determined by the Toni Moorman
Formula.
pp. "YEAR TWO KLA REVENUES" means the actual revenue
generated by all of the KLA Employees during the Year
Two Earnout Period determined as follows:
(A) the total actual hours billed by all KLA
Employees during the Year Two Earnout
Period; multiplied by (B) the actual hourly
rate charged to customers for the services
performed by each KLA Employee during the
Year Two Earnout Period; plus (C) any
additional success fees or bonuses generated
by the KLA Employees during the Year Two
Earnout Period; plus (D)Year Two KLA
Employee Client Contribution Margin (in
dollars); plus (E) Year Two SAP Book
Revenues during the Year Two Earnout Period.
qq. "YEAR TWO KLA TURNOVER CONTRIBUTION MARGIN" means
that amount, if any, by which the Year Two Target
Contribution Margin (in dollars) shall be increased
based upon the turnover of KLA Employees during the
Year Two Earnout Period as follows:
<TABLE>
<CAPTION>
Turnover/ Increase in Year Two Target
Number of Contribution Margin
KLA Employees (In Dollars)
------------- ------------
<S> <C>
less than 6 0
6-9 $50,000
10-12 $75,000
greater than 12 $150,000
</TABLE>
rr. "YEAR TWO SAP BOOK REVENUES" means all revenues
derived during the Year Two Earnout Period from the
SAP/R/3 Book written by the KLA Employees.
ss. "YEAR TWO SHAREHOLDERS' EARNOUT CONSIDERATION" means
up to $2,192,753, plus any Year One Shareholders'
Earnout Consideration not earned by the Shareholders
during the Year One Earnout Period.
tt. "YEAR TWO TARGET CONTRIBUTION MARGIN (IN DOLLARS)"
means (A) $6,949,800 (45% of the Year Two Target
Revenue); plus (B) the Year Two KLA Turnover
Contribution Margin Adjustment.
<PAGE> 8
- 8 -
uu. "YEAR TWO TARGET REVENUE" means $15,444,000
determined as follows:
(A) 54 KLA Employees; multiplied by (B) the
Average Billable Days; multiplied by (C) the
CCAi Average Billable Rate.
2. Kelly's Earnout Consideration.
------------------------------
a. Subject to the provisions and conditions of Section 2(b),
CCAi shall pay to Kelly the Kelly Earnout Consideration in three (3) equal
annual payments of $375,511 (collectively the "Kelly Earnout Payments" and
individually, the "Kelly Earnout Payment"). The Kelly Earnout Payments shall be
paid by CCAi to the Shareholders' Representative on behalf of Kelly on the
following dates (collectively the "Kelly Payment Dates" and individually the
"Kelly Payment Date"):
April 3, 1999 -$375,511
April 3, 2000 -$375,511
April 3, 2001 -$375,512
The Shareholders' Representative shall pay to Kelly the foregoing Kelly
Earnout Payments within thirty (30) days of each Kelly Payment Date.
b. The Kelly Earnout Consideration is contingent upon Kelly
complying with his Non-Compete Agreement. If Kelly breaches his Non-Compete
Agreement with CCAi, Kelly shall forfeit all future Kelly Earnout Payments to be
paid to Kelly after the date of such breach. Notwithstanding anything contained
in this Agreement, CCAi and Kelly acknowledge and agree that once a Kelly
Earnout Payment is "earned" by Kelly, it shall not be subject to forfeiture for
any future breaches by Kelly of his Non-Compete Agreement. For purposes of this
Agreement, an Earnout Payment shall be considered "earned" by Kelly on April 3
of each respective year and shall not be considered accrued for the year.
3. Shareholders' Earnout Consideration.
------------------------------------
a. Within ten (10) days following the end of the Year One
Earnout Period, CCAi shall pay to the Shareholders' Representative on behalf of
the Shareholders, the following amount as Year One Shareholders' Earnout
Consideration up to a maximum of $1,180,713:
an amount equal to $1,180,713 multiplied by the Year One
Earnout Ratio
<PAGE> 9
- 9 -
b. Within ten (10) days following the end of the Year Two
Earnout Period, CCAi shall pay to the Shareholders' Representative on behalf of
the Shareholders, the following amount as Year Two Shareholders' Earnout
Consideration up to a maximum of $2,192,753:
an amount equal to $2,192,753 multiplied by the Year Two
Earnout Ratio
c. Notwithstanding the foregoing, if the Year Two KLA
Contribution Margin (in dollars) exceeds the Year Two Target Contribution Margin
(in dollars) (the "Excess Amount"), then such Excess Amount shall be added to
the actual Year One KLA Contribution Margin, and the Year One Earnout formula
set forth in Section 3(a) shall be recalculated using as the Year One KLA
Contribution Margin (in dollars), the sum of the Excess Amount plus the actual
Year One KLA Contribution Margin (in dollars). CCAi shall pay to the
Shareholders' Representative on behalf of the Shareholders an amount equal to
the difference between the recalculated Year One Shareholders Earnout
Consideration less the actual Year One Shareholders Consideration paid but not
to exceed $1,180,713 actually paid to the Shareholders' as Year One
Shareholders' Earnout Consideration (including any recalculated amounts
hereunder).
4. TERMINATION EVENTS. If a Termination Event shall have occurred with
respect to any Shareholder (the "Terminated Shareholder"), then such Terminated
Shareholder shall not be entitled to any Earnout Payments earned on or after the
date of such Termination Event. The Shareholders acknowledge and agree that any
Earnout Payment forfeited by a Terminated Shareholder shall be distributed pro
rata to the remaining Shareholders in accordance with each of their respective
ownership interest in the Company immediately prior to the closing of the
transactions contemplated by the Purchase Agreement as among themselves.
5. AMENDMENT. This Agreement may not be amended or modified in any
manner other than by a written instrument duly executed by each party hereto.
6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of Ohio
or any other jurisdiction) that would cause the application of the law of any
other jurisdiction other than the State of Ohio.
7. DISPUTE RESOLUTION. Any dispute arising out of or relating to this
Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to
Endispute for final and binding arbitration pursuant to Endispute's Arbitration
Rules. Any such arbitration shall be conducted in Cleveland, Ohio. Such
proceedings shall be guided by the following agreed upon procedures:
a. mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the initiation of the procedure;
b. no other discovery;
<PAGE> 10
- 10 -
c. hearings before the neutral advisor which shall consist of
a summary presentation by each side of not more than three hours; such hearings
to take place on one or two days at a maximum;
d. decision to be rendered not more than ten (10) days
following such hearings; and
e. punitive damages shall not be permitted under any
circumstances.
(REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGE TO FOLLOW.)
<PAGE> 11
- 11 -
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands as of the date and year first above written.
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Nicholas A. Canitano
-------------------------------------
KELLY-LEVEY & ASSOCIATES, INC.
By: /s/ Anthony F. Kelly
-------------------------------------
Anthony F. Kelly, President
/s/ Anthony F. Kelly
---------------------------------------
ANTHONY F. KELLY
/s/ Ronnie Crumpler
---------------------------------------
RONNIE CRUMPLER
/s/ Gary Levey
---------------------------------------
GARY LEVEY
<PAGE> 1
Exhibit 10.17
CONLEY, CANITANO & ASSOC., INC.
-----------------------------------
STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
-----------------------------------
As of October 15, 1997
<PAGE> 2
CONLEY, CANITANO & ASSOC., INC.
Stock Purchase
and Shareholders Agreement
As of October 15, 1997
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION.......................................................1
1.1 Description of Securities.....................................................................1
1.2 Sale and Purchase; Redemption.................................................................2
1.3 Closing.......................................................................................2
SECTION 2. REPRESENTATIONS AND WARRANTIES................................................................2
2.1 Organization and Corporate Power..............................................................2
2.2 Authorization and Non-Contravention...........................................................3
2.3 Capitalization................................................................................4
2.4 Subsidiaries; Investments.....................................................................5
2.5 Financial Statements and Matters..............................................................5
2.6 Absence of Undisclosed Liabilities............................................................6
2.7 Absence of Certain Developments...............................................................6
2.8 Ordinary Course...............................................................................6
2.9 Accounts Receivable...........................................................................7
2.10 Title to Properties...........................................................................7
2.11 Tax Matters...................................................................................7
2.12 Certain Contracts and Arrangements............................................................8
2.13 Intellectual Property Rights; Employee Restrictions...........................................9
2.14 Litigation...................................................................................10
2.15 Employee Benefit Plans.......................................................................10
2.16 Labor Laws...................................................................................11
2.17 Employees and Suppliers......................................................................11
2.18 Hazardous Waste, Etc.........................................................................12
2.19 Business; Compliance with Laws...............................................................12
2.20 Investment Banking; Brokerage................................................................12
2.21 Insurance....................................................................................12
2.22 Transactions with Affiliates.................................................................12
2.23 Customers....................................................................................12
2.24 Product and Service Warranties...............................................................13
2.25 Certain Events...............................................................................13
2.26 Disclosure...................................................................................13
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS..............................................14
SECTION 3. CONDITIONS OF PURCHASE.......................................................................15
3.1 Satisfaction of Conditions...................................................................15
3.2 Director Election............................................................................15
3.3 Opinion of Counsel...........................................................................15
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
3.4 Consent of Spouse............................................................................15
3.5 Authorization................................................................................15
3.6 All Proceedings Satisfactory.................................................................15
3.7 Investors' Fees..............................................................................16
3.8 No Violation or Injunction...................................................................16
3.9 Consents and Waivers.........................................................................16
3.10 Management Compensation......................................................................16
3.11 Completion of Audit..........................................................................16
3.12 Reissuance of Stock Certificates.............................................................16
3.13 Release by Joseph Minadeo....................................................................16
3.14 Election of Officers.........................................................................16
3.15 Kenneth L. Conley as Shareholder.............................................................17
3.16 Payment of Broker Fee........................................................................17
SECTION 4. COVENANTS....................................................................................17
4.1 Financial Statements and Budgetary Information; Inspection...................................17
4.2 Indemnification; Insurance...................................................................17
4.3 Board of Directors...........................................................................18
4.4 Restrictive Covenants........................................................................18
4.5 Redemption...................................................................................18
4.6 Key Person Insurance.........................................................................18
4.7 Management Compensation......................................................................18
4.8 Stock Awards.................................................................................18
4.9 Assignment...................................................................................19
4.10 Hiring of a Chief Financial Officer..........................................................19
SECTION 5. TRANSFER RESTRICTIONS........................................................................19
5.1 General Restriction..........................................................................19
5.2 Right of First Refusal.......................................................................20
5.3 Rights of Co-Sale............................................................................21
5.4 Assignment...................................................................................24
SECTION 6. RIGHTS TO PURCHASE...........................................................................24
6.1 Right to Participate in Certain Sales of Additional Securities...............................24
6.2 Assignment of Rights.........................................................................25
SECTION 7. REGISTRATION RIGHTS..........................................................................25
7.1 Optional Registrations.......................................................................25
7.2 Required Registrations.......................................................................26
7.3 Registrable Securities.......................................................................28
7.4 Further Obligations of the Company...........................................................28
7.5 Indemnification; Contribution................................................................30
7.6 Rule 144 and Rule 144A Requirements..........................................................32
7.7 Transfer of Registration Rights..............................................................33
7.8 "Market Stand-off" Agreement.................................................................33
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 8 ELECTION OF DIRECTORS........................................................................33
SECTION 9 SURVIVAL; INDEMNIFICATION....................................................................34
9.1 Survival of Representations; Warranties and Covenants; Assignability of Rights...............34
9.2 Indemnification by the Company and the Shareholders..........................................34
9.3 Limitations on Indemnification by the Company and the Shareholders...........................35
9.4 Indemnification by the Investors.............................................................36
9.5 INTENTIONALLY OMITTED........................................................................37
9.6 Notice; Defense of Claims....................................................................37
9.7 Rights of Investors..........................................................................38
SECTION 10 GENERAL......................................................................................40
10.1 Amendments, Waivers and Consents.............................................................40
10.2 Legend on Securities.........................................................................40
10.3 Governing Law................................................................................41
10.4 Section Headings and Gender..................................................................41
10.5 Counterparts.................................................................................41
10.6 Notices and Demands..........................................................................41
10.7 Dispute Resolution...........................................................................42
10.8 Remedies; Severability.......................................................................42
10.9 Integration..................................................................................43
10.10 Fees and Expenses............................................................................43
EXHIBITS
A. Schedule of Investors
B. Preferred Stock Terms
C. Schedule of Common Stock Redemptions
D. Form of Redemption Agreement
E. Disclosure Schedule
F. Projections
G. Opinion of Counsel
H. Form of Consent of Spouse
I. Form of Employee Confidentiality Agreement
</TABLE>
(iii)
<PAGE> 5
DISCLOSURE SCHEDULES
Section
- -------
2.2(a) Authorization and Non-Contravention
2.2(b) Authorization and Non-Contravention (Shareholders)
2.3 Restricted Stock Plan; Capitalization
2.5(c) Projections
2.6 Undisclosed Liabilities
2.7 Certain Developments
2.9 Accounts Receivable
2.10 Properties
2.11 Tax Matters
2.12 Contracts
2.13 Intellectual Property
2.15 Employee Benefit Plans
2.17 Employees and Suppliers
2.20 Investment Banking; Brokerage
2.21 Insurance
2.22 Transactions with Affiliates
2.23 Customers
2.24 Product and Service Warranties
2.25 Certain Events
4.7 Management Compensation
5.1(d) Competitors
(iv)
<PAGE> 6
STOCK PURCHASE
AND SHAREHOLDERS AGREEMENT
STOCK PURCHASE AND SHAREHOLDERS AGREEMENT made as of this 15th day of
October, 1997, by and among Conley, Canitano & Assoc., Inc., an Ohio corporation
(together with any predecessors or successors thereto and subject to Section 2,
the "Company"), Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley and
Kenneth L. Conley (collectively, the "Management Shareholders"), NAC
Enterprises, Inc., CKCK Enterprises, Inc., the Kenneth L. Conley Charitable
Remainder Trust and the Karen M. Conley Charitable Remainder Trust (collectively
with the Management Shareholders, the "Shareholders" and individually a
"Shareholder"), and the investment partnerships named in EXHIBIT A hereto
(together with their successors and assigns, collectively the "Investors," and
each individually an "Investor").
WHEREAS, all of the outstanding shares of the Company's capital stock
prior to the date hereof are owned by the Shareholders; and
WHEREAS, the Company has authorized the issuance and sale to the
Investors of a total of 250,400 shares of Series A Convertible Redeemable
Preferred Stock, par value $.01 per share ("Convertible Preferred Stock"),
having the rights and preferences set forth in EXHIBIT B for an aggregate
purchase price of $17,500,000;
WHEREAS, the Company has agreed to redeem and the Shareholders have
agreed to sell to the Company an aggregate of 135,000 shares of the Company's
Common Stock, no par value ("Common Stock"), for an aggregate purchase price of
$15,877,284;
WHEREAS, the Company has authorized the issuance and sale to the
Investors of a total of 135,000 shares of Common Stock, to be obtained by the
Company through the redemption of heretofore outstanding shares, for an
aggregate purchase price of $1,350.00; and
WHEREAS, the parties hereto desire to set forth the terms of their
ongoing relationship in connection with the Company.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION
1.1 DESCRIPTION OF SECURITIES. The Company's authorized capital stock
consists of Common Stock, Convertible Preferred Stock and Redeemable Preferred
Stock, par value $.01 per share, having the rights and preferences set forth in
EXHIBIT B (the "Redeemable Preferred Stock"). The Company has authorized and has
reserved, and covenants to continue to reserve, a sufficient number of shares of
its Common Stock and Redeemable Preferred Stock to satisfy the rights of
conversion of the holders of the Convertible Preferred Stock. For purposes of
this Agreement, (i) the shares of Convertible Preferred Stock to be acquired by
the Investors from the Company
<PAGE> 7
hereunder are referred to as the "Convertible Preferred Shares," (ii) the shares
of Common Stock to be issued hereby are sometimes referred to herein as the
"Common Shares," (iii) the shares of Redeemable Preferred Stock and Common Stock
issuable upon conversion of the Convertible Preferred Shares are referred to as
the "Conversion Shares," and (iv) the Convertible Preferred Shares, the Common
Shares and the Conversion Shares are sometimes referred to herein as the
"Securities."
1.2 SALE AND PURCHASE; REDEMPTION. Upon the terms and subject to the
conditions herein, and in reliance on the representations and warranties set
forth in Section 2, (a) each Investor hereby purchases from the Company, and the
Company hereby issues and sells to each of the Investors, at the Closing (as
defined in Section 1.3), the number of Convertible Preferred Shares and Common
Shares set forth opposite the name of such Investor in EXHIBIT A for the
purchase price of $69.89 per Convertible Preferred Share (or $17,500,000 in the
aggregate), and $.01 for each Common Share, with proportionate amounts for
fractional shares, and the Company hereby grants the Investors the rights set
forth herein. The closing of the purchase and sale of the Common Shares shall
occur following the purchase and sale of the Convertible Preferred Shares and
the redemption of stock from the Shareholders as contemplated by Section 4.5
hereof. The transactions contemplated hereby as further described in Sections 2
and 4 shall constitute a single integrated transaction or series of transactions
for federal income tax purposes. All purchase and redemption payments hereunder
shall be made by wire transfer of next day available funds.
1.3 CLOSING. The closing of the purchases and sales of the Convertible
Preferred Shares and the redemption of Common Stock from the Shareholders
contemplated by Section 1.2 (the "Closing") shall take place at 10:00 a.m. on
the date hereof (the "Closing Date").
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Investors to enter into this Agreement, the
Company and the Shareholders jointly and severally, but subject to Section
9.3(c)(ii) of this Agreement, represent and warrant to each of the Investors the
following, except as set forth in the schedule of exceptions attached hereto as
EXHIBIT E (the "Disclosure Schedule"). All references to "knowledge of the
Company" or the "the Company's knowledge" herein shall mean the actual knowledge
of the Management Shareholders after due inquiry and in the Management
Shareholders' capacities as shareholders, officers and directors of the Company.
2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio, and is qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on its assets, liabilities, financial condition, business or
results of operations (a "Material Adverse Effect"). The Company has all
required corporate power and authority to carry on its business as presently
conducted, to enter into and perform this Agreement and the agreements
contemplated hereby to which it is a party and to carry out the transactions
contemplated hereby and thereby, including the issuance of the Securities and
the redemption of the Redemption Shares (as defined in Section 4.5 hereof). The
copies of the Amended and Restated Articles of Incorporation and Code of
Regulations of the
2
<PAGE> 8
Company, as amended to date (the "Articles of Incorporation" and the "Code of
Regulations," respectively), and of the minute book of the Company, which have
been furnished to the Investors by the Company, are correct and complete at the
date hereof. The Company is not in violation of any term of its Articles of
Incorporation or Code of Regulations.
2.2 AUTHORIZATION AND NON-CONTRAVENTION.
(a) The execution, delivery and performance by the Company of this
Agreement and all other agreements, documents and instruments to be executed and
delivered by the Company as contemplated hereby (including, without limitation,
the Redemption Agreement (as defined in Section 4.5 hereof)) and the issuance
and delivery of (i) the Convertible Preferred Shares and the Common Shares, and
(ii) upon the conversion of the Convertible Preferred Shares, the Conversion
Shares, have been duly authorized by all necessary corporate action of the
Company. This Agreement and all documents executed by the Company pursuant
hereto (including, without limitation, the Redemption Agreement) are valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms except to the extent that enforceability may be
limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws from time to time in effect affecting
generally the enforcement of creditors' rights and remedies and (ii) general
principles of equity, including without limitation, general principles of good
faith and fair dealing (regardless of whether enforcement is sought in equity or
at law). Except as set forth in SECTION 2.2(A) OF THE DISCLOSURE SCHEDULE, the
execution, delivery and performance by the Company of this Agreement and all
other agreements, documents and instruments to be executed and delivered by the
Company as contemplated hereby (including, without limitation, the Redemption
Agreement) and the issuance and delivery of (i) the Convertible Preferred Shares
and Common Shares and (ii) upon the conversion of the Convertible Preferred
Shares, the Conversion Shares, do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) under any material contract or obligation to which the Company is a party
or by which it or its assets are bound, or any provision of the Articles of
Incorporation or Code of Regulations of the Company, or cause the creation of
any encumbrance upon any of the assets of the Company; (B) violate or result in
a violation of, or constitute a default under, any provision of any law,
regulation or rule, or any order of, or any restriction imposed by, any court or
governmental agency applicable to the Company; (C) require from the Company any
notice to, declaration or filing with, or consent or approval of any
governmental authority or third party; or (D) accelerate any obligation under,
or give rise to a right of termination of, any agreement, permit, license or
authorization to which the Company is a party or by which the Company is bound.
(b) Each Shareholder has full right, authority, power and (if
applicable) capacity to enter into this Agreement and each agreement, document
and instrument to be executed and delivered by or on behalf of such Shareholder
pursuant to or as contemplated by this Agreement (including, without limitation,
the Redemption Agreement) and to carry out the transactions contemplated hereby
and thereby. This Agreement and each agreement, document and instrument executed
and delivered by each Shareholder pursuant to or as contemplated by this
Agreement (including, without limitation, the Redemption Agreement) constitute,
or when executed and
3
<PAGE> 9
delivered will constitute, valid and binding obligations of such Shareholder
enforceable against such Shareholder in accordance with their respective terms
except to the extent that enforceability may be limited by (i) applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
similar laws from time to time in effect affecting generally the enforcement of
creditors' rights and remedies and (ii) general principles of equity, including
without limitation, general principles of good faith and fair dealing
(regardless of whether enforcement is sought in equity or at law). Except as set
forth in SECTION 2.2(B) OF THE DISCLOSURE SCHEDULE, the execution, delivery and
performance by each Shareholder of this Agreement and each such other agreement,
document and instrument (including, without limitation, the Redemption
Agreement), and the performance by such Shareholder of the transactions
contemplated hereby and thereby do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) under any material contract or obligation to which such Shareholder or the
Company is a party or by which such Shareholder's or the Company's assets are
bound, or any provision of the Articles of Incorporation or Code of Regulations
of the Company, or cause the creation of any encumbrance upon any of the assets
of such Shareholder or the Company; (B) violate or result in a violation of, or
constitute a default under, any provision of any law, regulation or rule, or any
order of, or any restriction imposed by, any court or other governmental agency
applicable to the Company or such Shareholder; (C) require from such Shareholder
or the Company any notice to, declaration or filing with, or consent or approval
of any governmental authority or other third party; or (D) accelerate any
obligation under, or give rise to a right of termination of, any agreement,
permit, license or authorization to which such Shareholder or the Company is a
party or by which such Shareholder or the Company is bound.
2.3 CAPITALIZATION. Immediately prior to the closing of the
transactions contemplated hereby, each of the Shareholders owns beneficially and
of record the shares of Common Stock set forth opposite such Shareholder's name
on SECTION 2.3 OF THE DISCLOSURE SCHEDULE free and clear of any liens,
restrictions or encumbrances, and such shares of capital stock represent all of
the outstanding shares of the Company's capital stock prior to the date hereof.
As of the Closing and after giving effect to the transactions contemplated
hereby, the authorized capital stock of the Company will consist of 1,000,000
shares of Common Stock, of which 674,600 shares will be issued and outstanding,
250,400 shares of Convertible Preferred Stock, of which 250,400 shares will be
issued and outstanding, and 250,400 shares of Redeemable Preferred Stock, of
which no shares will be issued and outstanding. In addition, the Company has
authorized and reserved for issuance upon conversion of the Convertible
Preferred Shares up to 250,400 shares of Common Stock and 250,400 shares of
Redeemable Preferred Stock (subject to adjustment for stock splits, stock
dividends and the like) and has reserved for issuance upon the exercise of
options or issuance of restricted stock under the Company's 1997 Equity and
Performance Incentive Plan (the "Plan") 75,000 shares of Common Stock (subject
in each case to adjustments for stock splits, stock dividends and the like). A
copy of the Plan is included in SECTION 2.3 OF THE DISCLOSURE SCHEDULE. Except
for the 75,000 shares of Common Stock issuable as shares of restricted stock or
upon conversion of outstanding options under the Plan and the Conversion Shares,
the Company has not issued or agreed to issue and is not obligated to issue any
outstanding warrants, options or other rights to purchase or acquire any shares
of its capital stock, nor any outstanding securities convertible into such
shares or any warrants, options or other rights to acquire any such convertible
securities. As of the Closing, and after giving effect to the transactions
contemplated
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hereby, all of the outstanding shares of capital stock of the Company (including
without limitation the Convertible Preferred Shares) will have been duly and
validly authorized and issued and will be fully paid and nonassessable and will
have been offered, issued, sold and delivered in compliance with applicable
federal and state securities laws and not subject to any preemptive rights. The
Conversion Shares issuable upon conversion of the Convertible Preferred Shares
will upon issuance be duly and validly authorized and issued, fully paid and
nonassessable and not subject to any preemptive rights and will be issued in
compliance with federal and state securities laws. The relative rights,
preferences and other provisions relating to the Convertible Preferred Shares
and the Redeemable Preferred Stock are as set forth in EXHIBIT B attached
hereto. There are no preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution rights with respect to the issuance, sale
or redemption of the Company's capital stock, other than as described in SECTION
2.3 OF THE DISCLOSURE SCHEDULE and rights to which the Investors and
Shareholders are entitled as set forth in this Agreement and the Articles of
Incorporation, and except as described in the Redemption Agreement. Except as
set forth herein, there are no rights to have the Company's capital stock
registered for sale to the public under the laws of any jurisdiction, no
agreements relating to the voting of the Company's voting securities, and no
restrictions on the transfer of the Company's capital stock, except as set forth
in SECTION 2.3 OF THE DISCLOSURE SCHEDULE. After giving effect to the
transactions contemplated hereby, the outstanding shares of the Company's
capital stock are held beneficially and of record by the persons identified in
SECTION 2.3 OF THE DISCLOSURE SCHEDULE in the amounts indicated thereon.
2.4 SUBSIDIARIES; INVESTMENTS. The Company has no subsidiaries or
interests in any corporation, joint venture, partnership or other entity.
2.5 FINANCIAL STATEMENTS AND MATTERS.
(a) The Company has previously furnished to the Investors copies of
its audited financial statements for the fiscal year ended December 31, 1996
together with copies of its unaudited financial statements for the six-month
periods ended June 30, 1997 and June 30, 1996 and the fiscal year ended December
31, 1995. The 1996 and 1997 financial statements (including the statements for
the six-month periods) were, and to the Company's and the Shareholder's best
knowledge the 1995 financial statements were, prepared in conformity with
generally accepted accounting principles applied on a consistent basis and
fairly present the financial position of the Company as of the dates thereof and
the results of operations and cash flows of the Company for the periods shown
therein (subject to the absence of footnotes and normal year-end adjustments in
the case of the unaudited statements).
(b) The Company has at least $1,500,000 of working capital at the
date hereof.
(c) The projections attached hereto as EXHIBIT F are based upon
assumptions which are consistent with assumptions made by the Company with
respect to projections of the Company's performance for fiscal years 1994, 1995
and 1996 and which assumptions were in good faith believed to be reasonable when
made and except as set forth in SECTION 2.5(C) OF THE DISCLOSURE SCHEDULE and to
the best knowledge of the Company, continue to be reasonable as of the date
hereof.
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2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent
reflected or reserved against in the unaudited balance sheet of the Company at
June 30, 1997 contained in the financial statements referred to in Section
2.5(a) (the "Base Balance Sheet") or as set forth in SECTION 2.6 OF THE
DISCLOSURE SCHEDULE or immaterial liabilities incurred since June 30, 1997 in
the ordinary course of business, the Company does not have and is not subject to
any material liability that is required to be reflected in a balance sheet that
is prepared in accordance with GAAP.
2.7 ABSENCE OF CERTAIN DEVELOPMENTS. Since the date of the Base Balance
Sheet, except as set forth in SECTION 2.7 OF THE DISCLOSURE SCHEDULE or as
contemplated by this Agreement, there has not been any: (i) material adverse
change in the financial condition of the Company or in the assets, liabilities,
business or results of operations of the Company, (ii) declaration, setting
aside or payment of any dividend or other distribution with respect to, or any
direct or indirect redemption or acquisition of, any of the capital stock of the
Company, (iii) cancellation of any debt or claim held by the Company, (iv) loss,
destruction or damage to any property which would have a Material Adverse
Effect, whether or not insured, (v) acquisition or disposition of any assets or
other transaction by the Company other than in the ordinary course of business,
(vi) transaction or agreement involving the Company and any officer, director,
employee (other than in the ordinary course of business) or shareholder of the
Company, (vii) increase, direct or indirect, in the compensation paid or payable
to any officer, director, employee or agent of the Company or any establishment
or creation of any employment or severance agreement or employee benefit plan,
(viii) material loss of personnel of the Company, material change in the terms
and conditions of the employment of the Company's key personnel or, to the best
knowledge of the Company, any organized labor trouble involving the Company,
(ix) arrangements relating to any royalty, dividend or similar payment based on
the sales volume of the Company, whether as part of the terms of the Company's
capital stock or by any separate agreement, (x) customer contract or other
arrangement pursuant to which the Company has agreed to provide products or
services at a below-market rate other than in the ordinary course of business,
(xi) loss or, to the best knowledge of the Company, any development that could
result in a loss of any significant customer, account or employee of the Company
other than the ordinary course of business, (xii) incurrence of indebtedness or
any lien other than in the ordinary course of business but in no event greater
than $200,000 in the aggregate, or (xiii) any agreement with respect to any of
the foregoing actions.
2.8 ORDINARY COURSE. Except as disclosed in SECTION 2.7 OF THE
DISCLOSURE SCHEDULE, since the date of the Base Balance Sheet, the Company has
conducted its business only in the ordinary course and consistent with its prior
practices.
2.9 ACCOUNTS RECEIVABLE. Except as set forth in SECTION 2.9 OF THE
DISCLOSURE SCHEDULE, all of the accounts receivable of the Company, whether
shown or reflected on the Base Balance Sheet or otherwise, represent bona fide
completed sales of products or services made in the ordinary course of business,
are to the Company's best knowledge valid and enforceable claims, and are, in
the best judgment of the Company, fully collectible in the normal course of
business after deducting the reserve set forth in the Base Balance Sheet and
adjusted since that date, which reserve is a reasonable estimate of the
Company's uncollectible accounts.
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2.10 TITLE TO PROPERTIES. SECTION 2.10 OF THE DISCLOSURE SCHEDULE sets
forth the addresses and uses of all real property that the Company owns, leases
or subleases. The Company has good and marketable title (fee simple in the case
of owned real property) to, or a valid leasehold interest in all of its assets
including without limitation those assets reflected on the Base Balance Sheet or
acquired by it after the date thereof (except for properties disposed of since
that date in the ordinary course of business), free and clear of all liens,
claims or encumbrances of any nature except for (i) liens for taxes not yet due
and payable or being contested in good faith by appropriate proceedings and for
which adequate reserves have been established, (ii) with respect to the real
property, easements, covenants, conditions, encroachments and restrictions,
including any zoning or other governmentally established restrictions or
encumbrances which do not, individually or in the aggregate, materially
interfere with the conduct of the business of the Company as presently conducted
or the use or enjoyment of such real property for the purposes it is currently
used for and as to which no material violation exists (iii) statutory liens
securing payments not yet due and (iv) liens set forth in SECTION 2.10 OF THE
DISCLOSURE SCHEDULE. All equipment included in such properties which is
necessary to the conduct of the business of the Company is in good condition and
repair (ordinary wear and tear excepted) and the Company is not materially in
breach of any lease of real or personal property to which the Company is a party
and which is necessary to the conduct of the business of the Company. The
property and assets of the Company are sufficient for the conduct of its
business as presently conducted. The Company is not in violation of any zoning,
building or safety ordinance, regulation or requirement or other law or
regulation applicable to the operation of its owned or leased properties, which
violation would have a Material Adverse Effect, nor has it received any notice
of any such violation. There are no defaults by the Company or to the best
knowledge of the Company, by any other party, which would have a Material
Adverse Effect. The performance by the Company of this Agreement will not result
in the termination of, or in any increase of any amounts payable under, any of
its real property leases.
2.11 TAX MATTERS. Each of the following representations in this Section
2.11 is qualified by SECTION 2.11 OF THE DISCLOSURE SCHEDULE. The Company has
filed all federal, state, local and foreign income, excise and franchise tax
returns, real estate and personal property tax returns, sales and use tax
returns and other tax returns required by applicable law to be filed by it where
the failure to file such returns would have a Material Adverse Effect and has
paid all taxes shown on such returns as owed by it, except taxes which have not
yet accrued or otherwise become due, for which adequate provision has been made
in the pertinent financial statements referred to in Section 2.5 above or which
will not have a Material Adverse Effect. The provision for taxes on the Base
Balance Sheet is sufficient as of its date for the payment of all accrued and
unpaid federal, state, county and local taxes of any nature of the Company, and
any applicable taxes owing to any foreign jurisdiction, whether or not assessed
or disputed. All taxes and other assessments and levies which the Company is
required to withhold or collect have been withheld and collected and have been
paid over to the proper governmental authorities except where the failure to
withhold or collect and pay over would not have a Material Adverse Effect. With
regard to the federal income tax returns of the Company, the Company has never
received notice of any audit or of any proposed deficiencies from the Internal
Revenue Service. There are in effect no waivers of applicable statutes of
limitations with respect to any taxes owed by the Company for any year. To the
best knowledge of the Company, neither the Internal Revenue
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Service nor any other taxing authority is now asserting or threatening to assert
against the Company any deficiency or claim for additional taxes or interest
thereon or penalties in connection therewith.
2.12 CERTAIN CONTRACTS AND ARRANGEMENTS. Except as set forth in SECTION
2.12 OF THE DISCLOSURE SCHEDULE (with true and correct copies delivered to the
Investors except where specifically noted on the Disclosure Schedule), the
Company is not a party or subject to or bound by:
(a) any plan or contract providing for collective bargaining or the
like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation of the
Company to pay to any third party $50,000 or more with respect to any single
such contract or agreement and which is not cancelable without penalty or other
charge by the Company on 30 days notice or less;
(c) any contract or agreement for the sale, license, lease or
disposition of products or services in excess of $750,000 annually;
(d) any contract containing covenants directly or explicitly limiting
the freedom of the Company to compete in any line of business or with any person
or entity;
(e) any license agreement (as licensor or as licensee with respect to
any agreement with ongoing payments in excess of $50,000 on an annual basis);
(f) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of $100,000;
(g) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing in excess of $250,000 or
any pledge or security arrangement;
(h) any material joint venture, partnership, manufacturing,
development or supply agreement;
(i) any endorsement or any other advertising, promotional or
marketing agreement with any third party with respect to the endorsement,
advertising, promotion or marketing of the Company or its services;
(j) any employment contracts, or agreements with officers, directors,
employees or shareholders of the Company or persons or organizations related to
or affiliated with any such persons;
(k) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Company, including without
limitation any agreement with any
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shareholder of the Company which includes without limitation, anti-dilution
rights, registration rights, voting arrangements, operating covenants or similar
provisions;
(l) any pension, profit sharing, retirement, stock option, phantom
stock or other equity incentive, bonus or commission plans;
(m) any royalty, dividend or similar arrangement based on the sales
volume of the Company;
(n) any acquisition, merger or similar agreement relating to the
acquisition of another business;
(o) any contract with a governmental body under which the Company may
have an obligation for renegotiation;
(p) any agreement with any shareholder of the Company or any
affiliate of any shareholder; or
(q) any other contract not executed in the ordinary course of
business.
All of the Company's contracts and commitments listed or required to be
listed in SECTION 2.12 OF THE DISCLOSURE SCHEDULE are in full force and effect
and neither the Company, nor, to the knowledge of the Company, any other party
is in default thereunder (nor, to the knowledge of the Company, has any event
occurred which with notice, lapse of time or both would constitute a default
thereunder), except to the extent that any such default would not have a
Material Adverse Effect, and the Company has not received notice of any alleged
default under any such contract, agreement, understanding or commitment.
2.13 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS. Except as
set forth in SECTION 2.13 OF THE DISCLOSURE SCHEDULE:
(a) To the best knowledge of the Company, the business of the Company
as presently conducted and the providing of services by the Company do not
violate any agreements which the Company has with any third party or infringe
any patent, trademark, service mark, copyright or trade secret or any other
Intellectual Property Rights of any third party.
(b) No claim is pending or, to the best knowledge of the Company,
threatened against the Company nor has the Company received any notice or claim
from any person asserting that any of the Company's present or contemplated
activities infringe or may infringe any Intellectual Property Rights of such
person, and the Company is not aware of any infringement by any other person of
any rights of the Company under any Intellectual Property Rights.
(c) Each current and former employee of the Company, and each of the
Company's consultants and independent contractors involved in development of any
of the Intellectual Property Rights, has executed an agreement in the form
attached hereto as EXHIBIT I, and, to the
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best knowledge of the Company, except as set forth in SECTION 2.13 OF THE
DISCLOSURE SCHEDULE, none of such employees, consultants or independent
contractors is in violation of any agreement or in breach of any agreement or
arrangement with former or present employers relating to proprietary information
or assignment of inventions.
As used herein, the term "Intellectual Property Rights" shall mean all
intellectual property rights, including, without limitation, all of the
registered rights set forth on SECTION 2.13 OF THE DISCLOSURE SCHEDULE and all
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, copyright
applications, computer programs and other computer software, inventions,
designs, samples, specifications, schematics, know-how, trade secrets,
proprietary processes and formulae, including production technology and
processes, all source and object code, algorithms, promotional materials,
customer lists, supplier and dealer lists and marketing research, and all
documentation and media constituting, describing or relating to the foregoing,
including without limitation, manuals, memoranda and records. SECTION 2.13 OF
THE DISCLOSURE SCHEDULE contains a list and brief description of all registered
Intellectual Property Rights.
2.14 LITIGATION. There is no litigation or governmental proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against the Company or affecting any of its properties or assets or against any
officer, director or key employee of the Company in his or her capacity as an
officer, director or employee of the Company, which litigation, proceeding or
investigation is reasonably likely to have a Material Adverse Effect, or which
may call into question the validity or hinder the enforceability of this
Agreement or any other agreements or transactions contemplated hereby; nor to
the best knowledge of the Company has there occurred any event nor does there
exist any condition on the basis of which any such litigation, proceeding or
investigation might be properly instituted or commenced.
2.15 EMPLOYEE BENEFIT PLANS. The Company does not maintain or
contribute to any employee benefit plan, stock option, bonus or incentive plan,
severance pay policy or agreement, deferred compensation agreement, or any
similar plan or agreement (an "Employee Benefit Plan") other than the Employee
Benefit Plans identified and described in SECTION 2.15 OF THE DISCLOSURE
SCHEDULE. The terms and operation of each Employee Benefit Plan comply in all
material respects with all applicable laws and regulations relating to such
Employee Benefit Plans. There are no unfunded obligations of the Company under
any retirement, pension, profit-sharing, deferred compensation plan or similar
program. The Company is not required to make any payments or contributions to
any Employee Benefit Plan pursuant to any collective bargaining agreement or, to
the knowledge of the Company, any applicable labor relations law, and all
Employee Benefit Plans are terminable at the discretion of the Company without
liability to the Company upon or following such termination. The Company has
never maintained or contributed to any Employee Benefit Plan providing or
promising any health or other nonpension benefits to terminated employees.
2.16 LABOR LAWS. The Company employs approximately 235 employees. The
Company is not delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it as of the date
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hereof or amounts required to be reimbursed to such employees. The Company is in
compliance in all material respects with all applicable laws and regulations
respecting labor, employment, fair employment practices, terms and conditions of
employment, and wages and hours. There are no charges of employment
discrimination or unfair labor practices or strikes, slowdowns, stoppages of
work or any other concerted interference with normal operations existing,
pending or, to the best knowledge of the Company, threatened against or
involving the Company.
2.17 EMPLOYEES AND SUPPLIERS.
(a) SECTION 2.17 OF THE DISCLOSURE SCHEDULE contains a list of all
managers, employees and consultants of the Company who, individually, have
received compensation from the Company for the fiscal year of the Company ended
December 31, 1996 in excess of $250,000. In each case, such Schedule includes
the current job title, years of service with the Company and aggregate annual
compensation and benefits of each such individual. To the knowledge of the
Company and the Shareholders, no key employee of the Company has any plan or
intention to terminate his employment with the Company. For each of the fiscal
years ended December 31, 1995 and December 31, 1996 and on an annualized basis
for the six-month period ended June 30, 1997, the employee turnover rate has
been less than 10% (excluding employees that have retired or have been
terminated by the Company). The Company has complied in all material respects
with the immigration laws of the United States with respect to the hiring,
employment and engagement of all of its employees and consultants who are not
United States citizens, and, to the best knowledge of the Company, the
immigration or residency status of each of such employees and consultants is
sufficient to allow such employees and consultants to remain lawfully employed
or engaged by the Company. As of the date hereof, the Company is in compliance
with all rules, regulations and requirements of SAP AG or SAP America, Inc.
("SAP") applicable to the Company, including without limitation that 70% of the
employees or consultants of the Company's that are engaged in providing
implementation or consulting services with respect to products or systems made
or developed by SAP have been certified by SAP as trained in the Accelerated SAP
methodology. As of the date hereof, Kenneth Conley is a member of the
Accelerated SAP advisory council.
(b) SECTION 2.17 OF THE DISCLOSURE SCHEDULE sets forth a list of all
material suppliers of the Company for the fiscal year ended December 31, 1996
(collectively, the "Suppliers"), showing, with respect to each, the name,
address and dollar volume involved. To the knowledge of the Company, no Supplier
has any plan or intention to terminate or reduce its business with the Company
or to materially and adversely modify its relationship with the Company.
2.18 HAZARDOUS WASTE, ETC. No hazardous wastes, substances or materials
or oil or petroleum products have been generated, transported, used, disposed,
stored or treated by the Company.
2.19 BUSINESS; COMPLIANCE WITH LAWS. The Company has all necessary
franchises, permits, licenses and other rights and privileges necessary to
permit it to own its property and to conduct its business as it is presently or
contemplated to be conducted. The Company is currently
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in compliance with all federal, state, local and foreign laws and regulations
applicable to the Company, the breach or violation of which would have a
Material Adverse Effect.
2.20 INVESTMENT BANKING; BROKERAGE. Except as set forth in SECTION 2.20
OF THE DISCLOSURE SCHEDULE, there are no claims for investment banking fees,
brokerage commissions, finder's fees or similar compensation (exclusive of
professional fees to lawyers and accountants) in connection with the
transactions contemplated by this Agreement payable by the Company or based on
any arrangement or agreement made by or on behalf of the Company or any of the
Shareholders.
2.21 INSURANCE. SECTION 2.21 OF THE DISCLOSURE SCHEDULE constitutes a
full and complete list of all insurance policies and any underlying risk
financing and claims adjustment agreements maintained by the Company. There is
no default or, to the best knowledge of the Company, event which could give rise
to a default under any such policy.
2.22 TRANSACTIONS WITH AFFILIATES. Except as set forth in SECTION 2.22
OF THE DISCLOSURE SCHEDULE, there are no loans, leases, contracts or other
transactions between the Company and any officer, director or five percent (5%)
shareholder of the Company or any family member or affiliate of the foregoing
persons and there have been no such transactions within the past five (5) years
except as set forth in SECTION 2.22 OF THE DISCLOSURE SCHEDULE.
2.23 CUSTOMERS. SECTION 2.23 OF THE DISCLOSURE SCHEDULE sets forth each
material customer of the Company for the twelve (12) months ended December 31,
1996 (collectively, the "Customers"). Except as set forth in SECTION 2.23 OF THE
DISCLOSURE SCHEDULE, no Customer of the Company has canceled or otherwise
terminated its relationship with the Company, or has during the last twelve
months decreased materially its services, supplies or materials to the Company
or its usage or purchases of the services or products of the Company except as
projects have been completed in the ordinary course of business. No Customer
has, to the best knowledge of the Company, any plan or intention to terminate,
to cancel or otherwise materially and adversely modify its relationship with the
Company or to decrease materially or limit its services, supplies or materials
to the Company or its usage, purchase or distribution of the services or
products of the Company except as projects have been completed or will be
completed in the ordinary course of business.
2.24 PRODUCT AND SERVICE WARRANTIES. No product or service
manufactured, sold, leased or delivered by the Company is subject to any
guaranty, warranty, right of return or other indemnity other than the applicable
standard terms and conditions that are set forth in SECTION 2.24 OF THE
DISCLOSURE SCHEDULE.
2.25 CERTAIN EVENTS.
(a) Except as set forth in SECTION 2.25 OF THE DISCLOSURE SCHEDULE,
during the past ten years, neither the Company nor any of the Shareholders,
officers or directors of the Company has had a petition under the Bankruptcy
Reform Act of 1978, as amended, or any state insolvency law filed by or against
any of them, or has had a receiver, fiscal agent or similar officer appointed
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by a court for any of their business or property or any partnership in which any
of them was a general partner at or within two years before the time of such
filing, or any corporation or business association of which any of them was an
officer, director or stockholder at or within two years before the time of such
filing.
(b) During the past ten years, neither the Company nor the
Shareholders, officers and directors of the Company has been convicted in a
criminal proceeding or is a named subject of a criminal proceeding which is
presently pending (excluding traffic violations and other minor offenses).
(c) During the past ten years, neither the Company nor the
Shareholders, officers and directors of the Company has been, or is, the subject
of any order, judgment or decree, whether or not subsequently reversed,
suspended or vacated, of any court or any administrative agency, requiring the
payment of money damages in excess of $50,000 or permanently or temporarily
enjoining any of them from, or otherwise limiting any of their abilities to
engage in, any type of business practice.
2.26 DISCLOSURE. To the best knowledge of the Company and the
Shareholders, the representations and warranties made or contained in this
Agreement and the Disclosure Schedules do not and shall not contain any untrue
statement of a material fact and do not and shall not omit to state a material
fact required to be stated therein or necessary in order to make such
representations or warranties not misleading in light of the circumstances in
which they were made or delivered. There have been no events or transactions, or
information which has come to the attention of the Management Shareholders,
having a direct impact on the Company or its assets, liabilities, financial
condition, business, results of operations or prospects which, in the reasonable
judgment of the Management Shareholders, could be expected to have a Material
Adverse Effect.
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
(a) Each Investor represents to the Company that it has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment contemplated by this Agreement
and making an informed investment decision with respect thereto. Each Investor
represents that it is an "accredited investor" as such term is defined in Rule
501 under the Securities Act of 1933, as amended (the "Securities Act"). Each
Investor represents to the Company that it is purchasing the Convertible
Preferred Shares for its own account, for investment only and not with a view
to, or any present intention of, effecting a distribution of such securities or
any part thereof except pursuant to a registration or an available exemption
under applicable law. Such Investor acknowledges that its respective Convertible
Preferred Shares have not been registered under the Securities Act or the
securities laws of any state or other jurisdiction and cannot be disposed of
unless they are subsequently registered under the Securities Act and any
applicable state laws or exemption from such registration is available.
(b) Each Investor (if such Investor is an entity) is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, with its principal office located
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in Boston, Massachusetts (other than McDonald & Company Securities, Inc., McD
Venture Capital Fund, L.P., and GHK Investments, L.L.C. which have offices
located in Ohio, and has full right, authority and power under its governing
partnership agreement to enter into this Agreement and each agreement, document
and instrument to be executed and delivered by or on behalf of such Investor
pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action under
such Investor's governing partnership agreement. This Agreement and each
agreement, document and instrument executed and delivered by each Investor
pursuant to or as contemplated by this Agreement constitute, or when executed
and delivered will constitute, valid and binding obligations of each of the
Investors enforceable in accordance with their respective terms. The execution,
delivery and performance by each Investor of this Agreement and each such other
agreement, document and instrument, and the performance of the transactions
contemplated hereby and thereby do not and will not: (A) violate, conflict with
or result in a default (whether after the giving of notice, lapse of time or
both) under any contract or obligation to which any Investor is a party or by
which it or its assets are bound, or cause the creation of any encumbrance upon
any of the assets of any Investor; (B) violate or result in a violation of, or
constitute a default under, any provision of any law, regulation or rule, or any
order of, or any restriction imposed by, any court or other governmental agency
applicable to such Investor; (C) require from such Investor any notice to,
declaration or filing with, or consent or approval of any governmental authority
or other third party; or (D) accelerate any obligation under, or give rise to a
right of termination of, any agreement, permit, license or authorization to
which any Investor is a party or by which such Investor is bound.
(c) Each Investor represents that there are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of such Investor.
SECTION 3. CONDITIONS OF PURCHASE
Each Investor's obligation to purchase and pay for the Convertible
Preferred Shares to be purchased by it shall be subject to compliance by the
Company with its agreements herein contained and to the fulfillment to the
Investors' satisfaction, or the waiver by the Investors, on or before and at the
Closing Date of the following conditions:
3.1 SATISFACTION OF CONDITIONS. The representations and warranties of
the Company and the Shareholders contained in this Agreement shall be true and
correct on and as of the Closing Date; each of the conditions specified in this
Section 3 shall have been satisfied or waived in writing by the Investors; and,
on the Closing Date, certificates to such effect executed by the President and
Chief Operating Officer of the Company shall have been delivered to the
Investors.
3.2 DIRECTOR ELECTION. Each of Kenneth T. Schiciano and A. Bruce
Johnston, as the nominees of the Investors, shall have been elected as a
director of the Company (together with any subsequent nominees of the Investors,
the "Investors' Nominees").
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3.3 OPINION OF COUNSEL. The Investors shall have received from Jones,
Day, Reavis & Pogue an opinion dated as of the Closing Date substantially in the
form attached hereto as EXHIBIT F.
3.4 CONSENT OF SPOUSE. Each Management Shareholder shall have entered
into a Consent of Spouse in the form attached hereto as EXHIBIT G.
3.5 AUTHORIZATION. The Board of Directors of the Company shall have
duly adopted resolutions in the form reasonably satisfactory to the Investors
and shall have taken all action necessary for the purpose of authorizing the
Company to consummate the transactions contemplated hereby in accordance with
the terms hereof and to cause the Articles of Incorporation establishing the
Convertible Preferred Shares in the form attached hereto as EXHIBIT B to become
effective; and the Investors shall have received a certificate of the Secretary
of the Company setting forth a copy of the resolution and the Articles of
Incorporation and Code of Regulations of the Company and such other matters as
may be reasonably requested by the Investors.
3.6 ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and substance to the
Investors.
3.7 INVESTORS' FEES. The Company shall have paid on behalf of the
Investors all legal fees and related expenses incurred by the Investors in
connection with the transactions contemplated by this Agreement, provided that
such payment shall in no event exceed $75,000.
3.8 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
3.9 CONSENTS AND WAIVERS. The Company and the Shareholders shall have
obtained all material consents or waivers necessary to execute this Agreement
and the other agreements and documents contemplated herein, to issue and sell
the Securities to be sold to the Investors hereunder, to redeem the shares of
Common Stock as contemplated by the Redemption Agreement and to carry out the
transactions contemplated hereby and thereby and shall have delivered evidence
thereof to the Investors. All corporate and other action and governmental
filings necessary to effectuate the terms of this Agreement and other agreements
and instruments executed and delivered by the Company in connection herewith
shall have been made or taken.
3.10 INTENTIONALLY OMITTED
3.11 COMPLETION OF AUDIT. Coopers & Lybrand LLP shall have completed an
audit of the financial statements of the Company for the fiscal year ended
December 31, 1996 and a review of the financial statements of the Company for
the six-month period ended June 30, 1997.
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3.12 REISSUANCE OF STOCK CERTIFICATES. All certificates representing
shares of Common Stock issued to the Shareholders on or prior to the date hereof
shall have been reissued with the legends set forth in Section 10.2 of this
Agreement typed on each of such reissued certificates.
3.13 RELEASE BY JOSEPH MINADEO. Joseph Minadeo shall have executed a
release which releases and discharges the Company, the Shareholders and the
Investors from any and all claims which Joseph Minadeo has or which may arise in
connection with his ownership of shares of capital stock of the Company and the
repurchase of such shares of capital stock, such release to be in form and
substance reasonably satisfactory to the Investors.
3.14 ELECTION OF OFFICERS. Nicholas A. Canitano shall have been elected
Chairman and Chief Executive Officer of the Company; Kenneth L. Conley shall
have been elected President and Chief Operating Officer of the Company; Annette
M. Canitano shall have been elected Executive Vice President and Secretary of
the Company; and Karen M. Conley shall have been elected Executive Vice
President and Treasurer of the Company.
3.15 KENNETH L. CONLEY AS SHAREHOLDER. Kenneth L. Conley or a trust
established for his benefit, shall have become the owner, individually or as a
joint tenant with Karen M. Conley, of at least 25% of the issued and outstanding
Common Stock of the Company immediately prior to the Closing.
3.16 PAYMENT OF BROKER FEE. The broker fee set forth in SECTION 2.20 OF
THE DISCLOSURE SCHEDULE shall be paid by the Company.
SECTION 4. COVENANTS
The Company agrees for the benefit of the Investors that it shall
comply with the following covenants, except as may be agreed to in writing by
two-thirds in interest of the Investors, provided that the covenants set forth
in Sections 4.1, 4.3, 4.4, 4.8 and 4.9 shall terminate as of the closing of the
Company's first Qualified Public Offering. A "Qualified Public Offering" shall
have the meaning provided in the Articles of Incorporation attached hereto as
EXHIBIT B.
4.1 FINANCIAL STATEMENTS AND BUDGETARY INFORMATION; INSPECTION. So long
as the Investors hold at least 38,540 Convertible Preferred Shares or shares of
Common Stock (subject to adjustments for stock splits, stock dividends and the
like), the Investors shall have the rights, and the Company shall have the
obligations, set forth in this Section 4.1. The Company will deliver to the
Investors internally prepared unaudited monthly and quarterly financial
statements and audited annual financial statements, as well as annual budgets
and operating plans. The monthly and quarterly financial information will be
provided within 25 days after the end of each month and quarter. The annual
budget and operating plan will be presented at a Board of Directors' meeting at
least one month prior to the end of the fiscal year of the Company preceding the
year covered. An annual audit by an accounting firm of national recognition
selected by the Board of Directors will be provided within 90 days after each
fiscal year-end of the Company.
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The Company will, upon reasonable prior notice to the Company, permit
authorized representatives of the Investors to visit and inspect any of the
properties of the Company, including its books of account (and to make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with its officers, administrative employees and independent
accountants, all at such reasonable times and as often as may be reasonably
requested.
4.2 INDEMNIFICATION; INSURANCE. For so long as any of the Securities
remain outstanding, the Articles of Incorporation or Code of Regulations of the
Company will at all times during which any nominee of any of the Investors
serves as director of the Company provide for indemnification of the directors
and limitations on the liability of the directors to the fullest extent
permitted under applicable state law. Prior to any initial public offering, the
Company will purchase a directors and officers insurance policy on terms
reasonably acceptable to the Investors' Nominees (who shall be a third party
beneficiary of this Agreement) covering directors and officers of the Company in
the amount of at least $3 million, covering, among other things, violations of
federal or state securities laws.
4.3 BOARD OF DIRECTORS. The Board of Directors of the Company shall
consist of seven (7) members including the two (2) Investors' Nominees and one
(1) director with information technology services industry experience who shall
be elected by the Investors, subject to approval by the Management Shareholders,
and shall be independent of and unaffiliated with any Investor or any
Shareholder (the "Independent Director"). The Company shall cause meetings of
its Board of Directors to be held at least four (4) times each year at intervals
of not more than four (4) months and shall pay all reasonable out-of-pocket
expenses incurred by the Investors' Nominees in connection with attending
meetings or other functions of the Company's Board of Directors or any
committees thereof and shall pay the Investors' Nominees' and Independent
Director's fees in an amount equal to any direct fees that are paid to the other
non-management directors of the Company. Compensation (including option and
related awards) for members of management will be determined by a Compensation
Committee of the Board of Directors comprised of one member of management who is
also a director, one of the Investors' Nominees and one independent director.
4.4 RESTRICTIVE COVENANTS. The Company will comply with the provisions
in Section A.8 of Article IV of the Articles of Incorporation.
4.5 REDEMPTION. Immediately following the closing of the purchase and
sale of the Convertible Preferred Shares, but prior to the closing of the
purchase of the Common Shares, the Company shall acquire from the Shareholders,
and each such Shareholder shall sell to the Company, the respective number of
shares of Common Stock set forth on EXHIBIT C hereto for a price of $117.61 per
share, or an aggregate of 135,000 shares of Common Stock (the "Redemption
Shares") for an aggregate redemption price of $15,877,284, pursuant to the
redemption agreement (the "Redemption Agreement") and disclosure documents in
the form attached hereto as EXHIBIT D, such redemption and the other
transactions contemplated hereby to constitute a single transaction or series of
transactions for federal income tax purposes.
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4.6 KEY PERSON INSURANCE. Within 120 days after the date hereof, the
Company will purchase and maintain "key person" term life insurance policies of
$1 million each on the lives of each of Annette M. Canitano, Nicholas A.
Canitano, Karen M. Conley and Kenneth L. Conley, with the Company named as
beneficiary. The Company hereby agrees that such policy shall not be assigned,
borrowed against or pledged.
4.7 MANAGEMENT COMPENSATION. The annual compensation paid by the
Company to Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley and
Kenneth L. Conley shall be as set forth on SECTION 4.7 OF THE DISCLOSURE
SCHEDULE and shall be adjusted from time to time with reference to employees at
similar levels in companies of similar size, of similar maturity, and in similar
industries by the Compensation Committee of the Company's Board of Directors.
4.8 STOCK AWARDS. Except for option and stock awards with respect to up
to 75,000 shares of Common Stock pursuant to the Plan as in effect as of the
date hereof, the Company will not grant or award options, stock or other
equity-based or quasi-equity rights to officers, employees, advisers,
consultants or directors without the consent of the Investors' Nominees. The
Plan and grant awards thereunder may not be amended, revised or waived after the
date hereof without the consent of the Investors' Nominees.
4.9 ASSIGNMENT. Each Investor shall have the right to assign its rights
under this Section 4 in connection with any transaction or series of related
transactions involving the Transfer (as defined in Section 5.1) to one or more
transferees that are not Competitors (as defined in Section 5.1(c) hereof) of at
least 38,540 shares of capital stock of the Company (subject to adjustments for
stock splits, stock dividends and the like and aggregating all contemporaneous
Transfers by two or more Investors), or to any fund managed by or associated
with TA Associates, Inc. ("TA Funds"). Upon any such Transfer such transferee or
TA Fund thereupon shall sign a counterpart signature page hereto and in any
event shall be deemed an "Investor" for purposes of this Section 4.
4.10 HIRING OF A CHIEF FINANCIAL OFFICER. The Company shall use its
reasonable efforts to hire a Chief Financial Officer of the Company, who shall
be reasonably satisfactory to the Investors, prior to the date which is six
months after the Closing Date.
4.11 INSURANCE POLICIES. The Company shall not surrender New York Life
Insurance Company insurance policy numbers 43691745, 43691674, 43795208 and
43726251 (of which the Company is the owner and beneficiary) for purposes of
paying the cash surrender value of such policies to the Management Shareholders,
and the Company shall not assign such policies or change the beneficiary of such
policies.
4.12 MANAGEMENT COMPENSATION. The terms of the compensation payable to
each of Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley and Kenneth
L. Conley, in his or her capacity as an employee of the Company, shall be as set
forth in SECTION 4.7 OF THE DISCLOSURE SCHEDULE.
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SECTION 5. TRANSFER RESTRICTIONS
The following provisions of this Section 5 shall terminate immediately
prior to a Qualified Public Offering and shall not apply with respect to any
Qualified Public Offering.
5.1 GENERAL RESTRICTION.
(a) Each Shareholder agrees that neither such Shareholder nor any of
such Shareholder's permitted transferees as contemplated below will directly or
indirectly offer, transfer, donate, sell, assign, pledge, hypothecate or
otherwise dispose of (any such action a "Transfer") all or any portion of the
shares of capital stock of the Company now owned or hereafter acquired by such
Shareholder or them, except (i) to permitted transferees as permitted by Section
5.1(b) and (ii) in bona fide sales to third parties for value following
compliance with Section 5.
(b) Permitted Transfers by a Shareholder shall include (i) Transfers
by any Shareholder to its Affiliates (as defined below), (ii) Transfers upon a
Shareholder's death to his or her heirs, executors or administrators or to a
trust under his or her will or to his or her guardian or conservator and (iii)
any Transfer from an employee of the Company to the Company in connection with
the termination of his or her employment; provided that in any such case the
transferee shall have entered into an enforceable written agreement providing
that all shares so Transferred shall continue to be subject to all provisions of
this Agreement as if such shares were still held by the Shareholder, and
provided further that such permitted transferee shall not be permitted to make
any further Transfers without complying with the provisions of this Section 5.
Anything to the contrary in this Agreement notwithstanding, Transfers under this
Section 5.1(b) shall not be subject to Section 5.2 or 5.3 and transferees
permitted by this Section 5.1(b) shall take any shares so Transferred subject to
all obligations under this Agreement as if such shares were still held by the
Shareholder whether or not they so expressly agree.
(c) For purposes of this Agreement, "Affiliate" shall mean, (i) with
respect to an individual, a parent, descendent or spouse of such individual;
(ii) with respect to an individual, any trust for the primary benefit of the
individual or any person described in clause (i); (iii) with respect to a trust,
the beneficiaries of the trust or another trust established for the primary
benefit of such beneficiaries; and (iv) with respect to any person (other than a
natural person), any other person that is wholly owned by those persons
described in clauses (i), (ii) or (iii) or the Shareholders.
(d) Each Investor agrees that it will not, without the prior written
consent of the Company, transfer all or any portion of its Securities to any of
the competitors of the Company listed in SECTION 5.1(D) OF THE DISCLOSURE
SCHEDULE ("Competitors").
5.2 RIGHT OF FIRST REFUSAL. If at any time on or after the date hereof
a Shareholder (including for all purposes of this Section 5.2, any permitted
transferee of his or her shares pursuant to Section 5.1(b)) receives a bona fide
offer to purchase any or all of his or her shares
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(the "Offer") from an unaffiliated third party (the "Offeror") which the
Shareholder wishes to accept such Shareholder may Transfer such shares pursuant
to and in accordance with the following provisions of this Section 5.2:
(a) Such Shareholder (the "Selling Shareholder") shall cause the
Offer to be reduced to writing and shall notify the Company and the Investors in
writing of such Selling Shareholder's desire to accept the Offer and otherwise
comply with the provisions of this Section 5. The Selling Shareholder's notice
shall constitute an irrevocable offer to sell such shares to the Company and the
Investors at a purchase price equal to the price contained in, and on the same
terms and conditions of, the Offer. The notice shall be accompanied by a true
copy of the Offer (which shall identify the Offeror).
(b) The Company shall have the right to offer to purchase all, but
not less than all, of the shares covered by the Offer. To exercise such right,
the Company shall, within ten (10) days of receipt of such written notice (the
"Company Notice Period"), communicate in writing such election to the Selling
Shareholder (with copies to the Investors). Such written election to purchase
shall constitute a valid, legally binding and enforceable agreement for the sale
and purchase of all of the shares covered by the Offer.
(c) In the event that the Company does not exercise its rights
pursuant to Section 5.2(b), the Selling Shareholder shall notify the Investors
in writing of such fact (the "Investor Notice"). At any time within 20 days
after receipt by the Investors of the Investor Notice (the "Notice Period"), one
or more of the Investors may, subject to the terms hereof, choose to accept the
Offer with respect to all, but not less than all, of the shares covered thereby
and not purchased by the Company by giving written notice to the Selling
Shareholder proposing to sell to such effect; provided that if two or more of
the Investors choose, in the aggregate, to accept such Offer with respect to an
aggregate number of shares which exceeds the number of shares subject to such
Offer and available for purchase, the number of shares for which the Offer may
be accepted by each such Investor shall, in each case, be reduced by the
smallest number of shares as shall be necessary to reduce the aggregate number
of shares for which the Offer may be accepted by the electing Investors as
contemplated herein to the number of shares for which the Offer was made and
which are available for purchase by them; provided further, that the number of
shares for which any Investor or Shareholder may accept such Offer as
contemplated herein shall in no event be reduced to less than the number of
shares which bears the same proportion to the total number of shares which are
available for purchase as the number of shares of Common Stock then held by such
Investor (on an as converted basis as contemplated by the Articles of
Incorporation) bears to the total number of shares of Common Stock then held by
all Investors (on an as converted basis as contemplated by the Articles of
Incorporation) accepting such Offer.
(d) If shares covered by any Offer are purchased pursuant to Section
5.2(b) or 5.2(c), such purchase shall be (i) at the same price and on the same
terms and conditions as the Offer if the Offer is for cash and/or notes or (ii)
if the Offer includes any consideration other than cash and notes, then at the
equivalent all cash price for such other consideration. The closing of the
purchase of the shares subject to an Offer pursuant to this Section 5.2 shall
take place within 15 days after the expiration of the Notice Period, or upon
satisfaction of any governmental approval
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requirements, if later, by delivery by the respective purchasers of the purchase
price for shares being purchased as provided above to the Selling Shareholder
against delivery of the certificates representing the shares so purchased,
appropriately endorsed for Transfer by such Selling Shareholder.
5.3 RIGHTS OF CO-SALE.
(a) INVESTORS CO-SALE OPTION. In the event any Shareholder (including
for all purposes of this Section 5.3 any permitted transferees of a Shareholder
as contemplated by Section 5.1(b)) proposes to sell any shares or receives an
Offer and any of such shares are not purchased pursuant to Section 5.2, such
Shareholder may Transfer the shares subject thereto only following compliance
with this Section 5.3 and Section 5.4 below:
(i) In such event, immediately following the last day of the
Notice Period, the Shareholder shall give an additional notice of the proposed
sale to the Investors, once again enclosing a copy of the Offer, if applicable,
which shall identify the Offeror and the number of shares proposed to be sold
(the "Co-Sale Notice").
(ii) Upon the election of an Investor or Investors holding
at least ten percent (10%) of the Securities, each of the Investors shall have
the right, exercisable upon written notice to the Shareholder and any such
permitted transferee within 20 days after delivery to it of the Co-Sale Notice
(the "Co-Sale Notice Period"), to participate in the sale on the terms and
conditions stated in the Co-Sale Notice, except that any Investor who holds
Convertible Preferred Shares shall be permitted to sell to the relevant
purchaser shares of Common Stock acquired upon conversion thereof or, at its
election, either (A) an option to acquire such Common Stock when it receives the
same upon such conversion at the election of such Investor or as otherwise
provided in the Company's Articles of Incorporation with the same effect as if
Common Stock were being conveyed, or (B) shares of Convertible Preferred Stock
provided the acquiror pays the full liquidation preference of the shares being
sold plus the relevant price per share for the underlying Common Stock. Each of
the Investors shall have the right to sell all or any portion of its shares on
the terms and conditions in the Co-Sale Notice (subject to the foregoing), with
the maximum number of shares equal to the product obtained by multiplying the
number of shares proposed to be sold by the relevant Shareholder and any of such
Shareholder's permitted transferees as described in the Co-Sale Notice by a
fraction, the numerator of which is the number of shares of Common Stock owned
by such Investor on the date of the Co-Sale Notice on an as converted basis, and
the denominator of which is the sum of the number of shares of Common Stock
owned by the Shareholders and their permitted transferees and the number of
shares of Common Stock owned by all of the Investors (including all assignees of
the Investors) as of the date of the Co-Sale Notice on an as converted basis. To
the extent one or more Investors elect not to sell the full amount of shares
which they are entitled to sell pursuant to this Section 5.3(a), the other
participating Investors' rights to sell shares shall be increased
proportionately to their relative holdings of Securities, such that the
Investors shall have the right to sell the full number of shares allocable to
them in any transaction subject to this Section 5.3(a) even if some Investors
elect not to participate.
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(iii) Within five (5) days after the expiration of the
Co-Sale Notice Period, the relevant Shareholder shall notify each participating
Investor of the number of shares held by such Investor that will be included in
the sale and the date on which the sale will be consummated, which shall be no
later than the later of (i) 30 days after the delivery of the Co-Sale Notice and
(ii) the satisfaction of all governmental approval requirements, if any.
(iv) Each of the Investors may effect its participation in
any sale hereunder by delivery to the purchaser, or to the relevant Shareholder
for transfer to the purchaser, of one or more instruments, certificates and/or
option agreements, properly endorsed for transfer, representing the shares it
elects to sell therein, provided that no Investor shall be required to make any
representations or warranties or to provide any indemnities in connection
therewith other than with respect to title to the stock being conveyed. At the
time of consummation of the sale, the purchaser shall remit directly to each
Investor that portion of the sale proceeds to which each Investor is entitled by
reason of its participation therein. No shares may be purchased by a purchaser
from the relevant Shareholder or any of such Shareholder's permitted transferees
unless the purchaser simultaneously purchases from the Investors all of the
shares that they have elected to sell pursuant to this Section 5.3(a).
(b) SHAREHOLDERS CO-SALE OPTION. In the event that any Investor (a
"Transferring Investor") receives a bona fide offer to purchase all or any
portion of the Common Shares or shares of Common Stock received by such Investor
upon conversion of its Convertible Preferred Shares (collectively, "Shares") (an
"Investor Transaction Offer") from an offeror that is not a TA Fund (a
"Purchaser"), such Transferring Investor may Transfer the number of Shares held
by the Transferring Investor subject to the Investor Transaction Offer only
pursuant to and in accordance with the following provisions of this Section
5.3(b):
(i) Such Transferring Investor shall deliver a written
notice containing equivalent information to that required under Section 5.2(a)
hereof to the Company and each of the Shareholders (an "Offer Notice"). Each of
the Shareholders shall have the right to participate in the Investor Transaction
Offer on the terms and conditions herein stated (the "Shareholder Co- Sale
Option"), which right shall be exercisable upon written notice (an "Acceptance
Notice") to the Transferring Investor within the Co-Sale Notice Period. The
Acceptance Notice shall indicate the maximum number of shares of Common Stock
such Shareholder wishes to sell (including the number of shares it would sell if
one or more other Shareholders do not elect to participate in the sale) on the
terms and conditions stated in the Offer Notice.
(ii) Each of the Shareholders shall have the right to sell a
portion of his or her shares of Common Stock pursuant to the Investor
Transaction Offer which is equal to or less than twenty percent (20%) of the
product obtained by multiplying (i) the total number of Shares subject to the
Investor Transaction Offer divided by the total number of Shares held by the
Investors and (ii) the total number of Shares of Common Stock held by such
Shareholder on the date of the Acceptance Notice. To the extent one or more
Shareholders elect not to exercise their Shareholder Co-Sale Option, then the
rights of the other Shareholders (who exercise their Shareholder Co-Sale Option)
to sell Shares shall be increased proportionately by the full amount of Shares
which the non-electing Shareholders were entitled to sell pursuant to this
Section 5.3(b)
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(iii) Within five (5) days after the expiration of the
Co-Sale Notice Period, the Transferring Investor shall notify each participating
Shareholder of the number of shares held by such Shareholder that will be
included in the sale and the date on which the Investor Transaction Offer will
be consummated, which shall be no later than the later of (i) thirty (30) days
after the date by which the Shareholders were required to notify the
Transferring Investor of their intent to exercise their Shareholder Co-Sale
Option and (ii) the satisfaction of any governmental approval or filing
requirements, if any.
(iv) Each of the Shareholders participating in the sale may
effect its participation in any Investor Transaction Offer hereunder by delivery
to the Purchaser, or to the Transferring Investor for delivery to the Purchaser,
of one or more instruments or certificates, properly endorsed for transfer,
representing the shares it elects to sell therein, provided that no Shareholder
shall be required to make any representations or warranties or provide any
indemnities in connection therewith other than with respect to the stock being
conveyed. At the time of consummation of the Investor Transaction Offer, the
Purchaser shall remit directly to each Shareholder that portion of the sale
proceeds to which each Shareholder is entitled by reason of its participation
therein. No Shares may be purchased by a purchaser from the relevant Investor or
any of such Investor's permitted transferees unless the purchaser simultaneously
purchases from the Shareholders all of the shares that they have elected to sell
pursuant to this Section 5.3(b).
(c) Any shares held by an Investor or Shareholder or any of their
permitted transferees that the Investor, Shareholder or transferee desires to
sell following compliance with Section 5.3(a) may be sold to the purchaser only
during the 90-day period after the expiration of the Co-Sale Notice Period and
only on terms no more favorable to the Investor, Shareholder or transferee than
those contained in the relevant notice. Promptly after such sale, such Investor
or Shareholder shall notify the parties hereto of the consummation thereof and
shall furnish such evidence of the completion and time of completion of such
sale and of the terms thereof as may reasonably be requested by the other
parties hereto. So long as the purchaser is neither a party, nor an affiliate or
relative of a party, to this Agreement, such purchaser shall take the shares so
Transferred free and clear of any further restrictions of this Section 5. If, at
the end of such 90-day period, such Investor, Shareholder or any of such
transferees have not completed the sale of such shares as aforesaid, all the
restrictions on Transfer contained in this Section 5 shall again be in effect
with respect to such shares.
5.4 ASSIGNMENT. If two or more Shareholders (and their permitted
transferees, if any) propose concurrent Transfers which are subject to Section
5.2 or Section 5.3, then the provisions of Sections 5.2 and Section 5.3 shall
apply to each such proposed Transfer independently. Each Investor shall have the
right to assign its rights under this Section 5 in connection with any
transaction or series of related transactions involving the Transfer to one or
more transferees that are not Competitors (as defined in Section 5.1(c) hereof)
of at least 38,540 shares of capital stock of the Company (subject to
adjustments for stock splits, stock dividends and the like and aggregating all
contemporaneous Transfers by two or more Investors), or to any TA Funds. Each
Shareholder shall have the right to assign its rights under this Section 5 in
connection with any transaction or series of related transactions involving the
Transfer of Common Stock to permitted transferees of such Shareholder. Upon any
such Transfer such transferee or TA Fund thereupon
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shall sign a counterpart signature page hereto and in any event shall be deemed
an "Investor" or "Shareholder," as the case may be, for purposes of this Section
5.
SECTION 6. RIGHTS TO PURCHASE
Notwithstanding anything herein to the contrary, the following
provisions of this Section 6 shall terminate immediately prior to the closing of
a Qualified Public Offering and shall not apply with respect to any Qualified
Public Offering.
6.1 RIGHT TO PARTICIPATE IN CERTAIN SALES OF ADDITIONAL SECURITIES.
Notwithstanding anything to the contrary in the Articles of Incorporation, the
Company agrees that it will not sell or issue any shares of capital stock of the
Company, or other securities convertible into or exchangeable for capital stock
of the Company, or options, warrants or rights carrying any rights to purchase
capital stock of the Company unless the Company first submits a written offer to
the Investors and the Shareholders (including for all purposes of this Section 6
each permitted transferee of a Shareholder pursuant to Section 5.1(b))
identifying the terms of the proposed sale (including price, number or aggregate
principal amount of securities and all other material terms), and offers to each
Investor and Shareholder the opportunity to purchase its Pro Rata Share (as
hereinafter defined) of the securities (subject to increase for over-allotment
if some Investors or Shareholders do not fully exercise their rights) on terms
and conditions, including price, not less favorable to the Investors and
Shareholders than those on which the Company proposes to sell such securities to
a third party or parties. Each Investor's or Shareholder's "Pro Rata Share" of
such securities shall be based on the ratio which the shares of Common Stock
held by he, she or it bears to all the issued and outstanding shares of Common
Stock calculated on a fully-diluted basis giving effect to the conversion of
convertible securities as of the date of such written offer. The Company's offer
to the Investors and Shareholders shall remain open and irrevocable for a period
of 30 days, and Investors and Shareholders who elect to purchase shall have the
first right to take up and purchase any shares or other securities which other
Investors or Shareholders do not elect to purchase, based on the relative
holdings of the electing purchasers. Any securities so offered which are not
purchased pursuant to such offer may be sold by the Company but only on the
terms and conditions set forth in the initial offer to the Investors and
Shareholders, at any time within 90 days following the termination of the
above-referenced 30-day period but may not be sold to any other person or on
terms and conditions, including price, that are more favorable to the purchaser
than those set forth in such offer or after such 90-day period without renewed
compliance with this Section 6.1.
Notwithstanding the foregoing, the Company may (i) issue options and
shares of restricted stock to its officers and employees with respect to up to
75,000 shares pursuant to the Plan and issue shares of its Common Stock upon the
exercise of any such stock options, (ii) issue Conversion Shares upon the
conversion of the Convertible Preferred Shares, and this Section 6 shall not
apply with respect to such issuances and (iii) issue securities as a result of
any stock split, stock dividend, reclassification or reorganization of the
Company's stock.
6.2 ASSIGNMENT OF RIGHTS. Each Investor may assign its rights under
this Section 6 in connection with any transaction or series of related
transactions involving the transfer to one
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or more transferees that are not Competitors (as defined in Section 5.1(c)
hereof) of at least 38,540 shares of capital stock of the Company (subject to
adjustments for stock splits, stock dividends and the like and aggregating all
contemporaneous transfers by Investors), to any TA Fund or permitted transferee
of a Shareholder. Upon any such transfer such transferee or TA Fund shall sign a
counterpart signature page hereto and in any event be deemed an "Investor" or
"Shareholder," as the case may be, for purposes of Sections 6.1 and 6.2 with the
rights set forth in such Sections.
SECTION 7. REGISTRATION RIGHTS
7.1 OPTIONAL REGISTRATIONS. If at any time or times after the date
hereof, the Company shall seek to register any shares of its capital stock or
securities convertible into capital stock under the Securities Act (whether in
connection with a public offering of securities by the Company (a "primary
offering"), a public offering of securities by shareholders of the Company (a
"secondary offering"), or both), the Company will promptly give written notice
thereof to each Investor (the "Holders," subject to Section 7.7) holding
Registrable Securities as hereinafter defined in Section 7.3 below. If within 30
days after their receipt of such notice one or more Holders request the
inclusion of some or all of the Registrable Securities owned by them in such
registration, the Company will, subject to the next sentence, use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which such Holders may request in a writing delivered to the Company
within 30 days after their receipt of the notice given by the Company. In the
case of the registration of shares of capital stock by the Company in connection
with any underwritten public offering, if the underwriter(s) determines that
marketing factors require a limitation on the number of Registrable Securities
to be offered, the Company shall not be required to register Registrable
Securities of the Holders in excess of the amount, if any, of shares of the
capital stock which the principal underwriter of such underwritten offering
shall reasonably and in good faith agree to include in such offering in excess
of any amount to be registered for the Company; provided, however, that the
number of shares of Registrable Securities of the Holders included in any such
offering subsequent to the Company's first Qualified Public Offering shall in no
event be less than thirty percent (30%) of the aggregate number of shares of
capital stock to be registered, unless the aggregate number of shares of
Registrable Securities the Holders requested in writing to be in such offering
is less than thirty percent (30%) of the aggregate number of shares of capital
stock to be registered. If any limitation of the number of shares of Registrable
Securities to be registered by the Holders is required pursuant to this Section
7.1, the number of shares that may be included in the registration on behalf of
the Holders shall be allocated among the Holders or the holders of any other
registration rights in proportion, as nearly as practicable, to the respective
holdings of Registrable Securities of all Holders requesting registration. The
provisions of this Section will not apply to a registration effected solely to
implement (i) an employee benefit plan, or (ii) a transaction to which Rule 145
or any other similar rule of the Securities and Exchange Commission (the "SEC"or
the "Commission") under the Securities Act is applicable. The Company may
withdraw any registration initiated by the Company pursuant to Section 7.1 at
any time before it becomes effective, or postpone such offering without
obligation or liability to the holders of Registrable Securities.
7.2 REQUIRED REGISTRATIONS.
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(a) DEMAND REGISTRATION. On one or more occasions at any time after
the earlier of December 31, 1998 or the effective date of the Company's first
registration statement under the Securities Act, an Investor or Investors
holding at least 50% of the Registrable Securities held by the Investors may
request that the Company register under the Securities Act all or a portion of
the Registrable Securities held by such requesting Investors.
(b) FORM S-3. After the first public offering of its securities
registered under the Securities Act, the Company shall use its commercially
reasonable efforts to qualify and remain qualified to register securities on
Form S-3 (or any successor form allowing substantial incorporation by reference
to Exchange Act reports filed by the Company) under the Securities Act. If the
Company is eligible to use Form S-3 or any such successor form for Registrable
Securities, the Investors will be entitled to demand up to three registrations
on Form S-3 or such successor forms, including registrations for the sale of
such Registrable Securities on a delayed or continuous basis pursuant to Rule
415 under the Securities Act; PROVIDED, HOWEVER, that the Company need not file
a registration statement applying to the sale of the Registrable securities for
a period of up to 60 calendar days if the Board of Directors of the Company so
determines in the good faith exercise of its reasonable judgment that due to a
pending or contemplated material acquisition or disposition or other material
transaction or occurrence, it would be inadvisable to file a registration
statement at such time. Such demands shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by such Investor or Investors.
(c) REGISTRATION REQUIREMENTS. Following a request pursuant to
Section 7.2(a) or (b) above, the Company will notify all of the Holders who
would be entitled to notice of a proposed registration under Section 7.1 above
and any other holder of piggyback registration rights of its receipt of such
notification from such Investor or Investors. Upon the written request of any
such Holder or other holder of the Company's securities delivered to the Company
within 20 days after receipt from the Company of such notification, the Company
will either (i) elect to make a primary offering, in which case the rights of
such Holders shall be as set forth in Section 7.1 above (in which case the
registration shall not count as one of the Investors' permitted demand
registrations hereunder), or (ii) use its best efforts to cause such of the
Registrable Securities as may be requested by any Holders and any other holders
of piggyback registration rights to be registered under the Securities Act in
accordance with the terms of this Section 7.2; provided, however, that the
number of shares of Registrable Securities of the Holders included in any such
offering shall in no event be less than thirty percent (30%) of the aggregate
number of shares of capital stock to be registered, unless the aggregate number
of shares of Registrable Securities the Holders requested in writing to be in
such offering is less than thirty percent (30%) of the aggregate number of
shares of capital stock to be registered.
(d) NUMBER OF REQUIRED REGISTRATIONS. The Company will not be
obligated pursuant to this Section 7.2 to effect more than two registration
statements on Form S-1 or S-2, but shall be obligated to file an unlimited
number of registration statements on Form S-3.
(e) POSTPONEMENT. The Company may postpone the filing of any
registration statement required hereunder for a reasonable period of time, not
to exceed 60 days in the
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aggregate during any twelve-month period, if the Board of Directors of the
Company determines in the good faith exercise of its reasonable judgment that
due to a pending or contemplated material acquisition or disposition or other
material transaction or occurrence, it would be inadvisable to file a
registration statement at such time. The Company shall not be required to cause
a registration statement requested pursuant to this Section 7.2 to become
effective prior to 90 days following the effective date of a registration
statement initiated by the Company or the Investors, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Investors that the
Company is commencing to prepare a Company-initiated registration statement
(other than a registration effected solely to implement an employee benefit plan
or a transaction to which Rule 145 or any other similar rule of the SEC under
the Securities Act is applicable); provided, however, that the Company shall use
its best efforts to achieve such effectiveness promptly.
(f) SUSPENSION. In the case of a registration for the sale of
Registrable Securities, upon receipt of any notice (a "Suspension Notice") from
the Company of the happening of any event which makes any statement made in the
registration statement or related prospectus untrue or which requires the making
of any changes in such registration statement or prospectus so that they will
not contain any untrue statement of a material fact or omit to state any
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,
each holder of Registrable Securities registered under such registration
statement shall forthwith discontinue disposition of such Registrable Securities
pursuant to such registration statement until such holder's receipt of the
copies of the supplemented or amended prospectus or until it is advised in
writing (the "Advice") by the Company that the use of the prospectus may be
resumed, and has received copies of any additional or supplemental filings which
are incorporated by reference in the prospectus; provided, however, that the
Company shall not give a Suspension Notice until after the registration
statement has been declared effective and shall not give more than one
Suspension Notice to the Holders in respect to all Registrable Securities and
pursuant to this Section 7 during any period of twelve (12) consecutive months
and in no event shall the period from the date on which any Holder receives a
Suspension Notice to the date on which any Holder receives either the Advice or
copies of the supplemented or amended prospectus (the "Suspension Period")
exceed 60 days. In the event that the Company shall give any Suspension Notice,
the Company shall use its best efforts and take such actions as are reasonably
necessary to render the Advice and end the Suspension Period as promptly as
practicable.
7.3 REGISTRABLE SECURITIES. For the purposes of this Section 7, the
term "Registrable Securities" shall mean any shares of Common Stock held by a
Holder (including without limitation the Common Shares) or subject to
acquisition by a Holder upon conversion of Convertible Preferred Shares, as
applicable, including any shares issued by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization; provided, however, that if an Investor
owns Convertible Preferred Shares, the Investor may exercise its registration
rights hereunder by converting the shares to be sold publicly into Common Stock
as of the closing of the relevant offering and shall not be required to cause
such Convertible Preferred Shares to be converted to Common Stock until and
unless such Closing occurs, it being understood that the Company shall at the
request of the relevant
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Investor effect the reconversion of Common Stock and any Redeemable Preferred
Stock to Convertible Preferred Stock if such a conversion occurs notwithstanding
the foregoing and a public offering does not close; and provided, further, that
any Common Stock that is sold in a registered sale pursuant to an effective
registration statement under the Securities Act or pursuant to Rule 144
thereunder, or that may be sold without restriction as to volume or otherwise
pursuant to Rule 144 under the Securities Act (as confirmed by an unqualified
opinion of counsel to the Company), shall not be deemed Registrable Securities.
7.4 FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is
required hereunder to register any Registrable Securities, it agrees that it
shall also do the following:
(a) Pay all expenses of such registrations and offerings (exclusive
of underwriting discounts and commissions) and the reasonable fees and expenses
of not more than one independent counsel for the Holders satisfactory to the
Investors in connection with any registrations pursuant to Section 7.1, up to
one registration on Form S-1 or S-2 designated by the Investors and up to three
registrations on Form S-3 designated by the Investors, provided that the
Investors shall pay all such expenses in connection with any other demand
registrations;
(b) Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources)
diligently to prepare and file with the SEC a registration statement and such
amendments and supplements to said registration statement and the prospectus
used in connection therewith as may be necessary to keep said registration
statement effective for at least 180 days from the date the SEC declares each
such Registration Statement effective or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs, and to comply with the provisions of the
Securities Act with respect to the sale of securities covered by said
registration statement for the period necessary to complete the proposed public
offering;
(c) Furnish to each selling Holder such copies of each preliminary
and final prospectus and such other documents as such Holder may reasonably
request to facilitate the public offering of its Registrable Securities;
(d) Enter into any reasonable underwriting agreement required by the
proposed underwriter (which underwriter shall be selected by the selling
Investors in connection with any registration requested pursuant to Section 7.2,
subject to the Company's prior approval, which approval shall not be
unreasonably withheld), if any, in such form and containing such terms as are
customary; provided, however, that no Holder shall be required to make any
representations or warranties other than with respect to its title to the
Registrable Securities and any written information provided by the Holder to the
Company, and if the underwriter requires that representations or warranties be
made and that indemnification be provided, the Company shall make all such
representations and warranties and provide all such indemnities, including,
without limitation, in respect of the Company's business, operations and
financial information and the disclosures relating thereto in the prospectus;
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(e) Use its best efforts (with due regard to management of the
ongoing business of the Company and the allocation of managerial resources) to
register or qualify the securities covered by said registration statement under
the securities or "blue sky" laws of such jurisdictions as any selling Holder
may reasonably request, provided that the Company shall not be required to
register or qualify the securities in any jurisdictions which require it to
qualify to do business therein;
(f) Immediately notify each selling Holder, at any time when a
prospectus relating to his or her Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such prospectus contains an untrue statement of a material fact or omits
any material fact necessary to make the statements therein not misleading, and,
at the request of any such selling Holder, prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each
securities exchange or quotation system on which similar securities issued by
the Company are then listed or quoted;
(h) Otherwise use its best efforts to comply with the securities laws
of the United States and other applicable jurisdictions and all applicable rules
and regulations of the SEC and comparable governmental agencies in other
applicable jurisdictions and make generally available to its holders, in each
case as soon as practicable, but not later than 45 days after the close of the
period covered thereby, an earnings statement of the Company which will satisfy
the provisions of Section 11(a) of the Securities Act;
(i) Obtain and furnish to each selling Holder, immediately prior to
the effectiveness of the registration statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable Securities
sold pursuant thereto), a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the Holders of a majority of the
Registrable Securities being sold may reasonably request; and
(j) Otherwise cooperate with the underwriter or underwriters, the
Commission and other regulatory agencies and take all actions and execute and
deliver or cause to be executed and delivered all documents necessary to effect
the registration of any Registrable Securities under this Section 7.
7.5 INDEMNIFICATION; CONTRIBUTION.
(a) Incident to any registration statement referred to in this
Section 7, the Company will indemnify and hold harmless each underwriter, each
Holder who offers or sells any such Registrable Securities in connection with
such registration statement (including its partners (including partners of
partners and stockholders of any such partners), and directors, officers,
employees and agents of any of them (a "Selling Holder"), and each person who
controls any of
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them within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934 (the "Exchange Act") (a "Controlling Person")),
from and against any and all losses, claims, damages, expenses and liabilities,
joint or several (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 claim asserted, as the same are incurred), to which they, or
any of them, may become subject under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are based
on (i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement (including any related preliminary or
definitive prospectus, or any amendment or supplement to such registration
statement or prospectus), (ii) any omission or alleged omission to state in such
document a material fact required to be stated in it or necessary to make the
statements in it not misleading, or (iii) any violation by the Company of the
Securities Act, any state securities or "blue sky" laws or any rule or
regulation thereunder in connection with such registration; provided, however,
that the Company will not be liable to the extent that such loss, claim, damage,
expense or liability arises from and is based on an untrue statement or omission
or alleged untrue statement or omission made in reliance on and in conformity
with information furnished in writing to the Company by such underwriter,
Selling Holder or Controlling Person expressly for use in such registration
statement; and PROVIDED, FURTHER, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, expense or liability
that arises out of or is based upon an untrue statement or allegedly untrue
statement or omission or alleged omission in the prospectus, if such untrue
statement or allegedly untrue statement, omission or alleged omission is
corrected so as to comply with all applicable securities laws in an amendment or
supplement to the prospectus and if, having previously been furnished by or on
behalf of the Company with copies of the prospectus as so amended or
supplemented, such holder thereafter fails to deliver such prospectus as so
amended or supplemented prior to or concurrently with the sale of a Registrable
Security to the person asserting such loss, claim, damage, expense or liability
who purchased such Registrable Security which is the subject thereof from such
holder. With respect to such untrue statement or omission or alleged untrue
statement or omission in the information furnished in writing to the Company by
such Selling Holder expressly for use in such registration statement, such
Selling Holder will indemnify and hold harmless each underwriter, the Company
(including its directors, officers, employees and agents), each other Holder
(including its partners (including partners of partners and stockholders of such
partners) and directors, officers, employees and agents of any of them, and each
person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), from and against any and all
losses, claims, damages, expenses and liabilities, joint or several, to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise to the same extent provided in the immediately preceding sentence. In
no event, however, shall the liability of a Selling Holder for indemnification
under this Section 7.5(a) exceed the lesser of (i) that proportion of the total
of such losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement which
is being sold by such Selling Holder or (ii) the proceeds received by such
Selling Holder from its sale of Registrable Securities under such registration
statement.
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(b) If the indemnification provided for in Section 7.5(a) above for
any reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
7.5, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the other
Selling Holders and the underwriters from the offering of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the other Selling Holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
Selling Holders and the underwriters shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the Selling Holders and 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, the Selling Holders or the underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Selling Holders, and the underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7.5(b)
were determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. In no event, however, shall a Selling
Holder be required to contribute any amount under this Section 7.5(b) in excess
of the lesser of (i) that proportion of the total of such losses, claims,
damages or liabilities indemnified against equal to the proportion of the total
Registrable Securities sold under such registration statement which are being
sold by such Selling Holder or (ii) the proceeds received by such Selling Holder
from its sale of Registrable Securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
(c) The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 7.5 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, payable as the same are incurred. The indemnification and
contribution provided for in this Section 7.5 will remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified
parties or any officer, director, employee, agent or controlling person of the
indemnified parties.
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7.6 RULE 144 AND RULE 144A REQUIREMENTS. In the event that the Company
becomes subject to Section 13 or Section 15(d) of the Exchange Act, the Company
shall use its best efforts to take all action as may be required as a condition
to the availability of Rule 144 or Rule 144A under the Securities Act (or any
successor or similar exemptive rules hereafter in effect). The Company shall
furnish to any Holder, within 15 days of a written request, a written statement
executed by the Company as to the steps it has taken to comply with the current
public information requirement of Rule 144 or Rule 144A or such successor rules.
7.7 TRANSFER OF REGISTRATION RIGHTS. The registration rights and
related obligations under this Section 7 of the Holders with respect to their
Registrable Securities may be assigned in connection with any transaction or
series of related transactions involving the Transfer to one or more transferees
that are not Competitors (as defined in Section 5.1(c) hereof) of at least
38,540 shares of capital stock of the Company, other than pursuant to an
effective registration statement under the Securities Act or pursuant to Rule
144 thereunder (subject to adjustments for stock splits, stock dividends and the
like and aggregating all contemporaneous transfers by Holders), or to any TA
Funds or permitted transferee, and upon any such transfer such transferee or TA
Fund shall sign a counterpart signature page hereto and in any event shall be
deemed to be included within the definition of a "Holder" for purposes of this
Section 7 with the rights set forth herein. The relevant Holder as the case may
be, shall notify the Company at the time of such transfer.
7.8 "MARKET STAND-OFF" AGREEMENT. In connection with any underwritten
public offering by the Company, the Holders, if requested in good faith by the
Company and the managing underwriter of the Company's securities, shall agree
not to sell or otherwise transfer or dispose of any securities of the Company
held by them (except for any securities sold pursuant to such registration
statement) for a period following the effective date of the applicable
registration statement; provided, however that in no event shall such period
exceed 180 days; and provided further that such agreement shall not be required
in the Company's initial public offering unless all officers and directors and
two percent (2%) or greater stockholders of the Company (who do not hold their
shares due to a transfer from the Investors or the Investors' transferees) and
all other persons with registration rights enter into similar agreements. In
order to enforce the foregoing, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Holder (and the
shares of securities of every other person subject to the foregoing restriction)
until the end of such period.
SECTION 8 ELECTION OF DIRECTORS
Notwithstanding any other provision of this Agreement or the Articles
of Incorporation, from the date hereof until the earliest of (i) the closing of
a Qualified Public Offering, (ii) the date on which no shares of Convertible
Preferred Stock or Redeemable Preferred Stock are outstanding or (iii) the date
which is 10 years after the date hereof, each Investor and each Shareholder
agrees to vote all of its shares of the Company's capital stock having voting
power (and any other shares over which he, she or it exercises voting control)
and to take such other actions as are necessary so as to cause the Board of
Directors of the Company to include and consist of the Investors' Nominees and
the Independent Director, who shall be the Directors subject to election by the
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holders of the Convertible Preferred Stock or the Redeemable Preferred Stock
under the terms of the Articles of Incorporation, and four (4) nominees of the
Management Shareholders each of whom shall be a Management Shareholder or a
member of the Company's management or an otherwise qualified individual
reasonably acceptable to the Investors; provided, however, that the Investors'
Nominees shall at all times be Kenneth T. Schiciano and A. Bruce Johnston for so
long as such individuals remain in the employ of TA Associates, Inc., and
thereafter shall be such nominees of the Investors that have been reasonably
approved by the Management Shareholders, provided that the Management
Shareholders shall have the right to reject no more than five (5) of such
nominees. Each Shareholder and each Investor agrees to vote all shares of the
Company's capital stock having voting power (and any other shares over which he,
she or it exercises voting control) in such manner as shall be necessary or
appropriate to ensure that any vacancy on the Board of Directors of the Company
with respect to the Directors subject to nomination as provided herein shall be
filled in accordance with the provisions of this Section 8.
SECTION 9 SURVIVAL; INDEMNIFICATION.
9.1 SURVIVAL OF REPRESENTATIONS; WARRANTIES AND COVENANTS;
ASSIGNABILITY OF RIGHTS. All covenants, agreements, representations and
warranties of the Company, the Shareholders and the Investors made herein and in
the Disclosure Schedules and the Articles of Incorporation (a) are material,
shall be deemed to have been relied upon by the party or parties to whom they
are made and shall survive the Closing regardless of any investigation or
knowledge on the part of such party or its representatives and (b) shall bind
the parties' successors and assigns (including without limitation any successor
to the Company by way of acquisition, merger or otherwise), whether so expressed
or not, and, except as otherwise provided in this Agreement, all such covenants,
agreements, representations and warranties shall inure to the benefit of the
Investors' permitted successors and permitted assigns and to their permitted
transferees of Securities, whether so expressed or not, subject to the
provisions of Sections 4.8, 5.4, 6.2 and 7.7, and any such transferee shall be
deemed an "Investor" for purposes hereof; provided, however, that such
representations and warranties (other than representations and warranties made
pursuant to Sections 2.1 and 2.2 which shall survive indefinitely and
representations and warranties made pursuant to Sections 2.3, 2.11, 2.20 and
2.22 which shall survive until the expiration of the applicable statute of
limitations) shall only survive the Closing until, (i) with respect to
indemnification from the Company, the Company Expiration Date (as defined in
Section 9.3(b) below), and (ii) with respect to indemnification from the
Shareholders, the Shareholder Expiration Date (as defined in Section 9.3(b)
below).
9.2 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS. Subject to the
other provisions of this Section 9, the Company and each of the Shareholders
agrees, jointly and severally, to indemnify and hold harmless the Investors,
their affiliates and their respective officers, directors, partners, employees
and agents and each person who controls any of them within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (or any
successor provision) (individually, a "Investor Indemnified Party" and
collectively, the "Investor Indemnified Parties") from and against and in
respect of all losses, liabilities, obligations, damages, deficiencies, actions,
suits, proceedings, demands, assessments, orders, judgments,
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fines, penalties, costs and expenses (including the reasonable fees,
disbursements and expenses of attorneys, accountants and consultants) of any
kind or nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) sustained, suffered or incurred by or made against any Investor
Indemnified Party (a "Loss" or "Losses") arising out of, based upon or in
connection with:
(a) fraud, intentional misrepresentation or a deliberate or
willful breach by the Company or any Shareholder of any of their
representations, warranties or covenants under this Agreement, the Disclosure
Schedules or the Articles of Incorporation;
(b) any other breach of any representation or warranty made by
the Company or any Shareholder in this Agreement, the Disclosure Schedules or
the Articles of Incorporation, or by reason of any claim, action or proceeding
asserted or instituted arising out of any matter or thing covered by any such
representations or warranties;
(c) any breach of any other covenant or agreement made by the
Company or any of the Shareholders in this Agreement, the Disclosure Schedules
or the Articles of Incorporation, or by reason of any claim, action or
proceeding asserted or instituted arising out of any matter or thing covered by
any such covenant or agreement; and
(d) any fees and expenses related to this Agreement or any
transactions contemplated hereby to be paid by the Company or the Shareholders
pursuant to Section 3.16 or 10.10 of this Agreement.
Claims under clauses (a) through (d) of this Section 9.2 are hereinafter
collectively referred to as "Investor Indemnifiable Claims."
The rights of Investor Indemnified Parties to recover indemnification
in respect of any occurrence referred to in clauses (a), (c) and (d) of this
Section 9.2 shall not be limited by the fact that such occurrence may not
constitute an inaccuracy in or breach of any representation or warranty referred
to in clause (b) of this Section 9.2.
9.3 LIMITATIONS ON INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS.
(a) GENERAL THRESHOLD. The Company and the Shareholders shall
not be obligated to indemnify Investor Indemnified Parties in respect of any
Loss arising from Investor Indemnifiable Claims pursuant to Section 9.2(b)
(other than with respect to the representations and warranties set forth in
Sections 2.1, 2.2, 2.3, 2.11, 2.20 and 2.22, to which the following threshold
shall not apply) except to the extent the cumulative amount of such claims under
such clause (b) of Section 9.2 exceeds $500,000, whereupon the full amount of
such Losses in excess of such $500,000 shall be recoverable in accordance with
the terms hereof; provided, however, that in the event the cumulative amount of
such claims under such clause (b) of Section 9.2 exceeds $1,000,000, the full
amount of such Losses (including the first $500,000 of such Losses) shall be
recoverable in accordance with the terms hereof.
34
<PAGE> 40
(b) TIME LIMITS FOR CLAIMS. Indemnification with respect to
Losses arising from Investor Indemnifiable Claims pursuant to Section 9.2(b)
shall expire with respect to (i) the Company on the sixtieth day following
receipt by the Investors of the Company's audited annual financial statements
with respect to the Company's 1998 fiscal year (the "Company Expiration Date")
and (ii) the Shareholders on the sixtieth day following receipt by the Investors
of the Company's audited annual financial statements with respect to the
Company's 1997 fiscal year (the "Shareholder Expiration Date"); PROVIDED,
HOWEVER, that any Investor Indemnifiable Claim arising from a breach of any of
the representations or warranties contained in Section 2.3 and 2.11 shall expire
on the applicable statute of limitations; PROVIDED FURTHER, HOWEVER, that in
each case if prior to the applicable date of expiration a specific state of
facts shall have become known which may constitute or give rise to any Loss as
to which indemnity may be payable and an Investor Indemnified Party shall have
given written notice of such facts to the Company, then the right to
indemnification with respect thereto shall remain in effect until such matter
shall have been finally determined and disposed of, and any indemnification due
in respect thereof shall have been paid, according to the date on which notice
of the applicable claim is given.
(c) LIMITATION ON CLAIMS.
(i) COMPANY. Notwithstanding any other provision of
this Agreement, the Company's obligations to indemnify Investor Indemnified
Parties in respect of Losses arising pursuant to Section 9.2(b) (other than with
respect to the representations and warranties set forth in Sections 2.1, 2.2,
2.3, 2.11, 2.20 and 2.22 to which the following limits shall not apply) shall be
limited in the aggregate to $17,500,000.
(ii) SHAREHOLDERS. Notwithstanding any other
provision of this Agreement, the Shareholders' obligations to indemnify Investor
Indemnified Parties in respect of Losses arising pursuant to Section 9.2(b)
(other than with respect to the representations and warranties set forth in
Sections 2.1, 2.2, 2.3, 2.11, 2.20 and 2.22 to which the following limits shall
not apply) shall be limited in the aggregate to $5,722,000.00 with respect to
the Conley Shareholders (as identified on EXHIBIT C hereto) and $5,722,000.00
with respect to the Canitano Shareholders (as identified on EXHIBIT C hereto).
(d) NONAPPLICABILITY OF LIMITATIONS. Notwithstanding anything
in this Section 9.3 to the contrary, Investor Indemnified Parties shall not be
subject to any limitation, whether pursuant to this Section 9.3 or otherwise,
and shall be entitled to dollar-for-dollar recovery, in seeking indemnification
from the Company and the Shareholders with respect to Losses arising under or
described in Sections 9.2(a), (c) or (d).
9.4 INDEMNIFICATION BY THE INVESTORS. The Investors agree to indemnify
and hold harmless the Company, its affiliates and its officers, directors,
employees and agents and each person who controls any of them within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act (or any
successor provision) (individually, a "Company Indemnified Party" and
collectively, the "Company Indemnified Parties") from and against and in respect
of all Losses sustained, suffered or incurred by or made against any Company
Indemnified Party arising out of, based upon or in connection with:
35
<PAGE> 41
(a) fraud, intentional misrepresentation or a deliberate or
willful breach by any Investor of any of their representations, warranties or
covenants under this Agreement or in any certificate, schedule or exhibit
delivered hereto.
(b) any other breach of any representation or warranty made by
any Investor in this Agreement or in any exhibit, certificate, agreement or
other instrument delivered under or in connection with this Agreement, or by
reason of any claim, action or proceeding asserted or instituted arising out of
any matter or thing covered by any such representations or warranties; or
(c) any breach of any other covenant or agreement made by any
Investor in this Agreement or in any exhibit, certificate, agreement or other
instrument delivered under or in connection with this Agreement, or by reason of
any claim, action or proceeding asserted or instituted arising out of any matter
or thing covered by any such covenant or agreement.
Claims under clauses (a) through (c) of this Section 9.4 are
hereinafter collectively referred to as "Company Indemnifiable Claims."
9.5 INTENTIONALLY OMITTED.
9.6 NOTICE; DEFENSE OF CLAIMS. Promptly after receipt by an indemnified
party of notice of any claim, liability or expense to which the indemnification
obligations set forth in Sections 9.2 or 9.4 would apply, the indemnified party
shall give notice thereof in writing to the indemnifying party, but the omission
to so notify the indemnifying party promptly will not relieve the indemnifying
party from any liability except to the extent that the indemnifying party shall
have been prejudiced as a result of the failure or delay in giving such notice.
Such notice shall state the information then available regarding the amount and
nature of such claim, liability or expense and shall specify the provision or
provisions of this Agreement under which the liability or obligation is
asserted. If within twenty (20) days after receiving such notice the
indemnifying party gives written notice to the indemnified party stating that
(a) it would be liable under the provisions hereof for indemnity in the amount
of such claim if such claim were successful and (b) that it disputes and intends
to defend against such claim, liability or expense at its own cost and expense,
then counsel for the defense shall be selected by the indemnifying party
(subject to the consent of the indemnified party which consent shall not be
unreasonably withheld) and the indemnified party shall not be required to make
any payment with respect to such claim, liability or expense as long as the
indemnifying party is conducting a good faith and diligent defense at its own
expense; PROVIDED, HOWEVER, that the assumption of defense of any such matters
by the indemnifying party shall relate solely to the claim, liability or expense
that is subject or potentially subject to indemnification. The indemnifying
party shall have the right, with the consent of the indemnified party, which
consent shall not be unreasonably withheld, to settle all indemnifiable matters
related to claims by third parties which are susceptible to being settled
provided its obligation to indemnify the indemnifying party therefor will be
fully satisfied. The indemnifying party shall keep the indemnified party
apprised of the status of the claim, liability or expense and any resulting
suit, proceeding or enforcement action, shall furnish the indemnified party with
all documents and information that the indemnified party shall reasonably
request and shall consult with the indemnified party prior to acting on major
matters, including settlement discussions.
36
<PAGE> 42
Notwithstanding anything herein stated to the contrary, the indemnified party
shall at all times have the right to fully participate in such defense at its
own expense directly or through counsel; PROVIDED, HOWEVER, if the named parties
to the action or proceeding include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate under applicable standards of professional conduct, the expense
of separate counsel for the indemnified party shall be paid by the indemnifying
party. If no such notice of intent to dispute and defend is given by the
indemnifying party, or if such diligent good faith defense is not being or
ceases to be conducted, the indemnified party shall, at the expense of the
indemnifying party, undertake the defense of (with counsel selected by the
indemnified party), and shall have the right to compromise or settle (exercising
reasonable business judgment), such claim, liability or expense. If such claim,
liability or expense is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available all
information and assistance that the indemnifying party may reasonably request
and shall cooperate with the indemnifying party in such defense.
9.7 RIGHTS OF INVESTORS.
(a) The Company shall, to the full extent permitted by law,
and in addition to any such rights which any Investor may have under this
Section 9, pursuant to statute, the Company's Articles of Incorporation or Code
of Regulations, or otherwise, indemnify and hold harmless each Investor
Indemnified Party from and against any and all losses, claims, damages, expenses
and liabilities, joint or several (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 claim asserted), to which they, or any of
them, may become subject by reason of, in their capacity as or as a result of
any action taken or omitted to be taken by them as a security holder, creditor,
director, agent, representative or controlling person of the Company, including,
without limitation, any and all losses, claims, damages, expenses and
liabilities, joint or several (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 claim asserted) under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, including without limitation any such claim alleging so-called
control person liability or securities law liability, which relates directly or
indirectly to the registration, purchase, sale or ownership of any securities of
the Company or to any fiduciary obligation owed with respect thereto; PROVIDED,
HOWEVER, that the Company will not be liable to the extent that such loss,
claim, damage, expense or liability arises from, is based upon or is in
connection with (i) an untrue statement or omission or alleged untrue statement
or omission in a registration statement or prospectus which is made in reliance
on and in conformity with written information furnished to the Company in an
instrument duly executed by or on behalf of such Investor Indemnified Party
specifically stating that it is for use in the preparation thereof, (ii) an act
of such Investor Indemnified Party that either was in bad faith or was in a
manner such Investor Indemnified Party did not reasonably believe to be in or
not opposed to the best interests of the Company, (iii) conduct by the Investor
Indemnified Party which constitutes fraud, gross negligence or willful
malfeasance, or (iv) a knowing and willful violation of the federal securities
laws by an Indemnified Party, in each case as finally determined by a court of
competent jurisdiction without a right of appeal.
37
<PAGE> 43
(b) If the indemnification provided for in Section 9.7(a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Investor Indemnified Party in respect of any losses, claims,
damages, expenses or liabilities referred to therein, then the Company, in lieu
of indemnifying such Investor Indemnified Party thereunder, shall contribute to
the amount paid or payable by such Investor Indemnified Party as a result of
such losses, claims, damages, expenses or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Investors, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Investors in connection with the action or inaction
which resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In connection with any
registration of the Company's securities, the relative benefits received by the
Company and the Investors shall be deemed to be in the same respective
proportions that the net proceeds from the offering (before deducting expenses)
received by the Company and the Investors, in each case as set forth in the
table on the cover page of the applicable prospectus, bear to the aggregate
public offering price of the securities so offered. The relative fault of the
Company and the Investors 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 Investors and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Investors agree that it would not be just
and equitable if contribution pursuant to this Section 9.7(b) were determined by
pro rata or per capita allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. In connection with the registration of the
Company's securities, in no event shall an Investor be required to contribute
any amount under this Section 9.7(b) in excess of the lesser of (i) that
proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total securities sold under
such registration statement which is being sold by such Investor or (ii) the
proceeds received by such Investor from its sale of securities under such
registration statement. No person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(c) The indemnification and contribution provided for in this
Section 9.7 will remain in full force and effect regardless of any investigation
made by or on behalf of the Investor Indemnified Parties or any officer,
director, partner, employee, agent of an Investor Indemnified Party or any
person who controls any of them within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (or any successor provision).
(d) Any Investor Indemnified Party that proposes to assert the
right to be indemnified under this Section 9.7 will, promptly after receipt of
notice of commencement of any claim or action against such party in respect of
which a claim is to be made against the Company under this Section 9.7, notify
the Company of the commencement of such action, enclosing a copy
38
<PAGE> 44
of all papers served, but the omission so to notify the Company will not relieve
the Company from any liability that the Company may have to any Investor
Indemnified Party under the foregoing provisions of this Section 9.7 unless, and
only to the extent that, such omission results in the forfeiture of substantive
rights or defenses by the Company. The Investor Indemnified Party will have the
right to retain its own counsel in any such action and all fees, disbursements
and other charges incurred in the investigation, defense and/or settlement of
such action shall be advanced and reimbursed by the Company promptly as they are
incurred; provided, however, that the Investor Indemnified Party shall agree to
repay any expenses so advanced hereunder if it is ultimately determined by a
court of competent jurisdiction that the Investor Indemnified Party to whom such
expenses are advanced is not entitled to be Investor Indemnified as a matter of
law. The Company shall not settle any action or claim for which indemnification
is sought under this Section 9.7 without the prior written consent of the
Investor Indemnified Party.
SECTION 10 GENERAL
10.1 AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this
Agreement and all agreements executed pursuant hereto, no course of dealing
between or among any of the parties hereto and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No provision hereof may be waived
otherwise than by a written instrument that makes reference to this Agreement
and is signed by the party or parties so waiving such covenant or other
provision. No amendment to this Agreement may be made without the written
consent of the Company and the Investors; provided that the written consent of
the Shareholders shall be required for any amendment of Sections 4, 5, 6, 7,
8.1, 9 or 10 hereof. Any actions required to be taken or consents, approvals,
votes or waivers required or contemplated to be given by the Investors or the
Shareholders shall require a vote of one-half in interest of the Investors or
three-fourths (3/4) in interest of the Shareholders, as applicable, based on the
relative holdings of capital stock of the Company of the Investors as a group or
of the Shareholders as a group, as applicable, at the relevant time, and any
such action by such Investors or Shareholders, as applicable, shall bind all of
the Investors, or Shareholders, as applicable.
10.2 LEGEND ON SECURITIES. The Company, the Investors and the
Shareholders acknowledge and agree that the following legend shall be typed on
each certificate evidencing any of the securities issued hereunder held at any
time by an Investor or Shareholder:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS.
39
<PAGE> 45
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF THE COMPANY AND A STOCK
PURCHASE AND SHAREHOLDERS AGREEMENT DATED AS OF OCTOBER 15, 1997, INCLUDING
THEREIN CERTAIN RESTRICTIONS ON TRANSFER. A COMPLETE AND CORRECT COPY OF THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION AND THE AGREEMENT ARE AVAILABLE
FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED TO
THE SHAREHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE WITHIN FIVE (5) DAYS
AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR ADDRESSED TO THE COMPANY.
10.3 GOVERNING LAW. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of
Massachusetts, without giving effect to conflict of laws principles thereof.
10.4 SECTION HEADINGS AND GENDER. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
10.5 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which when so executed and delivered shall be
taken to be an original; but such counterparts shall together constitute but one
and the same document.
10.6 NOTICES AND DEMANDS. Any notice or demand which is required or
provided to be given under this Agreement or the Articles of Incorporation shall
be deemed to have been sufficiently given and received for all purposes when
delivered by hand, telecopy, telex or other method of facsimile, or five days
after being sent by certified or registered mail, postage and charges prepaid,
return receipt requested, or two days after being sent by overnight delivery
providing receipt of delivery, to the following addresses:
if to the Company:
Conley, Canitano & Assoc., Inc.
Signature Square, Suite 300
25101 Chagrin Boulevard
Beachwood, OH 44122
Fax: (216) 831-0317
if to Nicholas or Annette Canitano:
c/o Conley, Canitano & Assoc., Inc.
Signature Square, Suite 300
25101 Chagrin Boulevard
40
<PAGE> 46
Beachwood, OH 44122
Fax: (216) 831-0317
If to Kenneth or Karen Conley:
c/o Conley, Canitano & Assoc., Inc.
Signature Square, Suite 300
25101 Chagrin Boulevard
Beachwood, OH 44122
Fax: (216) 831-0317
; if to an Investor, c/o TA Associates, Inc. at its mailing address as shown on
EXHIBIT A hereto, or at any other address designated by TA Associates, Inc. to
the Company and the Shareholders in writing.
10.7 DISPUTE RESOLUTION. Except with respect to matters as to which
injunctive relief is being sought, any dispute arising out of or relating to
this Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to
Endispute for final and binding arbitration pursuant to Endispute's Arbitration
Rules. Any such arbitration shall be conducted in Cleveland, Ohio. Such
proceedings shall be guided by the following agreed upon procedures:
(a) mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the initiation of the procedure;
(b) no other discovery;
(c) hearings before the neutral advisor which shall consist of
a summary presentation by each side of not more than three hours; such hearings
to take place on one or two days at a maximum;
(d) decision to be rendered not more than ten (10) days
following such hearings; and
(e) punitive damages shall not be permitted under any
circumstances.
10.8 REMEDIES; SEVERABILITY. Notwithstanding Section 10.7, it is
specifically understood and agreed that any breach of the provisions of this
Agreement by any person subject hereto will result in irreparable injury to the
other parties hereto, that the remedy at law alone will be an inadequate remedy
for such breach, and that, in addition to any other remedies which they may
have, such other parties may enforce their respective rights by actions for
specific performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its shareholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement. Whenever possible, each provision of this
Agreement shall be
41
<PAGE> 47
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be deemed prohibited or invalid
under such applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or the other provisions of this
Agreement.
10.9 INTEGRATION. The terms and provisions of this Agreement and its
Schedules and Exhibits constitute the entire agreement between the parties and
there are no collateral agreements or representations or warranties other than
as expressly set forth or referred to in this Agreement. This Agreement
(including the Schedules and Exhibits) supersedes any other agreement, whether
written or oral, that may have been made or entered into by any party hereto or
any of their respective affiliates (or by any director, officer or
representative hereof) relating to the matters contemplated hereby.
10.10 FEES AND EXPENSES. The Company shall reimburse the Investors for
the reasonable out-of-pocket expenses incurred by the Investors in connection
with the transactions contemplated by this Agreement, such expenses not to
exceed $75,000.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
42
<PAGE> 48
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
COMPANY:
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Nicholas A. Canitano
---------------------------------------
Name: Nicholas A. Canitano
Title: President
SHAREHOLDERS:
/s/ Annette M. Canitano
------------------------------------------
Annette M. Canitano
/s/ Nicholas A. Canitano
------------------------------------------
Nicholas A. Canitano
/s/ Karen M. Conley
------------------------------------------
Karen M. Conley
/s/ Kenneth L. Conley
------------------------------------------
Kenneth L. Conley
NAC ENTERPRISES, INC.
By: /s/ Nicholas A. Canitano
---------------------------------------
Name: Nicholas A. Canitano
Title: President
S-1
<PAGE> 49
CKCK ENTERPRISES, INC.
By: /s/ Kenneth L. Conley
---------------------------------------
Name: Kenneth L. Conley
Title:
KENNETH L. CONLEY CHARITABLE
REMAINDER TRUST
By: /s/ Kenneth L. Conley
---------------------------------------
Name: Kenneth L. Conley
Title: Trustee
KAREN M. CONLEY CHARITABLE
REMAINDER TRUST
By: /s/ Karen M. Conley
---------------------------------------
Name: Karen M. Conley
Title: Trustee
S-2
<PAGE> 50
INVESTORS:
TA/ADVENT VIII L.P.
By: TA Associates VIII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
*
------------------------------------------
Name: Kenneth T. Schiciano
Title: Principal
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
*
------------------------------------------
Name: Kenneth T. Schiciano
Title: Principal
TA VENTURE INVESTORS LIMITED
PARTNERSHIP
*
------------------------------------------
Name: Kenneth T. Schiciano
Title: Principal
* /s/ Kenneth T. Schiciano
- ---------------------------------------
By: Kenneth T. Schiciano
Title: Principal
S-3
<PAGE> 51
McDonald & Company Securities, Inc.
By: /s/ Ralph M. Della Ratta, Jr.
---------------------------------------
Name: Ralph M. Della Ratta, Jr.
Title: Senior Managing Partner
McD Venture Capital Fund, L.P.
By: /s/ Ralph M. Della Ratta, Jr.
---------------------------------------
Name: Ralph M. Della Ratta, Jr.
Title: General Partner
GHK Investments, L.L.C.
By: /s/ William R. Koehler
---------------------------------------
Name: William R. Koehler
Title: Agent
S-4
<PAGE> 52
Exhibit A
---------
List of Investors
-----------------
1. Convertible Preferred Shares
<TABLE>
<CAPTION>
Number of Aggregate Purchase Price
Investor Preferred Shares ($69.89 Per Share)
-------- ---------------- ------------------
<S> <C> <C>
TA/Advent VIII L.P. 201,416 $14,076,964.24
Advent Atlantic 37,803 $2,642,051.67
and Pacific III L.P.
TA Venture Investors L.P. 4,027 $281,447.03
McDonald & Company 5,008 $350,036.13
Securities, Inc.
McD Venture Capital Fund, L.P. 1,431 $100,012.59
GHK Investments, L.L.C. 715 $49,971.35
------- -------------
TOTALS 250,400 $17,500,456.00
======= ===============
</TABLE>
A-1
<PAGE> 53
2. Common Shares
<TABLE>
<CAPTION>
Number of Aggregate Purchase Price
Investor Common Shares ($.01 Per Share)
-------- ------------- ----------------
<S> <C> <C>
TA/Advent VIII L.P. 108,591 $1,085.91
$1,082.71
Advent Atlantic 20,381 $203.81
and Pacific III L.P.
TA Venture Investors L.P. 2,171 $21.71
McDonald & Company 2,701 $27.01
Securities, Inc.
McD Venture Capital Fund, L.P. 771 $7.71
GHK Investments, L.L.C. 385 $3.85
------- ---------
TOTALS 135,000 $1,350.00
======= =========
</TABLE>
Notices to:
TA Associates, Inc.
High Street Tower, Suite 2500
125 High Street
Boston, MA 02110
Copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attention: Jeffrey C. Hadden, Esq.
A-2
<PAGE> 54
EXHIBIT C
Redemption Shares
Name of Shareholder Number of Shares to be Redeemed
------------------- -------------------------------
CANITANO SHAREHOLDERS:
Annette M. Canitano 0
Nicholas A. Canitano 0
NAC Enterprises, Inc. 67,500
CONLEY SHAREHOLDERS:
Karen M. Conley 0
Kenneth L. Conley 0
CKCK Enterprises, Inc. 61,000
Kenneth L. Conley Charitable
Remainder Trust 3,250
Karen M. Conley Charitable
Remainder Trust 3,250
C-1
<PAGE> 55
DISCLOSURE SCHEDULE to Stock Purchase and Shareholders Agreement, dated October
15, 1997, ("Stock Purchase Agreement") by and among Conley, Canitano & Assoc.,
Inc. ("Company"), Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley,
Kenneth L. Conley, NAC Enterprises, Inc., CKCK Enterprises, Inc. and Conley
Charitable Remainder Unitrust (the "Shareholders"), and the investment
partnerships named in Exhibit A thereto ("Investors").
Introduction
The contents of this Disclosure Schedule are qualified in their entirety by
reference to specific provisions of the Stock Purchase Agreement. This
Disclosure Schedule is not intended to constitute, and shall not be deemed to
constitute, representations and warranties of the Company except as and to the
extent provided in the Stock Purchase Agreement.
This Disclosure Schedule may contain certain information which is not
specifically required by the Stock Purchase Agreement. Any such information is
provided only for Investor's general information and is not separately
represented or warranted. The inclusion of any such information in this
Disclosure Schedule shall not be evidence of or constitute an admission that
such information is material for purposes of the Stock Purchase Agreement.
Certain information contained in various parts of this Disclosure Schedule may
pertain to other parts of this Disclosure Schedule. Accordingly, information
contained in any part of this Disclosure Schedule is hereby incorporated into
all other parts of this Disclosure Schedule to the extent relevant.
Terms defined in the Stock Purchase Agreement will have the meanings ascribed to
them in the Stock Purchase Agreement where used herein.
The contents of this Disclosure Schedule are as of October 15, 1997 except those
items included in the Disclosure Schedule which are marked with an earlier date.
<PAGE> 56
SCHEDULE 2.2(a)
---------------
AUTHORIZATION AND NON-CONTRAVENTION
-----------------------------------
1. The investment by the Investors accelerates payments due to Joseph
Minadeo by the Company and the Shareholders and requires the Company to
pay Joseph Minadeo an amount equal to an aggregate of $200,000
multiplied by a fraction representing the aggregate fractional interest
purchased by the Investors. See the Amended and Restated Share
Redemption and Purchase Agreement, dated August 1, 1997, among the
Company, the Shareholders and Joseph Minadeo, as amended October 13,
1997 (the "Minadeo Agreement").
2. The investment will result in an event of default of the Equipment
Lease, dated January 9, 1997 with Fifth Third Bank.
<PAGE> 57
SCHEDULE 2.2(b)
---------------
AUTHORIZATION AND NON-CONTRAVENTION (SHAREHOLDERS)
--------------------------------------------------
See Schedule 2.2(a).
<PAGE> 58
SCHEDULE 2.3
------------
RESTRICTED STOCK PLAN; CAPITALIZATION
-------------------------------------
1. See attached copy of the Company's 1997 Equity and Performance Incentive
Plan.
<TABLE>
<CAPTION>
2. Shareholder Shares Held
----------- -----------
<S> <C>
Nicholas A. Canitano 134,900
Annette M. Canitano 134,900
Kenneth L. Conley 134,900
Karen M. Conley 134,900
NAC Enterprises, Inc. 67,500
CKCK Enterprises, Inc. 61,000
Kenneth L. Conley Charitable
Remainder Trust 3,250
Karen M. Conley Charitable
Remainder Trust 3,250
-------
Total Shares Outstanding 674,600
=======
</TABLE>
<PAGE> 59
SCHEDULE 2.6
------------
UNDISCLOSED LIABILITIES
-----------------------
1. $700,000 Variable Rate Commercial Promissory Note to Commerce Exchange
Bank, dated August 25, 1997 (the "Commerce Exchange Note").
2. The Company is obligated to pay rent on its Signature Square office
until March 31, 2001.
3. The Company is investigating potential tax liability in various states
where it might be considered doing business. The Company believes the
total liability for such unpaid taxes will not exceed $70,000.
4. The Company received a foreign tax refund in 1993 for $44,000, which
the Company believes may have been received in error.
<PAGE> 60
SCHEDULE 2.7
CERTAIN DEVELOPMENTS
i. None.
ii. 1. The Company redeemed eight shares of its common stock
pursuant to the Minadeo Agreement.
2. The Company filed a Certificate of Amendment to its Articles
of Incorporation on October 10, 1997, which converted each
outstanding share of Common Stock outstanding into 6,364.151
shares of Common Stock.
iii. 1. The Company credited $64,000 of invoicing errors in August,
1997.
2. The Company cancelled a $96,712 debt owed by the Shareholders
to the Company pursuant to two $44,500 Notes issued on January
7, 1997.
iv. None.
v. Purchases by the Company for CCI Renaissance Centre including
approximately $250,000 for PBX, voice mail, cabling network
communications and video conferencing equipment; approximately $300,000
for flexible workstations; approximately $50,000 for networking and
communications equipment and approximately $100,000 for an upgrade to
standard finish.
vi. 1. Transactions contemplated by the Minadeo Agreement.
2. The Company paid bonuses to the Shareholders in the aggregate
amount of $400,000 on August 3, 1997.
vii. 1. See item (vi.) above.
2. On September 1, 1997 the Company adopted an Insured Qualified
Sick-Pay Plan for certain of its employees.
3. The Company changed its medical benefit plan from Medical
Mutual of Ohio to Safeco on July 1, 1997.
4. The Company changed its payroll service provider to ADP on
October 1, 1997.
viii. None.
<PAGE> 61
ix. 1. Payments made and commissions earned under the Company's
Management Incentive Plan.
2. See item 2(vi) above.
x. None.
xi. None.
xii. 1. $700,000 Note to Commerce Exchange Bank.
2. Lease payments pursuant to the Equipment Lease, dated January
9, 1997 with the Fifth Third Bank (the "Fifth Third
Agreement").
3. Minadeo Agreement.
xiii. None other than listed.
<PAGE> 62
SCHEDULE 2.9
------------
ACCOUNTS RECEIVABLE
-------------------
See item (iii) on Schedule 2.7
<PAGE> 63
SCHEDULE 2.10
-------------
PROPERTIES
----------
Leased Headquarters of the Company
- ----------------------------------
Conley, Canitano and Assoc., Inc.
Suite 390
25201 Chagrin Boulevard
Beachwood, Ohio 44122
1. Signature Square Office Lease, dated June 12, 1986.
2. Lease Modification Agreement, dated October 31, 1990, between the
Company and Signature Square.
3. Second Lease Modification and Extension Agreement, dated June 2, 1993,
between the Company and Signature Square.
4. Lease Modification Agreement, dated November 11, 1996, between the
Company and Signature Square.
5. Lease Agreement, dated January 3, 1997, between American National
Development, Ltd. and the Company for CCAI Renaissance Centre.
6. Letter Agreement with American National, dated May 14, 1996.
7. Operating Agreement of Place Renaissance Ltd., dated January 3, 1997.
8. Liens:
a) Commerce Exchange Bank has a blanket lien on the assets of the
Company.
<PAGE> 64
SCHEDULE 2.11
-------------
TAX MATTERS
-----------
1. The Company was audited by the IRS for the 1993 tax year. No items are
disputed or pending regarding this completed audit.
2. The Ohio Department of Taxation is currently calculating any
adjustments to Ohio franchise tax that will be required as a result of
the 1993 federal audit, if any.
3. The Company is currently undergoing an Ohio sales and use tax audit for
the years 1992, 1993, 1994 and 1995. The Company believes the total
liability relating to these audits will not exceed $20,000.
4. The Company has delivered to the Investors a copy of the federal and
state tax returns for 1994, 1995 and 1996. 1994 through 1996 are open
years for federal. 1993 through 1996 are open years for state.
5. See item 3 on Schedule 2.6.
<PAGE> 65
SCHEDULE 2.12
-------------
CONTRACTS
---------
a. None.
b. 1. See Agreements listed on Schedule 2.10.
2. The Fifth Third Agreement
3. See Insurance Policies listed on Schedule 2.21.
4. See Schedule 2.15.
5. See Schedule 2.20.
6. The Minadeo Agreement.
c. 1. Purchase Order for Contract Programming Services dated
March 4, 1997, between the Company and Brush Wellman Inc.
2. Agreement for Consulting and Programming Services, dated
February 24, 1997, between the Company and Master Builders,
Inc. (the "Master Builders Agreement").
d. 1. National Implementation Partner Agreement, dated April 2,
1996, between the Company and SAP America, Inc.
2. ASAP Partner Addendum to National Implementation Agreement
effective July 1, 1997, between the Company and SAP America,
Inc.
3. Oracle Agreement.
e. 1. See item (d.) above.
2. CourtMaster Licensing Agreements with Lyndhurst Municipal
Court, Lawrence County Municipal Court, City of Shelby,
Garfield Heights Municipal Court, City of East Cleveland, City
of Alliance, City of Taylor, City of Gahanna, City of East
Liverpool, City of Avon Lake, Parma Municipal Court, City of
Shaker Heights, Ashtabula Municipal Court, Chillicothe
Municipal Court, Village of Oakwood, Athens Municipal Court,
City of Marion, City of Independence, City of Xenia, Village
of Boston Heights, City of Beachwood, Berea Municipal Court,
Euclid Municipal Court, Village of Northfield, Elyria
Municipal Court and the City of Westlake (the "Court Master
Agreements"). These agreements are substantially similar and
the Company has provided only examples to the Investors.
<PAGE> 66
f. 1. See Schedule 2.7, item (v).
2. The Fifth Third Agreement.
g. 1. Commercial Security Agreement, dated June 5, 1996, between
Commerce Exchange Bank and the Company.
2. Commercial Security Agreement, dated May 31, 1997, between
Commerce Exchange Bank and the Company.
3. Bank Note, dated May 31, 1997, between Commerce Exchange and
the Company.
4. The Commerce Exchange Note.
h. 1. National Implementation Partner Agreement, dated November
2, 1994, between the Company and SAP America, Inc.
2. Letter from SAP America, dated November 13, 1995, regarding
their intent to renew the National Implementation Partner
Agreement.
3. National Implementation Partner Agreement, dated as of April
2, 1996, between the Company and SAP America, Inc.
4. ASAP Partner Addendum to National Implementation Agreement
effective July 1, 1997, between the Company and SAP America,
Inc. (items 1-4 of this Section h are herein referred to as
the "SAP Agreement").
5. Teaming Agreement, dated September 9, 1996, between the
Company and Elsag Bailey, Inc.
6. Oracle Agreement.
7. North American Consulting Agreement, dated November 3, 1994,
between the Company and Ernst & Young LLP, together with
Renewal and Extension, dated October 14, 1996 (the "Ernst &
Young Agreement").
8. Consultant Agreement, dated June 23, 1997, between the Company
and Arthur Anderson Consulting LLP (the "Arthur Anderson
Agreement").
i. 1. ASAP Partner Addendum to National Implementation Agreement
effective July 1, 1997, between the Company and SAP America,
Inc.
2. Advertising Agreement, dated April 22, 1996, between the
Company and Saifman, Richards & Associates.
<PAGE> 67
j. 1. The Company has entered into an employment agreement with
each of its employees other than the Shareholders. The
agreements are generally of one of four types; Marketing,
Human Resources, SAP and Non-SAP. The Company has only
provided the Investors with a form of each type.
2. See Schedule 2.7(ii.).
3. See Schedule 2.22.
k. See Schedule 2.7(ii.).
l. 1. The Company has a discretionary profit sharing plan with
its employees, last year the Company deposited approximately
$135,000 into employees' 401(k) plans.
2. Earnings Incentive Plan as described in the Company's Employee
Manual.
3. Performance Incentive Plan.
4. Sales Commission Plan.
5. Recruiting Commission Plan.
6. Management Incentive Plan.
7. Flexible 401(k) and Profit Sharing Plan Agreement, dated
October 15, 1996, between the Company and Putnam.
m. 1. See Schedule 2.7(ii.)
2. See Incentive and Commission Plans in item l above.
n. None.
o. None.
p. See Schedule 2.7(ii.).
q. The Company has a verbal agreement with the court system of the City of
Bedford, Ohio, to pay to Bedford Courts a royalty fee of 15% on the
sale of any court master software product.
<PAGE> 68
SCHEDULE 2.13
-------------
INTELLECTUAL PROPERTY
---------------------
None.
<PAGE> 69
SCHEDULE 2.15
-------------
EMPLOYEE BENEFIT PLANS
----------------------
1. Flexible 401(k) and Profit Sharing Plan Agreement, dated October 15,
1996, between the Company and Putnam.
2. See Schedule 2.12(l.).
3. Insured Qualified Sick-Pay Plan.
4. See the Company's Employee Handbook, which explains other Company
benefits provided to employees.
5. See attached Summary of Insurance Policies of the Shareholders.
6. Voluntary Dental Plans
a. American Prepaid Dental Plan
b. Jefferson Pilot Dental Plan
7. Administrative Service Consultants Medical Plan (Plan #: C-97016)
<PAGE> 70
SCHEDULE 2.17
-------------
EMPLOYEES AND SUPPLIERS
-----------------------
SCHEDULE 2.17(b) List of all managers, employees and consultants, 1996,
$250,000-- current job title, years of service and aggregate
annual compensation and benefits.
Tim May Account Executive 01/09/95
Jack Rhyne V.P. Enterprise Systems 03/07/94
Glenn Furth Advisory Assoc. 03/07/94
Alan Branstein Managing Assoc. 09/13/94
Hallie Rosenberg Account Exec. 07/10/95
Grant Margrett Account Exec. 08/07/95
Tim Flowers Account Exec. 03/29/90
Mark Soltys District Manager 11/14/94
Lia Koumbardou Sr. Consultant 04/24/95
Robert MacKinlay District Manager 04/18/94
SCHEDULE 2.17(b) List of all material suppliers, 1996
1. The only material suppliers to the Company are its insurance carriers.
<PAGE> 71
SCHEDULE 2.20
-------------
INVESTMENT BANKING; BROKERAGE
-----------------------------
1. Engagement letter, dated February 26, 1997, between the
Company and McDonald & Co.
<PAGE> 72
SCHEDULE 2.21
-------------
INSURANCE
---------
See attached Summary of Insurance for Conley, Canitano and Associates, Inc.
<PAGE> 73
SCHEDULE 2.22
-------------
TRANSACTIONS WITH AFFILIATES
----------------------------
1. Promissory notes, dated January 7, 1997, from Annette and Nicholas
Canitano and Karen and Ken Conley to the Company each in the principal
amount of $44,500.
2. Operating Agreement of Place Renaissance Ltd., dated January 3, 1997.
3. Minadeo Agreement.
4. Lease Agreement with National Development, Ltd.
5. The following employees are related to one of the Shareholders:
a. Linda Newman - Accounting Manager
b. Don Newman - SAP Consultant
c. Christine Meredith - Clerk
d. Brian Conley - SAP Consultant
e. John Minadeo - Cobol Programmer
<PAGE> 74
SCHEDULE 2.23
-------------
CUSTOMERS
---------
1. SAP America, Brush Wellman, Ernst & Young, Master Builders, Andersen
Consulting, Key Corp., Cole National, Office Max, Ciba-Geigy, Medical
Mutual, General Tire, Simon & Schuster, Allegiance, Unisys, Goodyear
Tire & Rubber, Pilkington Barnes Hind and EDS.
2. Key Services has notified the Company that the Company is no longer
designated as a preferred customer.
<PAGE> 75
SCHEDULE 2.24
-------------
PRODUCT AND SERVICE WARRANTIES
------------------------------
1. Terms of the CourtMaster Agreements.
2. Terms of the Master Builders Agreement.
3. Purchase order for Contract Programming Services, a form of which is
attached.
4. Terms of the Arthur Anderson Agreement.
5. Terms of the SAP Agreement.
6. Terms of the Ernst & Young Agreement.
7. Terms of the Oracle Agreement.
<PAGE> 76
SCHEDULE 2.25
-------------
CERTAIN EVENTS
--------------
None.
<PAGE> 77
SCHEDULE 4.7
------------
MANAGEMENT COMPENSATION
-----------------------
<TABLE>
<S> <C>
Nicholas A. Canitano $ 250,000
Annette M. Canitano 150,000
Kenneth L. Conley 250,000
Karen M. Conley 150,000
</TABLE>
The Shareholders will also participate in a Bonus Plan to be established by the
Board of Directors prior to 1998.
<PAGE> 78
SCHEDULE 5.1(d)
---------------
COMPETITORS
-----------
Please see attached list of SAP Alliance Partners.
<PAGE> 79
CONSENT OF SPOUSE
-----------------
I, Nicholas A. Canitano, spouse of Annette M. Canitano,
acknowledge that I have read the Stock Purchase and Shareholders Agreement dated
as of October 15, 1997, to which this Consent is attached as EXHIBIT H (the
"Agreement") and that I know its contents. I am aware that by its provisions,
including without limitation the provisions of Section 5 of the Agreement,
certain restrictions are imposed upon the sale or other dispostion of any shares
of the Company of which I may become possessed as a result of a gift from my
spouse or a court decree and/or any property settlement in any domestic
litigation.
I hereby agree that my interest, if any, in the shares subject
to the Agreement will be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
shares will be similarly bound by the Agreement.
I am aware that the legal, financial and related matters
contained in the Agreement are complex and that I am free to seek independent
professional guidance or counsel with respect to this Consent. I have either
sought such guidance or counsel or determined after reviewing the Agreement
carefully that I waive such right.
Dated as of the 15th day of October, 1997.
/s/ Nicholas A. Canitano
-------------------------------
Nicholas A. Canitano
<PAGE> 80
CONSENT OF SPOUSE
-----------------
I, Annette M. Canitano, spouse of Nicholas A. Canitano,
acknowledge that I have read the Stock Purchase and Shareholders Agreement dated
as of October 15, 1997, to which this Consent is attached as EXHIBIT H (the
"Agreement") and that I know its contents. I am aware that by its provisions,
including without limitation the provisions of Section 5 of the Agreement,
certain restrictions are imposed upon the sale or other dispostion of any shares
of the Company of which I may become possessed as a result of a gift from my
spouse or a court decree and/or any property settlement in any domestic
litigation.
I hereby agree that my interest, if any, in the shares subject
to the Agreement will be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
shares will be similarly bound by the Agreement.
I am aware that the legal, financial and related matters
contained in the Agreement are complex and that I am free to seek independent
professional guidance or counsel with respect to this Consent. I have either
sought such guidance or counsel or determined after reviewing the Agreement
carefully that I waive such right.
Dated as of the 15th day of October, 1997.
/s/ Annette M. Canitano
-------------------------------
Annette M. Canitano
<PAGE> 81
CONSENT OF SPOUSE
-----------------
I, Kenneth L. Conley, spouse of Karen M. Conley, acknowledge
that I have read the Stock Purchase and Shareholders Agreement dated as of
October 15, 1997, to which this Consent is attached as EXHIBIT H (the
"Agreement") and that I know its contents. I am aware that by its provisions,
including without limitation the provisions of Section 5 of the Agreement,
certain restrictions are imposed upon the sale or other dispostion of any shares
of the Company of which I may become possessed as a result of a gift from my
spouse or a court decree and/or any property settlement in any domestic
litigation.
I hereby agree that my interest, if any, in the shares subject
to the Agreement will be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
shares will be similarly bound by the Agreement.
I am aware that the legal, financial and related matters
contained in the Agreement are complex and that I am free to seek independent
professional guidance or counsel with respect to this Consent. I have either
sought such guidance or counsel or determined after reviewing the Agreement
carefully that I waive such right.
Dated as of the 15th day of October, 1997.
/s/ Kenneth L. Conley
-------------------------------
Kenneth L. Conley
<PAGE> 82
CONSENT OF SPOUSE
-----------------
I, Karen M. Conley, spouse of Kenneth L. Conley, acknowledge
that I have read the Stock Purchase and Shareholders Agreement dated as of
October 15, 1997, to which this Consent is attached as EXHIBIT H (the
"Agreement") and that I know its contents. I am aware that by its provisions,
including without limitation the provisions of Section 5 of the Agreement,
certain restrictions are imposed upon the sale or other dispostion of any shares
of the Company of which I may become possessed as a result of a gift from my
spouse or a court decree and/or any property settlement in any domestic
litigation.
I hereby agree that my interest, if any, in the shares subject
to the Agreement will be irrevocably bound by the Agreement and further
understand and agree that any community property interest I may have in the
shares will be similarly bound by the Agreement.
I am aware that the legal, financial and related matters
contained in the Agreement are complex and that I am free to seek independent
professional guidance or counsel with respect to this Consent. I have either
sought such guidance or counsel or determined after reviewing the Agreement
carefully that I waive such right.
Dated as of the 15th day of October, 1997.
/s/ Karen M. Conley
-------------------------------
Karen M. Conley
<PAGE> 1
Exhibit 10.18
CONLEY, CANITANO & ASSOC., INC.
INCENTIVE STOCK OPTION AGREEMENT
Name of Optionee:
-------------------------------
Position:
-------------------------------
Date of Grant:
-------------------------------
Expiration Date:
-------------------------------
Number of Optioned
Shares:
-------------------------------
Option Price: $4.67
Right to Exercise: On each anniversary of the Date of Grant the number
of Optioned Shares equal to 20% multiplied by the
initial number of Optioned Shares.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by its duly authorized officer and Optionee has also
executed this Agreement in duplicate, as of the day and year first above
written.
CONLEY, CANITANO & ASSOC., INC.
By:
------------------------------
Title:
----------------------------
----------------------------------
Optionee
THIS AGREEMENT SHALL BE VOID IF IT HAS NOT BEEN EXECUTED AND RETURNED TO THE
COMPANY WITHIN 30 DAYS AFTER THE DATE OF GRANT.
<PAGE> 2
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THIS OPTION AGREEMENT AND THE SECURITIES UNDERLYING
THIS OPTION AGREEMENT MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS SUCH SALE, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER
DISPOSITION SHALL HAVE BEEN REGISTERED UNDER SAID ACT AND IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS OR UNTIL THE COMPANY SHALL HAVE RECEIVED A
LEGAL OPINION SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, THAT SUCH
SECURITIES MAY BE LEGALLY SOLD OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION AND COMPLIANCE.
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
This AGREEMENT (the "Agreement") is made as of the date of grant on the
cover page hereof (the "Date of Grant") by and between Conley, Canitano &
Assoc., Inc., an Ohio corporation (the "Company"), and the individual named on
the cover page hereto (the "Optionee").
1. GRANT OF STOCK OPTION. Subject to and upon the terms, conditions,
and restrictions set forth in this Agreement and in the Company's 1997 Equity
and Performance Incentive Plan (the "Plan"), the Company hereby grants to the
Optionee as of the Date of Grant a stock option (the "Option") to purchase the
number of shares of the Company's common stock without par value shown on the
cover page hereof (the "Optioned Shares"). The Option may be exercised from time
to time in accordance with the terms of this Agreement. The price at which the
Optioned Shares may be purchased pursuant to this Option shall be as set forth
on the cover page hereof subject to adjustment as hereinafter provided (the
"Option Price"). The Option is intended to be an "incentive stock option" within
the meaning of that term under Section 422 of the Code, or any successor
provision thereto; this Agreement shall be construed in a manner that will
enable this Option to be so qualified.
2. TERM OF OPTION. The term of the Option shall commence on the Date of
Grant and, unless earlier terminated in accordance with Section 6 hereof, shall
expire seven (7) years from the Date of Grant.
3. RIGHT TO EXERCISE. Subject to the expiration or earlier termination,
this Option shall become exercisable as set forth on the cover page hereof. To
the extent the Option is exercisable, it may be exercised in whole or in part.
In no event shall the Optionee be entitled to acquire a fraction of one Optioned
Share pursuant to this Option. The Optionee shall be entitled to the privileges
of ownership with respect to Optioned Shares purchased and delivered to him upon
the exercise of all or part of this Option.
<PAGE> 3
4. OPTION NONTRANSFERABLE. The Option granted hereby shall be neither
transferable nor assignable by the Optionee other than by will or by the laws of
descent and distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee, or in the event of his or her legal incapacity,
by his or her guardian or legal representative acting on behalf of the Optionee
in a fiduciary capacity under state law and court supervision.
5. NOTICE OF EXERCISE; PAYMENT. To the extent then exercisable, the
Option may be exercised by written notice to the Company stating the number of
Optioned Shares for which the Option is being exercised and the intended manner
of payment. Payment equal to the aggregate Option Price of the Optioned Shares
for which the Option is being exercised shall be tendered in full with the
notice of exercise to the Company in cash in the form of currency or check or
other cash equivalent acceptable to the Company. The Optionee may also tender
the Option Price by (a) the actual or constructive transfer to the Company of
nonforfeitable, nonrestricted Common Shares that have been owned by the Optionee
for (i) more than one year prior to the date of exercise and for more than two
years from the date on which the option was granted, if they were originally
acquired by the Optionee pursuant to the exercise of an incentive stock option,
or (ii) more than six months prior to the date of exercise, if they were
originally acquired by the Optionee other than pursuant to the exercise of an
incentive stock option, or (b) by any combination of the foregoing methods of
payment, including a partial tender in cash and a partial tender in
nonforfeitable, nonrestricted Common Shares. Within ten (10) days thereafter,
the Company shall direct the due issuance of the Optioned Shares so purchased.
Nonforfeitable, nonrestricted Common Shares that are transferred by the Optionee
in payment of all or any part of the Option Price shall be valued on the basis
of their Fair Market Value per Common Share. The requirement of payment in cash
shall be deemed satisfied if the Optionee makes arrangements that are
satisfactory to the Company with a bank or broker that is a member of the
National Association of Securities Dealers, Inc. to sell on the exercise date a
sufficient number of Optioned Shares that are being purchased pursuant to the
exercise, so that the net proceeds of the sale transaction will at least equal
the amount of the aggregate Option Price plus payment of any applicable
withholding taxes, and pursuant to which the bank or broker undertakes to
deliver to the Company the amount of the aggregate Option Price plus payment of
any applicable withholding taxes, on a date satisfactory to the Company, but not
later than the date on which the sale transaction will settle in the ordinary
course of business. As a further condition precedent to the exercise of this
Option, the Optionee shall comply with all regulations and requirements of any
regulatory authority having control of, or supervision over, the issuance of
Common Shares and in connection therewith shall execute any documents which the
Board or a Committee thereof shall in its sole discretion deem necessary or
advisable. The date of such notice shall be the exercise date.
6. TERMINATION OF AGREEMENT. This Agreement and the Option granted
hereby shall terminate automatically and without further notice on the earliest
of the following dates:
(a) One (1) year after the Optionee's death or permanent and
total disability, if the Optionee dies or becomes permanently and totally
disabled while in the employ of the Company;
(b) One (1) year after the Optionee's retirement under a
retirement plan of the Company or one of its Subsidiaries at or after the
earliest voluntary retirement age provided for in such retirement plan or
retirement at any earlier age with the consent of the Board or a Committee
thereof;
-2-
<PAGE> 4
(c) Except as provided on a case-by-case basis, thirty (30)
calendar days after the Optionee ceases to be an employee, advisor or consultant
of the Company and its Subsidiaries for any reason other than as described in
Section 6(a) or 6(b) hereof; or
(d) Seven (7) years from the Date of Grant.
In the event that the Optionee's employment is terminated for cause, this
Agreement shall terminate at the time of such termination notwithstanding any
other provision of this Agreement. For purposes of this provision, "cause" shall
mean the Optionee shall have committed prior to termination of employment any of
the following acts:
(i) an intentional act of fraud, embezzlement, theft,
or any other material violation of law in connection with the Optionee's duties
or in the course of the Optionee's employment;
(ii) intentional wrongful damage to material assets
of the Company;
(iii) intentional wrongful disclosure of material
confidential information of the Company;
(iv) intentional wrongful engagement in any
competitive activity that would constitute a material breach of the duty of
loyalty; or
(v) intentional breach of any stated material
employment policy of the Company.
This Agreement shall not be exercisable for any number of Optioned Shares in
excess of the number of Optioned Shares for which this Agreement is then
exercisable, pursuant to Sections 3 and 7 hereof, on the date of termination of
employment. For the purposes of this Agreement, the continuous employment of the
Optionee with the Company shall not be deemed to have been interrupted, and the
Optionee shall not be deemed to have ceased to be an employee of the Company, by
reason of the transfer of his or her employment among the Company and its
Subsidiaries or a leave of absence of not more than thirty (30) days unless
otherwise approved by the Board or a Committee of the Board.
7. ACCELERATION OF OPTION AND EFFECT OF CERTAIN TRANSACTIONS. (a)
Notwithstanding anything herein to the contrary, as of the effective date of any
Sale Event (as defined below), one half of each 20% annual tranche of the Option
Shares that vest pursuant to Section 3 hereof, which are then unvested shall
vest and be deemed vested. Further, notwithstanding anything herein to the
contrary but without limitation of Section 7(b), in the event that this Stock
Option is assumed in the sole discretion of the parties to a Sale Event and
thereafter remains in effect following such Sale Event as contemplated by
Section 7(b), then this Stock Option shall be deemed vested and exercisable in
full upon the date on which the Optionee's employment with the Company and its
Subsidiaries or successor entity terminates if (i) such termination occurs
within eighteen (18) months of such Sale Event and (ii) such termination is by
the Company without cause or by the Optionee if such termination by Optionee is
preceded during such 18-month period by any material adverse
-3-
<PAGE> 5
modification of the duties, principal employment location or compensation of the
Optionee without his or her consent.
(b) In the case of (i) the dissolution or liquidation of the
Company, (ii) the sale of all or substantially all of the assets of the Company
on a consolidated basis to another person or entity, (iii) a merger,
reorganization or consolidation in which the holders of the Company's
outstanding voting power immediately prior to such transaction do not own a
majority of the outstanding voting power of the surviving or resulting entity
immediately upon completion of such transaction, (iv) the sale of all of the
outstanding stock of the Company to an unrelated person or entity or (v) any
other transaction where the owners of the Company's outstanding voting power
prior to such transaction do not own at least a majority of the outstanding
voting power of the relevant entity after the transaction (in each case, a "Sale
Event"), this Stock Option shall terminate on the effective date of such
transaction or event, unless provision is made in such transaction in the sole
discretion of the parties thereto for the assumption of this Stock Option or the
substitution for this Stock Option of a new stock option of the successor person
or entity or a parent or subsidiary thereof, with appropriate adjustment as to
the number and kind of shares and the per share exercise price, as provided in
Section 13 of this Agreement. In the event of any transaction which will result
in such termination, the Company shall give to the Optionee written notice
thereof at least fifteen (15) days prior to the effective date of such
transaction. Until such effective date, the Optionee may exercise any portion of
this Stock Option which is or becomes vested as of such effective date (as
contemplated by Section 3, but after such effective date, the Optionee may not
exercise this Stock Option unless it is assumed or substituted by the successor
entity (or a parent or subsidiary thereof) as provided above.
8. COMPANY'S RIGHT OF REPURCHASE. The Company shall have the right (the
"Repurchase Right") to repurchase some or all of the Option Shares which the
Optionee has elected to exercise from the Optionee, upon the occurrence of any
of the events specified in Section 8(b) below (the "Repurchase Event"). The
Repurchase Right may be exercised by the Company within 180 days following the
date of such event (the "Repurchase Period"). The Repurchase Right shall be
exercised by the Company by giving the holder written notice on or before the
last day of the Repurchase Period of its intention to exercise the Repurchase
Right, and, together with such notice, tendering to the holder an amount equal
to the greater of the option price or the fair market value of the shares,
determined as provided in Section 8(c). The Company may assign the Repurchase
Right to one or more persons. Upon exercise of the Repurchase Right in the
manner provided in this Section 8(a), the Optionee shall deliver to the Company
the stock certificate or certificates representing the Option Shares being
repurchased, duly endorsed and free and clear of any and all liens, charges and
encumbrances.
If Option Shares are not purchased under the Repurchase Right,
the Optionee and his or her successor in interest, if any, will hold any such
shares in his or her possession subject to all of the provisions of this Section
8 and Section 9 hereof.
(b) COMPANY'S RIGHT TO EXERCISE REPURCHASE RIGHT. The Company
shall have the Repurchase Right in the event that any of the following events
shall occur:
-4-
<PAGE> 6
(i) The termination of the Optionee's employment
with the Company and its subsidiaries for
any reason whatsoever, regardless of the
circumstances thereof, and including without
limitation upon death, disability,
retirement, discharge or resignation for any
reason, whether voluntary or involuntarily;
or
(ii) The (x) filing of a voluntary petition under
any bankruptcy or insolvency law, or a
petition for the appointment of a receiver
or the making of an assignment for the
benefit of creditors, with respect to the
Optionee, or (y) the Optionee being
subjected involuntarily to a petition or
assignment or to an attachment or other
legal or equitable interest with respect to
his or her assets, which involuntary
petition or assignment or attachment is not
discharged within 60 days after its date and
(z) the Optionee being subject to a transfer
of Option Shares by operation of law, except
by reason of death.
(c) DETERMINATION OF FAIR MARKET VALUE. The fair market value
of the Option Shares shall be, for purposes of this Section 8, determined as of
the date of the Repurchase Event by a Special Committee of the Company's Board
of Directors. The Special Committee shall meet annually and determine the
Company's fair market value in the event the Company has not conducted an
initial public offering of its equity securities.
(d) EXPIRATION OF COMPANY'S REPURCHASE RIGHT. The Repurchase
Right shall remain in effect until the closing of the first public offering of
the Company's equity securities registered under the Securities Act of 1933, as
amended, or any successor statute, or such other event as a result of which
outstanding equity securities of the Company (or any successor entity) shall be
publicly traded (an "Initial Public Offering").
9. COMPANY'S RIGHT OF FIRST REFUSAL.
(a) EXERCISE OF RIGHT. If the Company does not elect to
purchase any Option Shares within the period specified in Section 8(a) and
thereafter the Optionee desires to transfer all or any part of the Option Shares
to any person other than the Company (an "Offeror"), the Optionee shall: (i)
obtain in writing an irrevocable and unconditional bona fide offer (the "Offer")
for the purchase thereof from the Offeror; and (ii) give written notice (the
"Option Notice") to the Company setting forth the Optionee's desire to transfer
such shares, which Option Notice shall be accompanied by a photocopy of the
Offer and shall set forth the name and address of the Offeror and the price and
terms of the Offer. Upon receipt of the Option Notice, the Company shall have an
assignable option to purchase any or all of such Option Shares (the "Company
Option Shares") specified in the Option Notice, such option to be exercisable by
giving, within 10 days after receipt of the Option Notice, a written counter
notice to the Optionee. If the Company elects to purchase any or all of such
Company Option Shares, it shall be obligated to purchase, and the Optionee shall
be obligated to sell to the Company, such Company Option Shares at the price and
terms indicated in the Offer within 30 days from the date of delivery by the
Company of such counter-notice.
-5-
<PAGE> 7
(b) SALE OF OPTION SHARES TO OFFEROR. The Optionee may, for 60
days after the expiration of the 10-day option period as set forth in Section
9(a), sell to the Offeror, pursuant to the terms of the Offer, any or all of
such Company Option Shares not purchased or agreed to be purchased by the
Company or its assignee. If any or all of such Company Option Shares are not
sold pursuant to an Offer within the time permitted above, the unsold Company
Option Shares shall remain subject to the terms of this Section 9.
(c) ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. If there
shall be any change in the Common Stock of the Company through merger,
consolidation, reorganization, recapitalization, stock dividend, stock split,
combination or exchange of shares, or the like, the restrictions contained in
this Section 9 shall apply with equal force to additional and/or substitute
securities, if any, received by the Optionee in exchange for, or by virtue of
his or her ownership of, Option Shares.
(d) FAILURE TO DELIVER OPTION SHARES. If the Optionee fails or
refuses to deliver on a timely basis duly endorsed certificates representing
Company Option Shares to be sold to the Company or its assignee pursuant to this
Section 9, the Company shall have the right to deposit the purchase price for
such Company Option Shares in a special account with any bank or trust company,
giving notice of such deposit to the Optionee, whereupon such Company Option
Shares shall be deemed to have been purchased by the Company. All such monies
shall be held by the bank or trust company for the benefit of the Optionee. All
monies deposited with the bank or trust company but remaining unclaimed for two
years after the date of deposit shall be repaid by the bank or trust company to
the Company on demand, and the Optionee shall thereafter look only to the
Company for payment. The Company may place a legend on any certificate for
Option Shares delivered to the Optionee reflecting the restrictions on transfer
provided in this Section 9.
(e) EXPIRATION OF COMPANY'S RIGHT OF FIRST REFUSAL. The first
refusal rights of the Company set forth above shall remain in effect until the
closing of an Initial Public Offering.
10. NO EMPLOYMENT CONTRACT. Nothing contained in this Agreement shall
confer upon the Optionee any right with respect to continuance of employment by
the Company, nor limit or affect in any manner the right of the Company to
terminate the employment or adjust the compensation of the Optionee.
11. TAXES AND WITHHOLDING. To the extent that the Company shall be
required to withhold any federal, state, local or foreign taxes in connection
with the exercise of the Option, and the amounts available to the Company for
such withholding are insufficient, it shall be a condition to the exercise of
the Option that the Optionee shall pay such taxes or make provisions that are
satisfactory to the Company for the payment thereof. The Optionee may elect to
satisfy all or any part of any such withholding obligation by (a) surrendering
to the Company a portion of the Optioned Shares that are issued or transferred
to the Optionee upon the exercise of the Option, and the Optioned Shares so
surrendered by the Optionee shall be credited against any such withholding
obligation at the Fair Market Value per Common Share of such shares on the date
of such surrender, or (b) utilizing the bank or broker assistance arrangement
provided in Section 5. The Company will pay any and all issue and other taxes in
the nature thereof which may be payable by the Company in respect of any issue
or delivery upon a purchase pursuant to this Option.
-6-
<PAGE> 8
12. COMPLIANCE WITH LAW. The Company shall make reasonable efforts to
comply with all applicable federal and state securities laws; provided, however,
notwithstanding any other provision of this Agreement, the Option shall not be
exercisable if the exercise thereof would result in a violation of any such law.
13. ADJUSTMENTS. The Board may make or provide for such adjustments in
the number of Optioned Shares covered by this Option, in the Option Price
applicable to such Option, and in the kind of shares covered thereby, as the
Board, in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the Optionee's rights
that otherwise would result from (a) any stock dividend, stock split,
combination of shares, recapitalization, or other change in the capital
structure of the Company, (b) any merger, consolidation, spin-off, split-off,
spin-out, split-up, reorganization, partial or complete liquidation, or other
distribution of assets or issuance of rights or warrants to purchase securities,
or (c) any other corporate transaction or event having an effect similar to any
of the foregoing; provided, however, that no adjustment may be made without the
prior written consent of the Optionee if the adjustment would constitute a
"modification" within the meaning of Section 424(h) of the Code or any successor
provision thereto. In the event of any such transaction or event, the Board, in
its discretion, may provide in substitution for this Option such alternative
consideration as it may determine to be equitable in the circumstances and may
require in connection therewith the surrender of this Option.
14. AVAILABILITY OF COMMON SHARES. The Company shall at all times until
the expiration of the Option reserve and keep available, either in its treasury
or out of its authorized but unissued Common Shares, the full number of Optioned
Shares deliverable upon the exercise of this Option.
15. MANDATORY NOTICE OF DISQUALIFYING DISPOSITION. Without limiting any
other provision hereof, the Optionee hereby agrees that if the Optionee disposes
(whether by sale, exchange, gift or otherwise) of any of the Optioned Shares
within two (2) years of the Date of Grant or within one (1) year after the
transfer of such share or shares to the Optionee, the Optionee shall notify the
Company of such disposition in writing within thirty (30) days from the date of
such disposition. Such written notice shall state the principal terms of such
disposition and the type and amount of the consideration received for such share
or shares by the Optionee in connection therewith.
16. AMENDMENTS. Any amendment to the Plan shall be deemed to be an
amendment to this Agreement to the extent that the amendment is applicable
hereto; provided, however, that no amendment shall adversely affect the rights
of the Optionee under this Agreement without the Optionee's consent.
17. SEVERABILITY. In the event that one or more of the provisions of
this Agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated shall be deemed to be separable from
the other provisions hereof, and the remaining provisions hereof shall continue
to be valid and fully enforceable.
18. RELATION TO PLAN. This Agreement is subject to the terms and
conditions of the Plan. In the event of any inconsistency between the provisions
of this Agreement and the Plan, the Plan shall govern. Capitalized terms used
herein without definition shall have the meanings assigned to
-7-
<PAGE> 9
them in the Plan. The Board acting pursuant to the Plan, as constituted from
time to time, shall, except as expressly provided otherwise herein, have the
right to determine any questions which arise in connection with this Option or
its exercise.
19. SUCCESSORS AND ASSIGNS. Without limiting Section 4 hereof, the
provisions of this Agreement shall inure to the benefit of, and be binding upon,
the successors, administrators, heirs, legal representatives and assigns of the
Optionee, and the successors and assigns of the Company.
20. GOVERNING LAW. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of Ohio, without
giving effect to the principles of conflict of laws thereof.
21. NOTICES. Any notice to the Company provided for herein shall be in
writing to the Company, marked Attention: Nicholas A. Canitano, and any notice
to the Optionee shall be addressed to the Optionee at his or her address on file
with the Company. Except as otherwise provided herein, any written notice shall
be deemed to be duly given if and when delivered personally or deposited in the
United States mail, first class certified or registered mail, postage and fees
prepaid, return receipt requested, and addressed as aforesaid. Any party may
change the address to which notices are to be given hereunder by written notice
to the other party as herein specified (provided that for this purpose any
mailed notice shall be deemed given on the third business day following deposit
of the same in the United States mail).
The remainder of this page is intentionally left blank.
-8-
<PAGE> 1
Exhibit 10.20
AGREEMENT
This Agreement (hereinafter "Agreement") is entered into this 15th
day of October 1997, by and among Conley, Canitano & Assoc., Inc., an Ohio
corporation (together with any predecessors or successors thereto, the
"Company"), Annette M. Canitano, Nicholas A. Canitano, Karen M. Conley, Kenneth
L. Conley, NAC Enterprises, Inc., CKCK Enterprises, Inc., Kenneth L. Conley
Charitable Remainder Trust, Karen M. Conley Charitable Remainder Trust
(collectively the "Shareholders" and individually a "Shareholder"), TA/Advent
VIII, L.P., Advent Atlantic and Pacific L.P., TA Venture Investors Limited
Partnership, Kenneth T. Schiciano, A. Bruce Johnston, McDonald & Company
Securities, Inc., McD Venture Capital Fund, L.P. and GHK Investments, L.L.C.
(together with their successors and assigns, collectively the "Investors," and
each individually an "Investor") and Joseph Minadeo ("Minadeo").
WHEREAS, Minadeo, the Company and certain of the Shareholders are party
to a certain Amended and Restated Share Redemption and Purchase Agreement, dated
July 1, 1997, as amended October 13, 1997 (the "Redemption Agreement");
WHEREAS, Minadeo has been advised that the Company, the Shareholders
and certain of the Investors have reached an agreement with respect to an
investment by certain of the Investors in the Company and a concurrent
redemption by the Company from the Shareholders of a portion of their capital
stock of the Company, which draft of such agreement is set out in further detail
in the Stock Purchase and Shareholders Agreement attached hereto as Exhibit A
(the "Purchase Agreement");
<PAGE> 2
WHEREAS, the consummation of the transactions contemplated by the
Purchase Agreement is conditioned upon the execution of this Agreement and the
consummation of the transactions contemplated hereby; and
WHEREAS, Minadeo has made an independent and informed decision that the
transactions contemplated by the Purchase Agreement and this Agreement are in
his best interests because (i) the transactions contemplated by the Purchase
Agreement will result in the acceleration of certain payments to Minadeo by the
Company and certain of the Shareholders and certain additional payments to
Minadeo by the Company pursuant to the terms of the Redemption Agreement and
(ii) the transactions contemplated by this Agreement will result in an
additional payment to Minadeo as set forth in paragraph 1 below.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company, Shareholders,
Investors and Minadeo agree as follows:
1. PAYMENT. Upon execution of this Agreement, the Company agrees to pay
to Minadeo or his designee the sum of five thousand dollars ($5,000).
2. RELEASE BY MINADEO
------------------
For and in consideration of the $5,000 payment and the additional
covenants and promises set forth in this Agreement and the Redemption Agreement,
Minadeo and his successors, assigns, heirs and beneficiaries (the "Minadeo
Releasing Parties") hereby fully and finally release, acquit and forever
discharge the Company, the Shareholders, the Investors and each of their present
and former officers, directors, general partners, trustees, shareholders,
representatives, employees, partners, principals, agents, affiliates,
subsidiaries, predecessors, successors, assigns,
2
<PAGE> 3
beneficiaries, heirs, executors, insurers and attorneys (collectively, the
"Released Parties") from any and all actions, debts, claims, counterclaims,
demands, liabilities, damages, causes of action, costs, expenses, and
compensation of every kind and nature whatsoever, past, present, or future, in
law or in equity, whether known or unknown, which Minadeo had, has, or may have
had from the beginning of the world to the date of this Agreement against the
Released Parties, or any of them, including but not limited to any claims which
relate to or arise out of Minadeo's prior relationship with Company or stock
ownership in the Company. In executing this Release, Minadeo acknowledges that
he has been informed that the Company and the Investors may from time to time
enter into agreements for additional types of financing, including
recapitalizations and initial public offerings of common stock of the Company,
and also may pursue acquisitions or enter into agreements for the sale of the
Company or its assets, and that any and all claims arising from or relating to
such transactions (without limitation) are intended to be encompassed within the
scope of this release, and that the sole exception to the scope of this release
is for claims arising directly from a breach of this Agreement.
3. COVENANT NOT TO SUE
-------------------
Minadeo further agrees not to institute any litigation, lawsuit, claim
or action against the Company, the Shareholders or the Investors, or any of
them, which arises from, or is alleged to arise from, or relate to, or is based
on, or is in any way connected with, in whole or in part, Minadeo's prior
relationship with the Company or his ownership of stock in the Company,
excepting only claims arising directly from a breach of this Agreement.
4. NO RELIANCE ON REPRESENTATIONS BY THE RELEASED PARTIES
------------------------------------------------------
3
<PAGE> 4
Minadeo hereby represents and warrants that he and his counsel have
adequate information regarding the terms of this Agreement, the scope and effect
of the releases set forth herein, and all other matters encompassed by this
Agreement to make an informed and knowledgeable decision with regard to entering
into this Agreement, and that he has independently and without reliance upon the
Released Parties made his own analysis and decision to enter into this
Agreement. Minadeo acknowledges and hereby verifies that the Released Parties,
and each of them, have not made any representation or warranty and have no duty
or obligation to him, whether express or implied, of any kind or character,
except as expressly set forth herein.
5. INTERPRETATION
--------------
This Agreement shall not be construed against the drafter hereof.
6. SUFFICIENCY OF CONSIDERATION
----------------------------
The parties acknowledge that the covenants contained in this Agreement
provide good and sufficient consideration for every promise, duty, release,
obligation, agreement and right contained in this Agreement.
7. LAW GOVERNING AND CONSENT TO JURISDICTION
-----------------------------------------
This Agreement, and all claims and disputes arising in connection with
this Agreement or the transactions contemplated hereby, shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts. All
judicial proceedings brought with respect to this Agreement shall be brought in
the Massachusetts state courts or the United States District Court for the
District of Massachusetts.
8. MULTIPLE COUNTERPARTS
---------------------
4
<PAGE> 5
This Agreement may be executed in a number of identical counterparts,
all of which shall constitute one agreement.
9. ENTIRE AGREEMENT
----------------
This Agreement contains all of the representations and warranties,
express and implied, oral and written, between and among the parties hereto, and
the entire understanding and agreement between and among the parties with
respect to the subject matter hereof. No other agreements, covenants,
representations or warranties, express or implied, oral or written, have been
made by any party with respect to the subject matter of this Agreement. All
prior and contemporaneous conversations, negotiations, proposed agreements and
agreements, or representations, covenants and warranties with respect to the
subject matter hereof are merged herein, waived, superseded and replaced in
total by this Agreement. This is an integrated agreement and it may not be
altered and modified except by a writing signed by all parties in interest at
the time of the authorization and modification.
[Signatures on following pages]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed under seal in several counterparts, and each is an original as of the
first date written above.
JOSEPH MINADEO
/s/ Joseph Minadeo
--------------------------------------
COMPANY:
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Karen Conley
------------------------------------
Name: Karen M. Conley
Title: Ssecretary-Treasurer
SHAREHOLDERS:
/s/ Annette M. Canitano
--------------------------------------
Annette M. Canitano
/s/ Nicholas A. Canitano
--------------------------------------
Nicholas A. Canitano
/s/ Karen M. Conley
--------------------------------------
Karen M. Conley
/s/ Kenneth L. Conley
--------------------------------------
Kenneth L. Conley
6
<PAGE> 7
NAC Enterprises, Inc.
By: /s/ Annette M. Canitano
-------------------------------------
Name: Annette M. Canitano
Title: Secretary
CKCK Enterprises, Inc.
By: /s/ Kenneth L. Conley
-------------------------------------
Name: Kenneth L. Conley
Title: President
Karen M. Conley Charitable Remainder Trust
By: /s/ Karen M. Conley
-------------------------------------
Name: Karen M. Conley
Title: Trustee
Kenneth L. Conley Charitable Remainder Trust
By: /s/ Kenneth L. Conley
-------------------------------------
Name: Kenneth L. Conley
Title: Trustee
7
<PAGE> 8
INVESTORS:
TA INVESTORS:
TA/ADVENT VIII L.P.
By: TA Associates VIII L.P.,
its General Partner
By: TA Associates, Inc.,
its General Partner
*
-----------------------------------------
Name:
Title:
ADVENT ATLANTIC AND PACIFIC III L.P.
By: TA Associates AAP III Partners,
its General Partner
By: TA Associates, Inc.,
its General Partner
*
-----------------------------------------
Name:
Title:
TA VENTURE INVESTORS LIMITED
PARTNERSHIP
*
-----------------------------------------
Name:
Title:
/s/ Kenneth T. Schiciano
-----------------------------------------
Kenneth T. Schiciano
/s/ A. Bruce Johnston
-----------------------------------------
A. Bruce Johnston
8
<PAGE> 9
MCDONALD INVESTORS:
McDONALD & COMPANY SECURITIES, INC.
By: /s/ Ralph M. Della Ratta, Jr.
---------------------------------
Name: Ralph M. Della Ratta, Jr.
Title: Senior Managing Director
McD VENTURE CAPITAL FUND, L.P.
By: /s/ Ralph M. Della Ratta, Jr.
---------------------------------
Name: Ralph M. Della Ratta, Jr.
Title: General Partner
GHK INVESTMENTS, L.L.C.
By: /s/ William R. Koehler
---------------------------------
Name: William R. Koehler
Title: Agent
9
<PAGE> 1
Exhibit 10.21
STOCK REDEMPTION AGREEMENT
This STOCK REDEMPTION AGREEMENT (the "Agreement") is made as of October
15, 1997, by and between Conley, Canitano & Assoc., Inc. an Ohio corporation
(the "Corporation"), and NAC Enterprises, Inc. ("Transferor").
RECITALS
WHEREAS, Transferor owns 67,500 common shares, without par value, of
the Corporation's capital stock ("Common Stock");
WHEREAS, the Board of Directors of the Corporation has approved an
investment in the Corporation by a group of funds affiliated with TA Associates,
Inc. (collectively, "TA Associates") whereby TA Associates propose to invest an
aggregate of $17,500,000 in the Corporation in exchange for issuance by the
Corporation to TA Associates of shares of the Corporation's Convertible
Redeemable Preferred Stock, par value $.01 per share (the "TA Transaction"); and
WHEREAS, as a condition to the closing of the TA Transaction, the Board
of Directors has agreed to repurchase an aggregate of $15,877,284 of the
Corporation's outstanding equity securities from existing shareholders of the
Corporation; and
WHEREAS, the Corporation desires to purchase 67,500 shares (the
"Transferred Stock") of such Common Stock from Transferor for an aggregate price
of $7,938,675.
NOW, THEREFORE, IT IS AGREED THAT:
1. TRANSFER. Transferor hereby transfers the Transferred Stock to the
Corporation, and the Corporation hereby accepts the Transferred Stock, in
exchange for payment by the Corporation to the Transferor in the amount of
$7,938,675 (the "Stock Payment"). Payment shall be made by check, wire transfer
or such other form as shall be mutually agreed upon by the parties.
2. DELIVERY AND PAYMENT. Upon the signing of this Agreement, (a) the
Corporation shall deliver to transferor (i) a signed copy of this Agreement;
(ii) the Stock Payment; (iii) a new stock certificate representing the balance
of the Corporation's Common Stock owned by Transferor and not subject to
transfer to the Corporation hereunder; and (b) Transferor shall deliver to the
Corporation (i) a copy of this Agreement signed by the Transferor, duly endorsed
for transfer in accordance with the terms hereof; and (ii) a stock certificate
representing the Transferred Stock.
<PAGE> 2
3. CONSENT OF SPOUSE. If the Transferor is married on the date of this
Agreement, the Transferor's spouse shall execute a Consent of Spouse in the form
of EXHIBIT A hereto, effective on the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Transferred Stock
that do not otherwise exist by operation of law or the agreement of the parties.
If the Transferor should marry or remarry subsequent to the date of this
Agreement, the Transferor shall within thirty (30) days thereafter obtain his
new spouse's acknowledgment of and consent to the existence and binding effect
of all restrictions contained in this Agreement by signing an additional Consent
of Spouse in the form of EXHIBIT A.
4. TRANSFEROR'S REPRESENTATIONS AND WARRANTIES. Transferor represents
and warrants to the Corporation as follows:
(a) VALID TITLE. Transferor now has and will have on the date
hereof valid record and beneficial ownership of and title to the
Transferred Stock, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Transferor has full
right, power and authority to sell, assign, transfer and deliver such
Transferred Stock.
(b) REQUISITE POWER AND AUTHORITY. Transferor has all
necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and to carry out its provisions. All
action required on Transferor's part for the lawful execution and
delivery of this Agreement has been or will be effectively taken prior
to the date hereof. Upon its execution and delivery, this Agreement
will be a valid and binding obligation of Transferor, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditor's rights and by general
principles of equity that restrict the availability of equitable
remedies.
(c) NO CONFLICTS. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in
a breach of, or default under, any bond, debenture, note or other
evidence of indebtedness, or any contract, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
Transferor is a party or by which Transferor or any Transferred Stock
hereunder may be bound or, to Transferor's best knowledge, result in
any violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body.
5. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of the Corporation and be binding upon the
Transferor, his heirs, executors, administrators, successors and assigns.
7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with Exhibit
A hereto constitutes the full and entire understanding and agreement of the
parties with regard to the specific subject matter hereof and supersedes all
prior and contemporaneous written or oral
<PAGE> 3
agreements, and no amendment or addition hereto shall be deemed effective unless
agreed to in writing by the parties hereto.
8. GOVERNING LAW. This Agreement shall be governed by Ohio laws without
giving effect to conflicts of law principles. Any action arising out of this
Agreement must be brought in either the Superior Court of the State of Ohio or
the United States District Court for the Northern District of Ohio, as permitted
by law, which together shall have exclusive jurisdiction over disputes arising
out of this Agreement.
9. SEPARABILITY. If any provisions of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CORPORATION: TRANSFEROR:
CONLEY, CANITANO & NAC ENTERPRISES, INC.
ASSOC., INC.
By: /s/ Nicholas A. Canitano By: /s/ Annette M. Canitano
------------------------------ ------------------------------
Name: Nicholas A. Canitano Name: Annette M. Canitano
Title: President Title: Secretary
<PAGE> 1
Exhibit 10.22
STOCK REDEMPTION AGREEMENT
This STOCK REDEMPTION AGREEMENT (the "Agreement") is made as of October
15, 1997, by and between Conley, Canitano & Assoc., Inc. an Ohio corporation
(the "Corporation"), and CKCK Enterprises, Inc. ("Transferor").
RECITALS
WHEREAS, Transferor owns 61,000 common shares, without par value, of
the Corporation's capital stock ("Common Stock");
WHEREAS, the Board of Directors of the Corporation has approved an
investment in the Corporation by a group of funds affiliated with TA Associates,
Inc. (collectively, "TA Associates") whereby TA Associates propose to invest an
aggregate of $17,500,000 in the Corporation in exchange for issuance by the
Corporation to TA Associates of shares of the Corporation's Convertible
Redeemable Preferred Stock, par value $.01 per share (the "TA Transaction"); and
WHEREAS, as a condition to the closing of the TA Transaction, the Board
of Directors has agreed to repurchase an aggregate of $15,877,284 of the
Corporation's outstanding equity securities from existing shareholders of the
Corporation; and
WHEREAS, the Corporation desires to purchase 61,000 shares (the
"Transferred Stock") of such Common Stock from Transferor for an aggregate price
of $7,174,210.
NOW, THEREFORE, IT IS AGREED THAT:
1. TRANSFER. Transferor hereby transfers the Transferred Stock to the
Corporation, and the Corporation hereby accepts the Transferred Stock, in
exchange for payment by the Corporation to the Transferor in the amount of
$7,174,210 (the "Stock Payment"). Payment shall be made by check, wire transfer
or such other form as shall be mutually agreed upon by the parties.
2. DELIVERY AND PAYMENT. Upon the signing of this Agreement, (a) the
Corporation shall deliver to transferor (i) a signed copy of this Agreement;
(ii) the Stock Payment; (iii) a new stock certificate representing the balance
of the Corporation's Common Stock owned by Transferor and not subject to
transfer to the Corporation hereunder; and (b) Transferor shall deliver to the
Corporation (i) a copy of this Agreement signed by the Transferor, duly endorsed
for transfer in accordance with the terms hereof; and (ii) a stock certificate
representing the Transferred Stock.
<PAGE> 2
3. CONSENT OF SPOUSE. If the Transferor is married on the date of this
Agreement, the Transferor's spouse shall execute a Consent of Spouse in the form
of EXHIBIT A hereto, effective on the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Transferred Stock
that do not otherwise exist by operation of law or the agreement of the parties.
If the Transferor should marry or remarry subsequent to the date of this
Agreement, the Transferor shall within thirty (30) days thereafter obtain his
new spouse's acknowledgment of and consent to the existence and binding effect
of all restrictions contained in this Agreement by signing an additional Consent
of Spouse in the form of EXHIBIT A.
4. TRANSFEROR'S REPRESENTATIONS AND WARRANTIES. Transferor represents
and warrants to the Corporation as follows:
(a) VALID TITLE. Transferor now has and will have on the date
hereof valid record and beneficial ownership of and title to the
Transferred Stock, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Transferor has full
right, power and authority to sell, assign, transfer and deliver such
Transferred Stock.
(b) REQUISITE POWER AND AUTHORITY. Transferor has all
necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and to carry out its provisions. All
action required on Transferor's part for the lawful execution and
delivery of this Agreement has been or will be effectively taken prior
to the date hereof. Upon its execution and delivery, this Agreement
will be a valid and binding obligation of Transferor, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditor's rights and by general
principles of equity that restrict the availability of equitable
remedies.
(c) NO CONFLICTS. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in
a breach of, or default under, any bond, debenture, note or other
evidence of indebtedness, or any contract, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
Transferor is a party or by which Transferor or any Transferred Stock
hereunder may be bound or, to Transferor's best knowledge, result in
any violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body.
5. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of the Corporation and be binding upon the
Transferor, his heirs, executors, administrators, successors and assigns.
7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with Exhibit
A hereto constitutes the full and entire understanding and agreement of the
parties with regard to the specific subject matter hereof and supersedes all
prior and contemporaneous written or oral
<PAGE> 3
agreements, and no amendment or addition hereto shall be deemed effective unless
agreed to in writing by the parties hereto.
8. GOVERNING LAW. This Agreement shall be governed by Ohio laws without
giving effect to conflicts of law principles. Any action arising out of this
Agreement must be brought in either the Superior Court of the State of Ohio or
the United States District Court for the Northern District of Ohio, as permitted
by law, which together shall have exclusive jurisdiction over disputes arising
out of this Agreement.
9. SEPARABILITY. If any provisions of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CORPORATION: TRANSFEROR:
CONLEY, CANITANO & CKCK ENTERPRISES, INC.
ASSOC., INC.
By: /s/ Karen M. Conley By: /s/ Kenneth L. Conley
------------------------------ ------------------------------
Name: Karen M. Conley Name: Kenneth L. Conley
Title: Secretary Title: President
<PAGE> 1
Exhibit 10.23
STOCK REDEMPTION AGREEMENT
This STOCK REDEMPTION AGREEMENT (the "Agreement") is made as of October
15, 1997, by and between Conley, Canitano & Assoc., Inc. an Ohio corporation
(the "Corporation"), and Kenneth L. Conley Charitable Remainder Trust
("Transferor").
RECITALS
WHEREAS, Transferor owns 3,250 common shares, without par value, of the
Corporation's capital stock ("Common Stock");
WHEREAS, the Board of Directors of the Corporation has approved an
investment in the Corporation by a group of funds affiliated with TA Associates,
Inc. (collectively, "TA Associates") whereby TA Associates propose to invest an
aggregate of $17,500,000 in the Corporation in exchange for issuance by the
Corporation to TA Associates of shares of the Corporation's Convertible
Redeemable Preferred Stock, par value $.01 per share (the "TA Transaction"); and
WHEREAS, as a condition to the closing of the TA Transaction, the Board
of Directors has agreed to repurchase an aggregate of $15,877,284 of the
Corporation's outstanding equity securities from existing shareholders of the
Corporation; and
WHEREAS, the Corporation desires to purchase 3,250 shares (the
"Transferred Stock") of such Common Stock from Transferor for an aggregate price
of $382,232.50.
NOW, THEREFORE, IT IS AGREED THAT:
1. TRANSFER. Transferor hereby transfers the Transferred Stock to the
Corporation, and the Corporation hereby accepts the Transferred Stock, in
exchange for payment by the Corporation to the Transferor in the amount of
$382,232.50 (the "Stock Payment"). Payment shall be made by check, wire transfer
or such other form as shall be mutually agreed upon by the parties.
2. DELIVERY AND PAYMENT. Upon the signing of this Agreement, (a) the
Corporation shall deliver to transferor (i) a signed copy of this Agreement;
(ii) the Stock Payment; (iii) a new stock certificate representing the balance
of the Corporation's Common Stock owned by Transferor and not subject to
transfer to the Corporation hereunder; and (b) Transferor shall deliver to the
Corporation (i) a copy of this Agreement signed by the Transferor, duly endorsed
for transfer in accordance with the terms hereof; and (ii) a stock certificate
representing the Transferred Stock.
<PAGE> 2
3. CONSENT OF SPOUSE. If the Transferor is married on the date of this
Agreement, the Transferor's spouse shall execute a Consent of Spouse in the form
of EXHIBIT A hereto, effective on the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Transferred Stock
that do not otherwise exist by operation of law or the agreement of the parties.
If the Transferor should marry or remarry subsequent to the date of this
Agreement, the Transferor shall within thirty (30) days thereafter obtain his
new spouse's acknowledgment of and consent to the existence and binding effect
of all restrictions contained in this Agreement by signing an additional Consent
of Spouse in the form of EXHIBIT A.
4. TRANSFEROR'S REPRESENTATIONS AND WARRANTIES. Transferor represents
and warrants to the Corporation as follows:
(a) VALID TITLE. Transferor now has and will have on the date
hereof valid record and beneficial ownership of and title to the
Transferred Stock, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Transferor has full
right, power and authority to sell, assign, transfer and deliver such
Transferred Stock.
(b) REQUISITE POWER AND AUTHORITY. Transferor has all
necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and to carry out its provisions. All
action required on Transferor's part for the lawful execution and
delivery of this Agreement has been or will be effectively taken prior
to the date hereof. Upon its execution and delivery, this Agreement
will be a valid and binding obligation of Transferor, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditor's rights and by general
principles of equity that restrict the availability of equitable
remedies.
(c) NO CONFLICTS. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in
a breach of, or default under, any bond, debenture, note or other
evidence of indebtedness, or any contract, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
Transferor is a party or by which Transferor or any Transferred Stock
hereunder may be bound or, to Transferor's best knowledge, result in
any violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body.
5. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of the Corporation and be binding upon the
Transferor, his heirs, executors, administrators, successors and assigns.
7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with Exhibit
A hereto constitutes the full and entire understanding and agreement of the
parties with regard to the specific subject matter hereof and supersedes all
prior and contemporaneous written or oral
<PAGE> 3
agreements, and no amendment or addition hereto shall be deemed effective unless
agreed to in writing by the parties hereto.
8. GOVERNING LAW. This Agreement shall be governed by Ohio laws without
giving effect to conflicts of law principles. Any action arising out of this
Agreement must be brought in either the Superior Court of the State of Ohio or
the United States District Court for the Northern District of Ohio, as permitted
by law, which together shall have exclusive jurisdiction over disputes arising
out of this Agreement.
9. SEPARABILITY. If any provisions of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CORPORATION: TRANSFEROR:
CONLEY, CANITANO & KENNETH L. CONLEY CHARITABLE
ASSOC., INC. REMAINDER TRUST
By:/s/ Karen M. Conley By: /s/ Kenneth L. Conley
------------------------------ -----------------------------
Name: Karen M. Conley Name: Kenneth L. Conley
Title: Secretary Title: Trustee
<PAGE> 1
Exhibit 10.24
STOCK REDEMPTION AGREEMENT
This STOCK REDEMPTION AGREEMENT (the "Agreement") is made as of October
15, 1997, by and between Conley, Canitano & Assoc., Inc. an Ohio corporation
(the "Corporation"), and Karen M. Conley Charitable Remainder Trust
("Transferor").
RECITALS
WHEREAS, Transferor owns 3,250 common shares, without par value, of the
Corporation's capital stock ("Common Stock");
WHEREAS, the Board of Directors of the Corporation has approved an
investment in the Corporation by a group of funds affiliated with TA Associates,
Inc. (collectively, "TA Associates") whereby TA Associates propose to invest an
aggregate of $17,500,000 in the Corporation in exchange for issuance by the
Corporation to TA Associates of shares of the Corporation's Convertible
Redeemable Preferred Stock, par value $.01 per share (the "TA Transaction"); and
WHEREAS, as a condition to the closing of the TA Transaction, the Board
of Directors has agreed to repurchase an aggregate of $15,877,284 of the
Corporation's outstanding equity securities from existing shareholders of the
Corporation; and
WHEREAS, the Corporation desires to purchase 3,250 shares (the
"Transferred Stock") of such Common Stock from Transferor for an aggregate price
of $382,232.50.
NOW, THEREFORE, IT IS AGREED THAT:
1. TRANSFER. Transferor hereby transfers the Transferred Stock to the
Corporation, and the Corporation hereby accepts the Transferred Stock, in
exchange for payment by the Corporation to the Transferor in the amount of
$382,232.50 (the "Stock Payment"). Payment shall be made by check, wire transfer
or such other form as shall be mutually agreed upon by the parties.
2. DELIVERY AND PAYMENT. Upon the signing of this Agreement, (a) the
Corporation shall deliver to transferor (i) a signed copy of this Agreement;
(ii) the Stock Payment; (iii) a new stock certificate representing the balance
of the Corporation's Common Stock owned by Transferor and not subject to
transfer to the Corporation hereunder; and (b) Transferor shall deliver to the
Corporation (i) a copy of this Agreement signed by the Transferor, duly endorsed
for transfer in accordance with the terms hereof; and (ii) a stock certificate
representing the Transferred Stock.
<PAGE> 2
3. CONSENT OF SPOUSE. If the Transferor is married on the date of this
Agreement, the Transferor's spouse shall execute a Consent of Spouse in the form
of EXHIBIT A hereto, effective on the date hereof. Such consent shall not be
deemed to confer or convey to the spouse any rights in the Transferred Stock
that do not otherwise exist by operation of law or the agreement of the parties.
If the Transferor should marry or remarry subsequent to the date of this
Agreement, the Transferor shall within thirty (30) days thereafter obtain his
new spouse's acknowledgment of and consent to the existence and binding effect
of all restrictions contained in this Agreement by signing an additional Consent
of Spouse in the form of EXHIBIT A.
4. TRANSFEROR'S REPRESENTATIONS AND WARRANTIES. Transferor represents
and warrants to the Corporation as follows:
(a) VALID TITLE. Transferor now has and will have on the date
hereof valid record and beneficial ownership of and title to the
Transferred Stock, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Transferor has full
right, power and authority to sell, assign, transfer and deliver such
Transferred Stock.
(b) REQUISITE POWER AND AUTHORITY. Transferor has all
necessary power and authority under all applicable provisions of law to
execute and deliver this Agreement and to carry out its provisions. All
action required on Transferor's part for the lawful execution and
delivery of this Agreement has been or will be effectively taken prior
to the date hereof. Upon its execution and delivery, this Agreement
will be a valid and binding obligation of Transferor, enforceable in
accordance with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditor's rights and by general
principles of equity that restrict the availability of equitable
remedies.
(c) NO CONFLICTS. The performance of this Agreement and the
consummation of the transactions herein contemplated will not result in
a breach of, or default under, any bond, debenture, note or other
evidence of indebtedness, or any contract, indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
Transferor is a party or by which Transferor or any Transferred Stock
hereunder may be bound or, to Transferor's best knowledge, result in
any violation of any law, order, rule, regulation, writ, injunction or
decree of any court or governmental agency or body.
5. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may reasonably be necessary to
carry out the intent of this Agreement.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of the Corporation and be binding upon the
Transferor, his heirs, executors, administrators, successors and assigns.
7. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, together with Exhibit
A hereto constitutes the full and entire understanding and agreement of the
parties with regard to the specific subject matter hereof and supersedes all
prior and contemporaneous written or oral
<PAGE> 3
agreements, and no amendment or addition hereto shall be deemed effective unless
agreed to in writing by the parties hereto.
8. GOVERNING LAW. This Agreement shall be governed by Ohio laws without
giving effect to conflicts of law principles. Any action arising out of this
Agreement must be brought in either the Superior Court of the State of Ohio or
the United States District Court for the Northern District of Ohio, as permitted
by law, which together shall have exclusive jurisdiction over disputes arising
out of this Agreement.
9. SEPARABILITY. If any provisions of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force and effect without being
impaired or invalidated in any way and shall be construed in accordance with the
purposes and tenor and effect of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
CORPORATION: TRANSFEROR:
CONLEY, CANITANO & KAREN M. CONLEY CHARITABLE
ASSOC., INC. REMAINDER TRUST
By: /s/ Nicholas A. Canitano By: /s/ Karen M. Conley
------------------------------ -----------------------------
Name: Nicholas A. Canitano Name: Karen M. Conley
Title: President Title: Trustee
<PAGE> 1
Exhibit 10.25
CONLEY, CANITANO & ASSOCIATES, INC. CORPORATION
1997 EQUITY AND PERFORMANCE INCENTIVE PLAN
1. PURPOSE. The purpose of the 1997 Equity and Performance Incentive
Plan is to attract and retain Directors, consultants, officers and other key
employees for Conley, Canitano & Associates, Inc., an Ohio corporation, and its
Subsidiaries and to provide to such persons incentives and rewards for superior
performance.
2. DEFINITIONS. As used in this Plan,
"Board" means the Board of Directors of the Company.
"Change in Control" means a sale of a majority of the then
issued and outstanding Common Shares of the Company, a sale of substantially all
of the Company's assets, or other similar transactions and events as determined
by the Board.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Common Shares" means the Common Shares, without par value, of
the Company or any security into which such Common Shares may be changed by
reason of any transaction or event of the type referred to in Section 8 of this
Plan.
"Company" means Conley, Canitano & Associates, Inc., an Ohio
corporation.
"Date of Grant" means the date specified by the Board on which
a grant of Option Rights, or a grant or sale of Restricted Shares or Deferred
Shares shall become effective (which date shall not be earlier than the date on
which the Board takes action with respect thereto).
"Deferral Period" means the period of time during which
Deferred Shares are subject to deferral limitations under Section 6 of this
Plan.
"Deferred Shares" means an award made pursuant to Section 6 of
this Plan of the right to receive Common Shares at the end of a specified
Deferral Period.
"Director" means a member of the Board of Directors of the
Company.
"Incentive Stock Options" means Option Rights that are
intended to qualify as "incentive stock options" under Section 422 of the Code
or any successor provision.
1
<PAGE> 2
"Market Value per Share" means, as of any particular date, the
fair market value of the Common Shares as determined by the Board.
"Optionee" means the optionee named in an agreement evidencing
an outstanding Option Right.
"Option Price" means the purchase price payable on exercise of
an Option Right.
"Option Right" means the right to purchase Common Shares upon
exercise of an option granted pursuant to Section 4 of this Plan.
"Participant" means a person who is selected by the Board to
receive benefits under this Plan and who is at the time a Director, a
consultant, an officer, or other key employee of the Company or any one or more
of its Subsidiaries, or who has agreed to commence serving in any of such
capacities within 90 days of the Date of Grant.
"Plan" means this Conley, Canitano & Associates, Inc. 1997
Equity and Performance Incentive Plan.
"Public Offering" means a "Qualified Public Offering" as
defined in the Company's Amended and Restated Articles of Incorporation.
"Restricted Shares" means Common Shares granted or sold
pursuant to Section 5 of this Plan as to which neither the substantial risk of
forfeiture nor the prohibition on transfers referred to in such Section 5 has
expired.
"Subsidiary" means a corporation, company or other entity (i)
more than 50 percent of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association), but more than 50
percent of whose ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or controlled,
directly or indirectly, by the Company except that for purposes of determining
whether any person may be a Participant for purposes of any grant of Incentive
Stock Options, "Subsidiary" means any corporation in which at the time the
Company owns or controls, directly or indirectly, more than 50 percent of the
total combined voting power represented by all classes of stock issued by such
corporation.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as
provided in Section 3(b) and Section 8 of this Plan, the number of Common Shares
that may be issued or transferred (i) upon the exercise of Option Rights, (ii)
as Restricted Shares and released from substantial risks of forfeiture thereof,
(iii) as Deferred Shares or (iv) in payment of dividend equivalents paid with
respect to awards made under the Plan shall not exceed in the aggregate
Seventy-Five Thousand (75,000) Common Shares, plus any shares described in
Section 3(b). Such shares may be shares of original issuance.
2
<PAGE> 3
(b) The number of shares available in Section 3(a) above shall
be adjusted to account for shares relating to awards that expire, are forfeited
or are transferred, surrendered or relinquished upon the payment of any Option
Price by the transfer to the Company of Common Shares or upon satisfaction of
any withholding amount. Upon payment in cash of the benefit provided by any
award granted under this Plan, any shares that were covered by that award shall
again be available for issue or transfer hereunder.
(c) Notwithstanding anything in this Section 3, or elsewhere
in this Plan, to the contrary and subject to adjustment as provided in Section 8
of this Plan, the aggregate number of Common Shares actually issued or
transferred by the Company upon the exercise of Incentive Stock Options shall
not exceed 75,000 Common Shares.
4. OPTION RIGHTS. The Board may, from time to time and upon such terms
and conditions as it may determine, authorize the granting to Participants of
options to purchase Common Shares. Each such grant may utilize any or all of the
authorizations, and shall be subject to all of the requirements, contained in
the following provisions:
(a) Each grant shall specify the number of Common Shares to
which it pertains.
(b) Each grant shall specify an Option Price per share, which
may be less than the Market Value per Share on the Date of Grant in the case of
a Stock Option that is not an Incentive Stock Option.
(c) Each grant shall specify whether the Option Price shall be
payable (i) in cash or by check acceptable to the Company, (ii) by the actual or
constructive transfer to the Company of Common Shares owned by the Optionee
having a value at the time of exercise equal to the total Option Price and which
have been held by Optionee for at least six months, or (iii) by a combination of
such methods of payment.
(d) Any grant may provide for payment of the Option Price, at
the election of the Optionee, in installments, upon terms determined by the
Board, including without limitation, pursuant to a promissory note.
(e) Successive grants may be made to the same Participant
whether or not any Option Rights previously granted to such Participant remain
unexercised.
(f) Each grant shall specify the period or periods of
continuous service by the Optionee with the Company or any Subsidiary that is
necessary before the Option Rights or installments thereof will become
exercisable and shall provide for the earlier exercise of such Option Rights in
the event of a Change in Control.
(g) Any grant of Option Rights may specify management
objectives or goals that must be achieved as a condition to the exercise of such
rights.
3
<PAGE> 4
(h) Option Rights granted under this Plan may be (i) options,
including, without limitation, Incentive Stock Options, that are intended to
qualify under particular provisions of the Code, (ii) options that are not
intended so to qualify, or (iii) combinations of the foregoing.
(i) Any grant (other than Incentive Stock Options) may provide
for the payment of dividend equivalents to the Optionee on either a current or
deferred or contingent basis or may provide that such equivalents shall be
credited against the Option Price.
(j) No Option Right that constitutes an Incentive Stock Option
shall be exercisable more than 10 years from the Date of Grant.
(k) Each grant of Option Rights shall be evidenced by an
agreement executed on behalf of the Company by an officer and delivered to the
Optionee and containing such terms and provisions, consistent with this Plan, as
the Board may approve.
5. RESTRICTED SHARES. The Board may also authorize the grant or sale of
Restricted Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute an immediate
transfer of the ownership of Common Shares to the Participant in consideration
of the performance of services, entitling such Participant to voting, dividend
(subject to Section 5(f) below) and other ownership rights, but subject to the
substantial risk of forfeiture and restrictions on transfer hereinafter referred
to.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall provide that the Restricted
Shares covered by such grant or sale shall be subject to a "substantial risk of
forfeiture" within the meaning of Section 83 of the Code, except (if the Board
shall so determine) in the event of a Change in Control or Public Offering, for
a period of not less than 2 years to be determined by the Board at the Date of
Grant.
(d) Each such grant or sale shall provide that during the
period for which such substantial risk of forfeiture is to continue, the
transferability of the Restricted Shares shall be prohibited or restricted in
the manner and to the extent prescribed by the Board at the Date of Grant (which
restrictions may include, without limitation, rights of repurchase or first
refusal in the Company or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any transferee).
4
<PAGE> 5
(e) Any grant of Restricted Shares may specify management
objectives or goals that, if achieved, will result in termination or early
termination of the restrictions applicable to such shares. Each grant may
specify in respect of such management objectives or goals a minimum acceptable
level of achievement and may set forth a formula for determining the number of
Restricted Shares on which restrictions will terminate if performance is at or
above the minimum level, but falls short of full achievement of the specified
management objectives or goals.
(f) Any such grant or sale of Restricted Shares may require
that any or all dividends or other distributions paid thereon during the period
of such restrictions be automatically deferred and reinvested in additional
Restricted Shares, which may be subject to the same restrictions as the
underlying award.
(g) Each grant or sale of Restricted Shares shall be evidenced
by an agreement executed on behalf of the Company by any officer and delivered
to and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve. Unless otherwise directed
by the Board, all certificates representing Restricted Shares shall be held in
custody by the Company until all restrictions thereon shall have lapsed,
together with a stock power or powers executed by the Participant in whose name
such certificates are registered, endorsed in blank and covering such Shares.
6. DEFERRED SHARES. The Board may also authorize the granting or sale
of Deferred Shares to Participants. Each such grant or sale may utilize any or
all of the authorizations, and shall be subject to all of the requirements,
contained in the following provisions:
(a) Each such grant or sale shall constitute the agreement by
the Company to deliver Common Shares or their equivalent in value payable in
other property including cash to the Participant in the future in consideration
of the performance of services, but subject to the fulfillment of such
conditions including the achievement of management objectives or goals during
the Deferral Period as the Board may specify.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant that is less
than the Market Value per Share at the Date of Grant.
(c) Each such grant or sale shall be subject to a Deferral
Period of not less than 1 year, as determined by the Board at the Date of Grant
except (if the Board shall so determine) in the event of a Change in Control or
Public Offering.
(d) During the Deferral Period, the Participant shall have no
right to transfer any rights under his or her award and shall have no rights of
ownership in the Deferred Shares and shall have no right to vote them, but the
Board may, at or after the Date of Grant, authorize the payment of dividend
equivalents on such Shares on either a current or deferred or contingent basis,
either in cash or in additional Common Shares.
5
<PAGE> 6
(e) Each grant or sale of Deferred Shares shall be evidenced
by an agreement executed on behalf of the Company by any officer and delivered
to and accepted by the Participant and shall contain such terms and provisions,
consistent with this Plan, as the Board may approve.
7. TRANSFERABILITY. (a) Except as otherwise determined by the Board, no
Option Right granted under the Plan shall be transferable by a Participant other
than by will or the laws of descent and distribution. Except as otherwise
determined by the Board, Option Rights shall be exercisable during the
Optionee's lifetime only by him or her or by his or her guardian or legal
representative.
(b) The Board may specify at the Date of Grant that part or
all of the Common Shares that are (i) to be issued or transferred by the Company
upon the exercise of Option Rights or upon the termination of the Deferral
Period applicable to Deferred Shares or (ii) no longer subject to the
substantial risk of forfeiture and restrictions on transfer referred to in
Section 5 of this Plan, shall be subject to further restrictions on transfer.
8. ADJUSTMENTS. The Board may make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Option Rights or Deferred
Shares, and in the kind of shares covered thereby, as the Board, in its sole
discretion, exercised in good faith, may determine is equitably required to
prevent dilution or enlargement of the rights of Participants or Optionees that
otherwise would result from (a) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, or (b) any merger, consolidation, spin-off, split-off, spin-out,
split-up, reorganization, partial or complete liquidation or other distribution
of assets, issuance of rights or warrants to purchase securities, or (c) any
other corporate transaction or event having an effect similar to any of the
foregoing. Moreover, in the event of any such transaction or event, the Board,
in its discretion, may provide in substitution for any or all outstanding awards
under this Plan such alternative consideration, including, but not limited to
cash, as it, in good faith, may determine to be equitable in the circumstances
and may require in connection therewith the surrender or termination of all
awards so replaced. The Board may also make or provide for such adjustments in
the numbers of shares specified in Section 3 of this Plan as the Board in its
sole discretion, exercised in good faith, may determine is appropriate to
reflect any transaction or event described in this Section 8; provided, however,
that any such adjustment to the number specified in Section 3 shall be made only
if and to the extent that such adjustment would not cause any Option intended to
qualify as an Incentive Stock Option to fail so to qualify.
9. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions or for the settlement of fractions in cash.
10. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a
6
<PAGE> 7
Participant or other person under this Plan, and the amounts available to the
Company for such withholding are insufficient, it shall be a condition to the
receipt of such payment or the realization of such benefit that the Participant
or such other person make arrangements satisfactory to the Company for payment
of the balance of such taxes required to be withheld, which arrangements (in the
discretion of the Board) may include relinquishment of a portion of such
benefit. The Company and a Participant or such other person may also make
similar arrangements with respect to the payment of any taxes with respect to
which withholding is not required.
11. ADMINISTRATION OF THE PLAN. This Plan shall be administered by the
Board. The interpretation and construction by the Board of any provision of this
Plan or of any agreement, notification or document evidencing the grant of
Option Rights, Restricted Shares or Deferred Shares and any determination by the
Board pursuant to any provision of this Plan or of any such agreement,
notification or document shall be final and conclusive. No member of the Board
shall be liable for any such action or determination made in good faith.
12. AMENDMENTS, ETC. (a) The Board may at any time and from time to
time amend the Plan in whole or in part.
(b) The Board may condition the grant of any award or
combination of awards authorized under this Plan on the surrender or deferral by
the Participant of his or her right to receive a cash bonus or other
compensation otherwise payable by the Company or a Subsidiary to the
Participant.
(c) In case of termination of employment by reason of death,
disability or normal or early retirement, or in the case of hardship or other
special circumstances, of a Participant who holds an Option Right not
immediately exercisable in full, or any Restricted Shares as to which the
substantial risk of forfeiture or the prohibition or restriction on transfer has
not lapsed, or any Deferred Shares as to which the Deferral Period has not been
completed, the Board may, in its sole discretion, accelerate the time at which
such Option Right may be exercised or the time at which such substantial risk of
forfeiture or prohibition or restriction on transfer will lapse or the time when
such Deferral Period will end.
(d) This Plan shall not confer upon any Participant any right
with respect to continuance of employment or other service with the Company or
any Subsidiary, nor shall it interfere in any way with any right the Company or
any Subsidiary would otherwise have to terminate such Participant's employment
or other service at any time.
(e) To the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify as an Incentive Stock
Option from qualifying as such, that provision shall be null and void with
respect to such Option Right. Such provision, however, shall remain in effect
for other Option Rights and there shall be no further effect on any provision of
this Plan.
7
<PAGE> 8
13. TERMINATION. No grant constituting Incentive Stock Options shall be
made under this Plan more than 10 years after the date on which this Plan is
first approved by the shareholders of the Company, but all grants made on or
prior to such date shall continue in effect thereafter subject to the terms
thereof and of this Plan.
8
<PAGE> 1
Exhibit 10.26
AMENDMENT NO. 1 TO THE
CONLEY, CANITANO & ASSOCIATES, INC.
1997 EQUITY AND PERFORMANCE
INCENTIVE PLAN (THE "PLAN")
1. AMENDMENT. Section 3(a) of the Plan is hereby
amended and restated to read in its entirety as follows:
"(a) Subject to adjustment as provided in Section 3(b) and
Section 8 of this Plan, the number of Common Shares that may be issued or
transferred (i) upon the exercise of Option Rights, (ii) as Restricted Shares
and released from substantial risks of forfeiture thereof, (iii) as Deferred
Shares or (iv) in payment of dividend equivalents paid with respect to awards
made under the Plan shall not exceed in the aggregate One Million Four Hundred
Twenty Thousand (1,420,000) Common Shares, plus any shares described in Section
3(b). Such shares may be shares of original issuance."
2. REAFFIRMATION. As amended hereby, the Plan is and shall
remain in full force and effect in accordance with its respective terms and
conditions.
<PAGE> 1
Exhibit 10.30
DRAFT OF JULY 7, 1998
CONLEY, CANITANO & ASSOC., INC.
EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE.
This Employee Stock Purchase Plan (the "Plan") is intended to advance
the interests of Conley, Canitano & Assoc., Inc. (the "Company") and its
shareholders by allowing employees of the Company and those subsidiaries of the
Company that participate in the Plan the opportunity to purchase shares of the
Company's Common Stock, without par value ("Common Stock"). It is intended that
the Plan will constitute an "employee stock purchase plan" within the meaning of
Section 423 of the Internal Revenue Code of 1986, as amended from time to time
(the "Code").
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors. The majority of the Committee shall
constitute a quorum, and the action of (a) a majority of the members of the
Committee present at any meeting at which a quorum is present or (b) all members
acting unanimously by written consent, shall be the acts of the Committee.
The interpretation and construction by the Committee of any provision
of the Plan or of any subscription to purchase shares under it shall be final.
The Committee may establish any policies or procedures which in the discretion
of the Committee are relevant to the operation and administration of the Plan
and may adopt rules for the administration of the Plan. The Committee will, from
time to time, designate the subsidiaries (as defined below) of the Company whose
employees will be eligible to participate in the Plan. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any subscription to purchase shares under it. For
purposes of this Plan, the term "subsidiary" means any corporation in which the
Company directly or indirectly owns or controls more than 50 percent of the
total combined voting power of all classes of stock issued by the corporation.
SECTION 3. ELIGIBILITY.
Each employee of the Company or of a participating subsidiary of the
Company whose customary employment is a minimum of 20 hours per week may
subscribe to purchase shares of Common Stock under the terms of the Plan, except
that no employee may subscribe to purchase shares on the immediately following
Purchase Date (as defined below) if, immediately after the immediately preceding
Subscription Date (as defined below), such employee would own stock
<PAGE> 2
possessing 5 percent or more of the total combined voting power or value of all
classes of stock of the Company or of any subsidiary of the Company. For
purposes of this paragraph, stock ownership of an individual shall be determined
under the rules of Section 424(d) of the Code.
For purposes of the Plan:
(a) The term "Subscription Date" means the first business day of each
fiscal quarter of the Company during which the Plan is effective or, in the case
of a participant who is not an employee of the Company or a participating
subsidiary of the Company as of a particular Subscription Date, the date
thereafter on which such participant became an employee of the Company or a
participating subsidiary of the Company. The first Subscription Date under the
Plan will be ___________ __, 1998.
(b) The term "Purchase Date" means the last business day of the fiscal
quarter in which the related Subscription Date occurs.
SECTION 4. PARTICIPATION.
(a) An eligible employee shall evidence his or her agreement to
subscribe for shares by completing a written agreement (the "Subscription and
Authorization Form") provided by the Committee and filing it as directed by the
Committee. A Subscription and Authorization Form will take effect within a
reasonable time after it has been filed with the Company. Once an employee
provides the Committee with the Subscription and Authorization Form, he or she
continues as a participant in the Plan on the terms provided in such form until
he or she provides a new form or withdraws from the Plan.
(b) In the Subscription and Authorization Form, an eligible employee
shall designate any whole dollar amount to be withheld from such employee's
compensation in each pay period and used to purchase shares of Common Stock on
the next Purchase Date, subject to the following limitations: (i) the whole
dollar amount (on an annualized basis) shall not exceed 10 percent of his or her
compensation (as defined below) on an annualized basis; (ii) the maximum number
of shares of Common Stock which can be purchased by any one employee on any
Purchase Date shall not exceed ___ shares of the Common Stock; and (iii) the
Committee may establish from time to time minimum payroll deductions. For
purposes of this Plan, the term "compensation" means gross regular earnings.
SECTION 5. STOCK.
The stock purchased under the Plan shall be shares of authorized but
unissued or reacquired Common Stock. Subject to the provisions of Section 6(h),
the aggregate number of shares which may be purchased under the Plan shall not
exceed ____ shares of Common Stock. In the event that the dollar amount of
shares subscribed for in any quarter exceeds the number of
2
<PAGE> 3
shares available to be purchased under the Plan, the shares available to be
purchased shall be allocated on a pro rata basis among the subscriptions.
SECTION 6. TERMS AND CONDITIONS OF SUBSCRIPTIONS.
Subscriptions shall be evidenced by a Subscription and Authorization
Form in such form as the Committee shall from time to time approve, provided
that all employees subscribing to purchase shares shall have the same rights and
privileges (except as otherwise provided in Section 4(b) and subparagraph (d)
below), and provided further that such subscriptions shall comply with and be
subject to the following terms and conditions:
(a) Purchase Price. The purchase price shall be an amount equal to
85 percent of the fair market value of such stock on the Purchase Date. During
such time as the Common Stock is traded on the Nasdaq National Market, the fair
market value per share shall be the closing price of the Common Stock (as
reported in The Wall Street Journal) on such Purchase Date (or on the next
regular business date on which shares of the Common Stock of the Company shall
be traded in the event that no shares of the Common Stock shall have been traded
on the Purchase Date). Subject to the foregoing, the Committee shall have full
authority and discretion in fixing the purchase price.
(b) Medium and Time of Payment. The purchase price shall be
payable in full in United States dollars, pursuant to uniform policies and
procedures established by the Committee. The funds required for such payment
will be derived by withholding from an employee's compensation. An employee
shall have the right at any time to terminate the withholding from his or her
compensation of amounts to be paid toward the purchase price. An employee shall
have the right, one time in each quarter, to change the amount so withheld, by
submitting a written request to the Company at least 10 business days before any
Purchase Date. An employee shall have the right to cancel his or her
subscription in whole or in part and to obtain a refund of amounts withheld from
his or her compensation by submitting a written request to the Company at least
10 business days before any Purchase Date. Any cancellation of a subscription in
whole will constitute a withdrawal under Section 4(a) of the Plan. Such amounts
shall thereafter be paid to the employee within a reasonable period of time.
(c) No Interest on Employee Funds. No interest shall accrue on
any amounts withheld from an employee's compensation.
(d) Accrual Limitation. No subscription shall permit the rights of
an employee to purchase stock under all "employee stock purchase plans" (as
defined in the Code) of the Company to accrue, under the rules set forth in
Section 423(b)(8) of the Code, at a rate which exceeds $25,000 of fair market
value of such stock (determined at the time of subscription) for each calendar
year.
3
<PAGE> 4
(e) Termination of Employment. If an employee who has subscribed
for shares ceases to be employed by the Company or a participating subsidiary
before any applicable Purchase Date:
i. Because of retirement or disability, he or she may elect to
continue making payments equal to the rate of payroll deductions made before
retirement or disability until the first Purchase Date following retirement or
disability; or otherwise the accumulated payment in his or her account at the
time of retirement or disability will be applied to purchase shares at the
applicable purchase price on the first Purchase Date following such retirement
or disability, unless the Company is otherwise notified in writing.
ii. For any other reason, he or she may elect to have the
accumulated payment in his or her account at the time of termination applied to
purchase shares at the applicable purchase price on the first Purchase Date
following such termination; or otherwise the total unused payments credited to
his or her account on the date of termination will be refunded within a
reasonable time without interest, unless the Company is otherwise notified in
writing.
(f) Transferability. Neither payments credited to an employee's
account nor any rights to subscribe to purchase shares of Common Stock under the
Plan may be transferred by an employee except by the laws of descent and
distribution. Any such attempted transfer will be without effect, except that
the Company may treat such act as an election by the employee to withdraw in
accordance with Section 6(b). Shares of Common Stock may be purchased under the
Plan only by subscribing employees who have legal capacity as determined under
applicable state law or, in the event of the employee's legal incapacity, by his
or her guardian or legal representative acting in a fiduciary capacity on behalf
of the employee under state law or court supervision.
(g) Death and Designation of Beneficiary. An employee may file
with the Company a written designation of beneficiary and may change such
designation of beneficiary at any time by written notice to the Company. On the
death of an employee, the elections provided on termination of employment for
retirement or disability may be exercised by the employee's beneficiary,
executor, administrator, or other legal representative.
(h) Adjustments. The Committee may make or provide for such
adjustments in the purchase price and in the number or kind of shares of the
Common Stock or other securities covered by outstanding subscriptions, or
specified in the second sentence of Section 5 of the Plan, as the Committee in
its sole discretion, exercised in good faith, may determine is equitably
required to prevent dilution or enlargement of the rights of employees that
would otherwise result from (i) any stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company; (ii) any merger, consolidation, spin-off, split-off, spin-out,
split-up, separation, reorganization, partial or complete liquidation, or other
distribution of assets, issuance of rights or warrants to purchase stock; or
(iii) any other corporate transaction or event having an effect similar to any
of the foregoing. Moreover, in the event of any such transaction or event, the
Committee, in its discretion, may provide in substitution for any or all
outstanding
4
<PAGE> 5
subscriptions under this Plan such alternative consideration as it, in good
faith, may determine to be equitable in the circumstances.
(i) Rights as a Shareholder. An employee shall have no rights as a
shareholder with respect to any Common Stock covered by his or her subscription
until the Purchase Date following payment in full. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date of such purchase, except as provided in Section 6(h) of the Plan.
(j) Fractional Shares. Fractional shares may be purchased under
the Plan and credited to an account for the employee. The Company, however,
shall have the right to pay cash in lieu of any fractional shares of Common
Stock to be distributed from an employee's account under the Plan.
(k) Other Provisions. The Subscription and Authorization Form
authorized under the Plan shall contain such other provisions as the Committee
may deem advisable, provided that no such provisions may in any way be in
conflict with the terms of the Plan.
SECTION 7. TERM OF PLAN.
Eligible employees may subscribe for shares under the Plan within a
period of ten years from the date the Plan is adopted by the Board of Directors;
provided, however, that the Committee may terminate or suspend the Plan if at
any time there are less than 5 percent of the eligible employees participating
in the Plan.
SECTION 8. AMENDMENT OF THE PLAN.
The Plan may be amended from time to time by the Committee, but without
further approval of the shareholders, no such amendment shall (a) increase the
aggregate number of shares of Common Stock that may be issued and sold under the
Plan (except that adjustments authorized by Section 6(h) of the Plan shall not
be limited by this provision) or (b) materially modify the requirements as to
eligibility for participation in the Plan.
SECTION 9. APPROVAL OF SHAREHOLDERS.
The Plan shall take effect upon adoption by the Board of Directors;
provided, however, that any subscriptions and purchases under the Plan shall be
null and void unless the Plan is approved by a vote of the holders of a majority
of the total number of outstanding shares of voting stock of the Company present
in person or by proxy at a meeting at which a quorum is present in person or by
proxy, which approval must occur within the period of 12 months after the date
the Plan is adopted by the Board of Directors.
5
<PAGE> 1
Exhibit 10.30
LOAN AGREEMENT
BY AND BETWEEN
CONLEY, CANITANO & ASSOC., INC.
AND
FLEET NATIONAL BANK, AS AGENT AND A LENDER
AND
THE OTHER FINANCIAL INSTITUTIONS NOW OR
HEREAFTER PARTIES HERETO
$15,000,000 SECURED REVOLVING CREDIT/TERM LOAN
APRIL 7, 1998
<PAGE> 2
INDEX TO
LOAN AGREEMENT
<TABLE>
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Page
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ARTICLE 1. DEFINITIONS AND ACCOUNTING AND OTHER TERMS.............................................................1
SECTION 1.1. CERTAIN DEFINED TERMS.............................................................................1
SECTION 1.2. ACCOUNTING TERMS.................................................................................15
SECTION 1.3. OTHER TERMS......................................................................................15
ARTICLE 2. AMOUNT AND TERMS OF THE LOANS.........................................................................15
SECTION 2.1. THE LOANS........................................................................................15
Section 2.1.0. The Revolving Credit/Term Loans.............................................................15
SECTION 2.2. INTEREST AND FEES ON THE LOANS...................................................................17
Section 2.2.1. Interest....................................................................................17
Section 2.2.2. Fees........................................................................................18
Section 2.2.3. Increased Costs - Capital...................................................................19
SECTION 2.3. NOTATIONS........................................................................................20
SECTION 2.4. COMPUTATION OF INTEREST..........................................................................20
SECTION 2.5. TIME OF PAYMENTS AND PREPAYMENTS IN IMMEDIATELY AVAILABLE FUNDS..................................20
Section 2.5.1. Time........................................................................................20
Section 2.5.2. Setoff, etc.................................................................................21
Section 2.5.3. Unconditional Obligations and No Deductions.................................................22
SECTION 2.6. PREPAYMENT AND CERTAIN PAYMENTS..................................................................22
Section 2.6.1. Mandatory Payments..........................................................................22
Section 2.6.2. Voluntary Prepayments.......................................................................23
Section 2.6.3. Prepayment of Libor Loans...................................................................23
Section 2.6.4. Permanent Reduction of Commitment...........................................................23
SECTION 2.7. PAYMENT ON NON-BUSINESS DAYS.....................................................................23
SECTION 2.8. USE OF PROCEEDS..................................................................................24
SECTION 2.9. SPECIAL LIBOR LOAN PROVISIONS....................................................................24
Section 2.9.1. Requests....................................................................................24
Section 2.9.2. Libor Loans Unavailable.....................................................................24
Section 2.9.3. Libor Lending Unlawful......................................................................25
Section 2.9.4. Additional Costs on Libor Loans.............................................................25
Section 2.9.5. Libor Funding Losses........................................................................27
Section 2.9.6. Banking Practices...........................................................................27
Section 2.9.7. Borrower's Options on Unavailability or Increased Cost of Libor Loans......................28
Section 2.9.8. Assumptions Concerning Funding of Libor Loans...............................................28
ARTICLE 3. CONDITIONS OF LENDING.................................................................................29
SECTION 3.1. CONDITIONS PRECEDENT TO THE COMMITMENT AND TO ALL LOANS..........................................29
Section 3.1.1. The Commitment and Initial Loans............................................................29
Section 3.1.2. The Commitment and the Loans................................................................32
ARTICLE 4. REPRESENTATIONS AND WARRANTIES........................................................................33
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER...................................................33
Section 4.1.1. Organization and Existence..................................................................33
</TABLE>
<PAGE> 3
<TABLE>
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Section 4.1.2. Authorization and Absence of Defaults.......................................................33
Section 4.1.3. Acquisition of Consents.....................................................................33
Section 4.1.4. Validity and Enforceability.................................................................34
Section 4.1.5. Financial Information.......................................................................34
Section 4.1.6. No Litigation...............................................................................34
Section 4.1.7. Regulation U................................................................................34
Section 4.1.8. Absence of Adverse Agreements...............................................................35
Section 4.1.9. Taxes.......................................................................................35
Section 4.1.10. ERISA......................................................................................35
Section 4.1.11. Ownership of Properties....................................................................36
Section 4.1.12. Accuracy of Representations and Warranties.................................................36
Section 4.1.13. No Investment Company......................................................................37
Section 4.1.14. Solvency, etc..............................................................................37
Section 4.1.15. Approvals..................................................................................37
Section 4.1.16. Ownership Interests........................................................................37
Section 4.1.17. Licenses, Registrations, Compliance with Laws, etc.........................................37
Section 4.1.18. Principal Place of Business; Books and Records.............................................38
Section 4.1.19. Subsidiaries...............................................................................38
Section 4.1.20. Copyright..................................................................................38
Section 4.1.21. Environmental Compliance...................................................................38
Section 4.1.22. Material Agreements, etc...................................................................38
Section 4.1.23. Patents, Trademarks and Other Property Rights..............................................39
Section 4.1.24. Related Transaction Documents..............................................................39
Section 4.1.25. Material Adverse Effect....................................................................39
Section 4.1.26. Transactions with Affiliates...............................................................39
ARTICLE 5. COVENANTS OF THE BORROWER.............................................................................39
SECTION 5.1. AFFIRMATIVE COVENANTS OF THE BORROWER OTHER THAN REPORTING REQUIREMENTS..........................39
Section 5.1.1. Payment of Taxes, etc.......................................................................39
Section 5.1.2. Maintenance of Insurance....................................................................40
Section 5.1.3. Preservation of Existence, etc..............................................................40
Section 5.1.4. Compliance with Laws, etc...................................................................41
Section 5.1.5. Visitation Rights...........................................................................41
Section 5.1.6. Keeping of Records and Books of Account.....................................................41
Section 5.1.7. Maintenance of Properties, etc..............................................................41
Section 5.1.8. Post-Closing Items..........................................................................41
Section 5.1.9. Other Documents, etc........................................................................41
Section 5.1.10. Minimum Interest Coverage Ratio............................................................41
Section 5.1.11. Minimum Debt Service Coverage Ratio........................................................41
Section 5.1.12. Maximum Ratio of Total Indebtedness for Borrowed Money to Adjusted EBITDA..................42
Section 5.1.12.1. Minimum Profitability.................................................................42
Section 5.1.12.2. Minimum Quick Ratio...................................................................42
Section 5.1.13. Officer's Certificates and Requests........................................................42
Section 5.1.14. Depository.................................................................................42
Section 5.1.15. Chief Executive Officer....................................................................42
Section 5.1.16. Notice of Purchase of Real Estate and Leases...............................................43
Section 5.1.17. Additional Assurances......................................................................43
Section 5.1.18. Appraisals.................................................................................43
Section 5.1.19. Environmental Compliance...................................................................43
Section 5.1.20. Remediation................................................................................43
Section 5.1.21. Site Assessments...........................................................................43
Section 5.1.22. Indemnity..................................................................................44
Section 5.1.23. Trademarks, Copyrights, etc................................................................44
Section 5.2. Negative Covenants of the Borrower............................................................44
</TABLE>
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<PAGE> 4
<TABLE>
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Section 5.2.1. Liens, etc..................................................................................44
Section 5.2.2. Assumptions, Guaranties, etc. of Indebtedness of Other Persons..............................45
Section 5.2.3. Acquisitions, Dissolution, etc..............................................................46
Section 5.2.4. Change in Nature of Business................................................................46
Section 5.2.5. Ownership...................................................................................46
Section 5.2.6. Sale and Leaseback..........................................................................46
Section 5.2.7. Sale of Accounts, etc.......................................................................46
Section 5.2.8. Indebtednessu...............................................................................47
Section 5.2.9. Other Agreements............................................................................47
Section 5.2.10. Reserved...................................................................................47
Section 5.2.11. Dividends, Payments and Distributions......................................................47
Section 5.2.12. Investments in or to Other Persons.........................................................48
Section 5.2.13. Transactions with Affiliates...............................................................48
Section 5.2.14. Change of Fiscal Year......................................................................48
Section 5.2.15. Subordination of Claims....................................................................48
Section 5.2.16. Compliance with ERISA......................................................................48
Section 5.2.17. Capital Expenditures.......................................................................49
Section 5.2.18. Hazardous Waste............................................................................49
Section 5.2.19 Other Restrictions on Liens.................................................................49
SECTION 5.3. REPORTING REQUIREMENTS...........................................................................49
ARTICLE 6. EVENTS OF DEFAULT.....................................................................................51
SECTION 6.1. EVENTS OF DEFAULT................................................................................51
ARTICLE 7. REMEDIES OF LENDERS...................................................................................54
ARTICLE 8. AGENT.................................................................................................54
SECTION 8.1. APPOINTMENT......................................................................................54
SECTION 8.2. POWERS; GENERAL IMMUNITY.........................................................................56
Section 8.2.1. Duties Specified............................................................................56
Section 8.2.2. No Responsibility For Certain Matters.......................................................56
Section 8.2.3. Exculpatory Provisions......................................................................56
Section 8.2.4. Agent Entitled to Act as Lender.............................................................57
SECTION 8.3. REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF CREDITWORTHINESS..............57
SECTION 8.4. RIGHT TO INDEMNITY...............................................................................57
SECTION 8.5. PAYEE OF NOTE TREATED AS OWNER...................................................................58
SECTION 8.6. RESIGNATION BY AGENT.............................................................................59
SECTION 8.6. SUCCESSOR AGENT..................................................................................59
ARTICLE 9. MISCELLANEOUS.........................................................................................59
SECTION 9.1. CONSENT TO JURISDICTION AND SERVICE OF PROCESS...................................................60
SECTION 9.2. RIGHTS AND REMEDIES CUMULATIVE...................................................................60
SECTION 9.3. DELAY OR OMISSION NOT WAIVER.....................................................................61
SECTION 9.4. WAIVER OF STAY OR EXTENSION LAWS.................................................................61
SECTION 9.5. AMENDMENTS, ETC..................................................................................61
SECTION 9.6. ADDRESSES FOR NOTICES, ETC.......................................................................62
SECTION 9.7. COSTS, EXPENSES AND TAXES........................................................................63
SECTION 9.8. PARTICIPATIONS...................................................................................63
SECTION 9.9. BINDING EFFECT; ASSIGNMENT.......................................................................63
SECTION 9.10. ACTUAL KNOWLEDGE................................................................................64
SECTION 9.11. SUBSTITUTIONS AND ASSIGNMENTS...................................................................64
SECTION 9.12. PAYMENTS PRO RATA...............................................................................66
SECTION 9.13. INDEMNIFICATION.................................................................................66
SECTION 9.14. GOVERNING LAW...................................................................................68
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 9.15. SEVERABILITY OF PROVISIONS......................................................................68
SECTION 9.16. HEADINGS........................................................................................68
SECTION 9.17. COUNTERPARTS....................................................................................68
</TABLE>
iv
<PAGE> 6
SCHEDULE OF EXHIBITS
EXHIBIT 1.1 - OWNERSHIP INTERESTS AND SUBSIDIARIES
EXHIBIT 1.2 - RELATED TRANSACTION DOCUMENTS
EXHIBIT 1.4 - FORM OF INTEREST RATE ELECTION
EXHIBIT 1.5 - FORM OF REVOLVING CREDIT/TERM NOTE
EXHIBIT 1.8 - PERMITTED ENCUMBRANCES
EXHIBIT 1.9 - PRO RATA SHARES
EXHIBIT 1.10 - FORM OF REQUEST
EXHIBIT 1.12 - PROJECTIONS
EXHIBIT 3.1.1.8 - PERMITTED INDEBTEDNESS AND CAPITALIZED LEASES
EXHIBIT 3.1.1.10 - FORM OF COMPLIANCE CERTIFICATE
EXHIBIT 4.1.1 - FOREIGN QUALIFICATIONS
EXHIBIT 4.1.2 - AUTHORIZATIONS
EXHIBIT 4.1.3 - CONSENTS
EXHIBIT 4.1.6 - LITIGATION
EXHIBIT 4.1.8 - ADVERSE AGREEMENTS
EXHIBIT 4.1.9 - TAXES
EXHIBIT 4.1.11 - REAL PROPERTY
EXHIBIT 4.1.17 - GOVERNMENTAL PERMITS
EXHIBIT 4.1.20 - COPYRIGHTS
EXHIBIT 4.1.21 - HAZARDOUS WASTE
EXHIBIT 4.1.22 - MATERIAL CONTRACTS
EXHIBIT 4.1.23 - INTELLECTUAL PROPERTY
EXHIBIT 5.2.2 - GUARANTIES
EXHIBIT 5.2.13 - TRANSACTIONS WITH AFFILIATES
EXHIBIT 9.11.1 - FORM OF SUBSTITUTION AGREEMENT
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<PAGE> 7
LOAN AGREEMENT
Conley, Canitano & Assoc., Inc., an Ohio corporation with a principal
place of business at CCAi Renaissance Centre, 5800 Landerbrook Drive, Mayfield
Heights, Ohio 44124 (hereinafter the "Borrower"), Fleet National Bank, a
national banking association organized under the laws of the United States and
having a head office at One Federal Street, Boston, Massachusetts 02110
(hereinafter sometimes the "Agent" as Agent for itself, sometimes "Fleet" and
sometimes a "Lender") and each of the other Lenders who now and/or hereafter
become parties to this Agreement pursuant to the terms of SECTION 9.11 hereof,
and such Lenders and Fleet as Lenders, hereby agree as follows:
ARTICLE 1.
DEFINITIONS AND ACCOUNTING AND OTHER TERMS
SECTION 1.1. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ACQUIRED COMPANY" means Kelly-Levey & Associates, Inc., a Kentucky
corporation with a place of business at 7900 Tanner's Gate Lane, Suite 330,
Florence, Kentucky 41042.
"ADJUSTED EBITDA" means, for any fiscal period, Net Income MINUS, to
the extent not accounted for in Net Income, any deferred consideration (whether
in the form of earn-outs, conditional payments or other post-closing acquisition
payments) payable in connection with a Permitted Acquisition, PLUS, to the
extent accounted for in Net Income, Interest Expense, taxes, depreciation,
amortization, other noncash charges and non-recurring extraordinary costs
(including one-time cash acquisition expenses of up to $500,000 per each
Permitted Acquisition) incurred by the Borrower and any Subsidiaries in
connection with closing of the Loans, the Related Transaction and any Permitted
Acquisition, PLUS, excess compensation expense incurred by the Borrower and any
Subsidiaries prior to September 30, 1997, all determined on an accrual and
consolidated basis in accordance with GAAP. With respect to any entity acquired
by the Borrower, pro-forma adjustments to the calculation of Adjusted EBITDA
shall be agreed upon by the Borrower and the Agent to reflect such acquisition.
"ADJUSTED LIBOR RATE" means, with respect to any Libor Loan to be made
by the Lenders for the Interest Period applicable to such Libor Loan, the
interest rate per annum determined by the Agent (fixed throughout such Interest
Period (subject to adjustments for the Libor Rate Reserve Percentage)) and
rounded upwards, if necessary, to the next 1/16 of 1%) which is equal to the
quotient of (i) the rate of interest determined by the Agent to be the average
of the interest rates per annum at which Dollar deposits in immediately
available funds are offered to each Reference Lender by first-class banks in the
London interbank market at approximately 11:00 a.m., London time, two Business
Days prior to the Business Day on which such Interest Period begins, in an
amount approximately equal to the principal amount of such Libor Loan, for a
period of time equal to such Interest Period and (ii) a number equal to the
number one minus the
<PAGE> 8
Libor Rate Reserve Percentage. The "Libor Rate Reserve Percentage" applicable to
any Interest Period means the average of the maximum effective rates (expressed
as a decimal) of the statutory reserve requirements (without duplication, but
including, without limitation, basic, supplemental, marginal and emergency
reserves) applicable to each Reference Lender during such Interest Period under
regulations of the Board of Governors of the Federal Reserve System (or any
successor), including without limitation Regulation D or any other regulation
dealing with maximum reserve requirements which are applicable to each Reference
Lender with respect to its "Eurocurrency Liabilities", as that term may be
defined from time to time by the Board of Governors of the Federal Reserve
System (or any successor) or are otherwise imposed by the Board of Governors of
the Federal Reserve System (or any successor) and which in any other respect
relate directly to the funding of loans bearing interest at rates based on the
interest rates at which Dollar deposits in immediately available funds are
offered to banks by first-class banks in the London interbank market. If any
Reference Lender fails to provide its offered quotation to the Agent, the
Adjusted Libor Rate shall be determined on the basis of the offered quotation of
the other Reference Lender. The Adjusted Libor Rate shall be adjusted
automatically on and as of the effective date of any change in the Libor Rate
Reserve Percentage.
"ADVANCE" and "ADVANCES" means the funding by any Lender of all or a
portion of the Loans in accordance with this Agreement.
"AFFILIATE" means singly and collectively, TA Associates and any Person
(other than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, the Borrower. For purposes of
this definition, a Person shall be deemed to be "controlled by" the Borrower if
the Borrower possesses, directly or indirectly, power either to (i) vote 10% or
more of the securities having ordinary voting power for the election of
directors of such Person or (ii) direct or cause the direction of the management
and policies of such Person whether by contract or otherwise, and the legal
representative, successor or assign of any such Person.
"AGENT" means Fleet National Bank or any other Person which is at the
time in question serving as the agent under the terms of Article 8 hereof and
the other Financing Documents.
"AGREEMENT" means this loan agreement, as the same may from time to
time be amended.
"A.M." means a time from and including 12 o'clock midnight to and
excluding 12 o'clock noon on any Business Day using Eastern Standard (Daylight
Savings) time.
"APPLICABLE MARGIN" means for each Libor Loan, two and one-quarter
percent (2.25%) per annum; provided, however, that if, at any time on or after
the receipt by the Agent of the quarterly financial statements for the
Borrower's March 31, 1998 fiscal quarter and each subsequent Borrower fiscal
quarter provided to the Agent by the Borrower pursuant to SECTION 5.3.3 hereof,
the ratio of (a) total Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of the most recently
ended fiscal quarter of the Borrower to (b) Adjusted EBITDA for such fiscal
quarter and for the three immediately preceding Borrower fiscal quarters, (i) is
less than 2.0:1.0, but greater than or equal to 1.50:1.0 and if and so long as
no Event of Default or Default exists and is continuing, the Applicable
2
<PAGE> 9
Margin shall, subject to the next-to-last sentence of this definition, be two
percent (2.00%) per annum, or (ii) is less than 1.50:1.0, but greater than or
equal to 1.0:1.0 and if and so long as no Event of Default or Default exists and
is continuing, the Applicable Margin shall, subject to the next-to-last sentence
of this definition, be one and three-quarters percent (1.75%) per annum, or
(iii) less than 1.0:1.0, and if and so long as no Event of Default or Default
exists and is continuing, the Applicable Margin shall, subject to the
next-to-last sentence of this definition, be one and one-half percent (1.50%)
per annum; provided further, however, that if on any date the Borrower would be
entitled to an Applicable Margin other than 2.25% except for the fact that a
Default exists, the Applicable Margin shall not change until the first to occur
of (a) such Default becoming an Event of Default and (b) waiver or cure of such
Default, at which time the Applicable Margin shall be adjusted or remain the
same in accordance with the provisions of this definition preceding this further
proviso.
Any change in the Applicable Margin required pursuant to the foregoing
shall become effective on the fifth Business Day after the Agent receives the
Borrower's financial statement for the Borrower's fiscal quarter or year-end, as
the case may be, in question and only after, in the case of a decrease in the
Applicable Margin, receipt by the Agent of a written request for such rate
decrease from the Borrower; provided, however, that each of the above-referenced
interest rates shall remain in effect only so long as Borrower qualifies
therefor and provided further, however, that interest rate reductions shall
become final only on the basis of Borrower's annual audited financial statements
and in the event that such annual audited financial statements establish that
the Borrower was not entitled to a rate reduction which was previously granted,
the Borrower shall, upon written demand by the Agent, repay to the Agent for the
account of each Lender an amount equal to the excess of interest at the rate
which should have been charged based on such annual audited financial statements
and the rate actually charged on the basis of Borrower's quarterly financial
statement(s) (provided that in the event of a dispute as to the appropriate
fiscal quarter as to which any adjustment should be allocated, the decision of
the independent accountants of the Borrower shall be made in accordance with
GAAP and shall be binding upon the Agent, the Lenders and the Borrower absent
manifest error); and provided further, however, that in the event that Borrower
fails to provide any financial statement on a timely basis in accordance with
SECTION 5.3.3, any interest rate increase payable as a result thereof shall be
retroactively effective to the date on which the financial statement in question
should have been received by the Agent in accordance with SECTION 5.3.3, and the
Borrower shall pay any amount due as a result thereof upon written demand from
the Agent. The Agent shall send the Borrower written acknowledgment of each
change in the Applicable Margin in accordance with the Agent's customary
procedures as in effect from time to time, but the failure to send such
acknowledgment shall have no effect on the effectiveness or applicability of the
foregoing provisions of this definition or Borrower's obligations with respect
to payment and calculation of interest on Libor Loans.
"AUTHORIZED REPRESENTATIVE" means such senior personnel of the Borrower
as shall be duly authorized and designated in writing by the Borrower to execute
documents, instruments and agreements on its behalf and to perform the functions
of Authorized Representative under any of the Financing Documents.
3
<PAGE> 10
"BORROWED MONEY" means any obligation to repay funded Indebtedness, any
Indebtedness evidenced by notes, bonds, debentures, guaranties or similar
obligations including without limitation the Loans and any obligation to pay
money under a conditional sale or other title retention agreement, the net
aggregate rentals payable under any Capitalized Lease Obligation, any
reimbursement obligation for any letter of credit and any obligations in respect
of banker's and other acceptances or similar obligations.
"BORROWER" has the meaning assigned in the first paragraph of this
Agreement.
"BUDGET" has the meaning assigned to such term in SECTION 5.3.7.
"BUSINESS CONDITION" means the financial condition, business, property,
assets, liabilities and/or operations of a Person.
"BUSINESS DAY" means (i) for all purposes other than as covered by
clause (ii) below, any day on which banks in Boston, Massachusetts or New York,
New York are not authorized or required by applicable law to close; and (ii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Libor Loans, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in Dollar deposits in the London interbank market.
"CAPITAL EXPENDITURES" means all expenditures paid or incurred by the
Borrower or any Subsidiary in respect of (i) the acquisition, construction,
improvement or replacement of land, buildings, machinery, equipment, any other
fixed assets or leaseholds and (ii) to the extent related to and not included in
(i) above, materials, contract labor and direct labor, which expenditures have
been or should be, in accordance with GAAP, capitalized on the books of the
Borrower or such Subsidiary. Where a fixed asset is acquired by a lease which is
required to be capitalized pursuant to Statement of Financial Accounting
Standards number 13 or any successor thereto, the amount required to be
capitalized in accordance therewith shall be considered to be an expenditure in
the year such asset is first leased.
"CAPITALIZED LEASE OBLIGATIONS" means all lease obligations which have
been or should be, in accordance with GAAP, capitalized on the books of the
lessee.
"CASH EQUIVALENT INVESTMENTS" means any Investment in (i) direct
obligations of the United States or any agency, authority or instrumentality
thereof, or obligations guaranteed by the United States or any agency, authority
or instrumentality thereof, whether or not supported by the full faith and
credit of, a right to borrow from or the ability to be purchased by the United
States; (ii) commercial paper rated in the highest grade by a nationally
recognized statistical rating agency or which, if not rated, is issued or
guaranteed by any issuer with outstanding long-term debt rated A or better by
any nationally recognized statistical rating agency; (iii) demand and time
deposits with, and certificates of deposit and bankers acceptances issued by,
any office of the Agent, any Lender or any other bank or trust company which is
organized under the laws of the United States or any state thereof and has
capital, surplus and undivided profits aggregating at least $500,000,000, the
outstanding long-term debt of which or of the holding company of which it is a
subsidiary is rated A or better by any nationally recognized statistical
4
<PAGE> 11
rating agency; (iv) any short-term note which has a rating of MIG-2 or better by
Moody's Investors Service Inc. or a comparable rating from any other nationally
recognized statistical rating agency; (v) any municipal bond or other
governmental obligation (including without limitation any industrial revenue
bond or project note) which is rated A or better by any nationally recognized
statistical rating agency; (vi) any other obligation of any issuer, the
outstanding long-term debt of which is rated A or better by any nationally
recognized statistical rating agency; (vii) any repurchase agreement with any
financial institution described in clause (iii) above, relating to any of the
foregoing instruments and fully collateralized by such instruments; (viii)
shares of any open-end diversified investment company that has its assets
invested only in investments of the types described in clause (i) through (vii)
above at the time of purchase and which maintains a constant net asset value per
share; and (ix) shares of any open-end diversified investment company registered
under the Investment Company Act of 1940, as amended, which maintains a constant
net asset value per share in accordance with regulations of the Securities &
Exchange Commission, has aggregate net assets of not less than $50,000,000 on
the date of purchase and either derives at least 95% of its gross income from
interest on or gains from the sale of investments of the type described in
clauses (i) through (vii), above or has at least 85% of the weighted average
value of its assets invested in investments of such types; provided that the
purchase of any shares in any particular investment company shall be limited to
an aggregate amount owned at any one time of $500,000. Each Cash Equivalent
Investment shall have a maturity of less than one year at the time of purchase;
provided that the maturity of any repurchase agreement shall be deemed to be the
repurchase date and not the maturity of the subject security and that the
maturity of any variable or floating rate note subject to prepayment at the
option of the holder shall be the period remaining (including any notice period
remaining) before the holder is entitled to prepayment.
"CHANGE OF CONTROL" means, any one of the following events: (i) any
change in the ownership of the Borrower such that TA Associates, Nicholas A. and
Annette M. Canitano (and/or any trusts established fore the benefit of Nicholas
A. and Annette M. Canitano) and Kenneth L. and Karen M. Conley (and/or any
trusts established for the benefit of Kenneth L. and Karen M. Conley) in the
aggregate own less than 51% of the equity interests in the Borrower or (ii) any
decrease in any of the voting rights in the Borrower now held by TA Associates,
Nicholas A. and Annette M. Canitano (and/or any trusts established fore the
benefit of Nicholas A. and Annette M. Canitano) and Kenneth L. and Karen M.
Conley (and/or any trusts established for the benefit of Kenneth L. and Karen M.
Conley) such that they cease to collectively hold 51% or more of the voting
rights in the Borrower.
"CLOSING DATE" means the date on which all of the conditions precedent
set forth in SECTION 3.1 of this Agreement have been satisfied and the Loan is
funded in accordance with this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITMENT" means the Lenders' several commitments to make or maintain
the Loans as set forth in SECTION 2.1 hereof in the maximum outstanding amount
of each Lender's Pro Rata Share of $15,000,000 less the reductions, prepayments
or repayments, as the case may be set forth in SECTIONS 2.1 and 2.6.
5
<PAGE> 12
"COMMONLY CONTROLLED ENTITY" means a Person, whether or not
incorporated, which is under common control with the Borrower within the meaning
of section 414(b) or (c) of the Code.
"CONVERSION DATE" means June 30, 1999.
"CURRENT LIABILITIES" means all liabilities of the Borrower and the
Subsidiaries which would, in accordance with GAAP on a consolidated basis, be
classified as current liabilities of corporations conducting a business the same
as or similar to that of the Borrower and any Subsidiaries, including without
limitation, all lease rental payments under Capitalized Lease Obligations and
fixed prepayments of, and sinking fund payments and reserves with respect to,
Indebtedness, in each case required to be made within one year from the date of
determination.
"DEFAULT" means an event or condition which with the giving of notice
or lapse of time or both would become an Event of Default.
"DISCHARGED RIGHTS AND OBLIGATIONS" shall have the meaning assigned to
such term in SECTION 9.11.4.
"DOLLARS" and the sign "$" mean lawful money of the United States of
America.
"EFFECTIVE PRIME" means the Prime Rate plus three-quarters of one
percent (.75%) per annum; provided, however, that if, at any time on or after
the receipt by the Agent of the quarterly financial statements for the
Borrower's March 31, 1998 fiscal quarter and each subsequent Borrower fiscal
quarter provided to the Agent by the Borrower pursuant to SECTION 5.3.3 hereof,
the ratio of (a) total Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries on a consolidated basis as of the last day of the most recently
ended fiscal quarter of the Borrower to (b) Adjusted EBITDA for such fiscal
quarter and for the three immediately preceding Borrower fiscal quarters, (i) is
less than 2.0:1.0, but greater than or equal to 1.50:1.0 and if and so long as
no Event of Default or Default exists and is continuing, Effective Prime shall,
subject to the next-to-last sentence of this definition, be the Prime Rate plus
one-half of one percent (.50%) per annum, or (ii) is less than 1.50:1.0, but
greater than or equal to 1.0:1.0 and if and so long as no Event of Default or
Default exists and is continuing, Effective Prime shall, subject to the
next-to-last sentence of this definition, be the Prime Rate plus one-quarter of
one percent (.25%) per annum, or (iii) is less than 1.0:1.0, and if and so long
as no Event of Default or Default exists and is continuing, Effective Prime
shall, subject to the next-to-last sentence of this definition, be the Prime
Rate per annum; provided, further, however, that if on any date the Borrower
would be entitled to an Effective Prime other than the Prime Rate plus .75%
except for the fact that a Default exists, the Effective Prime shall not change
until the first to occur of (a) such Default becoming an Event of Default and
(b) waiver or cure of such Default, at which time the Effective Prime shall be
adjusted or remain the same in accordance with the provisions of this definition
preceding this further proviso.
Any change in Effective Prime required pursuant to the foregoing shall
become effective on the fifth Business Day after the Agent receives the
Borrower's financial statement for the
6
<PAGE> 13
Borrower's fiscal quarter or year-end, as the case may be, in question and only
after, in the case of a decrease in Effective Prime, receipt by the Agent of a
written request for such rate decrease from the Borrower; provided, however,
that each of the above-referenced interest rates shall remain in effect only so
long as Borrower qualifies therefor and provided further, however, that interest
rate reductions shall become final only on the basis of Borrower's annual
audited financial statements and in the event that such annual audited financial
statements establish that the Borrower was not entitled to a rate reduction
which was previously granted, the Borrower shall, upon written demand by the
Agent repay to the Agent for the account of each Lender an amount equal to the
excess of interest at the rate which should have been charged based on such
annual audited financial statements and the rate actually charged on the basis
of Borrower's quarterly financial statement(s) (provided that in the event of a
dispute as to the appropriate fiscal quarter as to which any adjustment should
be allocated, the decision of the independent accountants of the Borrower shall
be made in accordance with GAAP and shall be binding upon the Agent, the Lenders
and the Borrower absent manifest error); and provided further, however, that in
the event that Borrower fails to provide any financial statement on a timely
basis in accordance with SECTION 5.3.3, any interest rate increase payable as a
result thereof shall be retroactively effective to the date on which the
financial statement in question should have been received by the Agent in
accordance with SECTION 5.3.3, and the Borrower shall pay any amount due as a
result thereof upon written demand from the Agent. The Agent shall send the
Borrower written acknowledgment of each change in the Effective Prime in
accordance with the Agent's customary procedures as in effect from time to time,
but the failure to send such acknowledgment shall have no effect on the
effectiveness or applicability of the foregoing provisions of this definition or
Borrower's obligations with respect to payment and calculation of interest on
Prime Rate Loans.
"ERISA" means the Employee Retirement Income Security Act of 1974 as
amended from time to time.
"EVENTS OF DEFAULT" has the meaning assigned to that term in SECTION
6.1 of this Agreement.
"EXCESS CASH FLOW" means, for any fiscal year of the Borrower, the sum
of Adjusted EBITDA for each Borrower fiscal quarter in such fiscal year, MINUS
the sum of (i) an amount equal to the sum of payments included in Total Debt
Service paid during each fiscal quarter in such fiscal year, (ii) to the extent
not included in Total Debt Service, all Capital Expenditures permitted under
SECTION 5.2.17 and paid during each Borrower fiscal quarter in such fiscal year,
(iii) taxes payable during each Borrower fiscal quarter in such fiscal year,
(iv) to the extent included in Adjusted EBITDA, non-recurring, extraordinary
cash acquisition expenses incurred by the Borrower and (v) to the extent
included in Adjusted EBITDA, excess compensation expense incurred by the
Borrower and any Subsidiaries prior to September 30, 1997, PLUS decreases and
MINUS increases in working capital.
"EXHIBIT" means, when followed by a letter, the exhibit attached to
this Agreement bearing that letter and by such reference fully incorporated in
this Agreement.
"FACILITY FEE" means, the fee payable by the Borrower in accordance
with the Side Letter.
7
<PAGE> 14
"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/16th of 1%) equal to the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York, PROVIDED that (i) if such day is not a
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next succeeding Business Day as so published, and (ii) if no
such rate is so published on such next succeeding Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to the Agent on such
day on such transactions as determined by the Agent in its discretion exercised
in good faith.
"FINANCING DOCUMENTS" means, collectively, this Agreement, each Note,
the Security Documents, the Side Letter, the Post-Closing Letter, any Letter of
Credit or Letter of Credit Agreement, any agreement with any Lender providing
any interest rate protection arrangement and each other agreement, instrument or
document now or hereafter executed in connection herewith or therewith.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America.
"HAZARDOUS MATERIAL" shall mean any substance or material defined or
designated as a hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance, or other similar term, by any United States federal, state
or local environmental statute, regulation or ordinance.
"INDEBTEDNESS" means, without duplication for any Person, (i) all
indebtedness or other obligations of said Person for Borrowed Money or for the
deferred purchase price of property or services, including, without limitation,
all reimbursement obligations of said Person with respect to standby and/or
documentary letters of credit (ii) all indebtedness or other obligations of any
other Person ("Other Person") for Borrowed Money or for the deferred purchase
price of property or services, the payment or collection of which said Person
has guaranteed (except by reason of endorsement for deposit or collection in the
ordinary course of business) or in respect of which said Person is liable,
contingently or otherwise, including, without limitation, liable by way of
agreement to purchase or lease, to provide funds for payment, to supply funds to
purchase, sell or lease property or services primarily to assure a creditor of
such Other Person against loss or otherwise to invest in or make a loan to the
Other Person, or otherwise to assure a creditor of such Other Person against
loss, (iii) all indebtedness or other obligations of any Person for Borrowed
Money or for the deferred purchase price of property or services secured by (or
for which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in any property owned by said
Person, whether or not said Person has assumed or become liable for the payment
of such indebtedness or obligations, (iv) Capitalized Lease Obligations of said
Person and (v) obligations of such Person under contracts pursuant to which such
Person has agreed to purchase interest rate protection or swap interest rate
obligations.
8
<PAGE> 15
"INTEREST ADJUSTMENT DATE" means (i) as to any Prime Rate Loan to be
converted to a Libor Loan the Business Day elected by the Borrower in its
applicable Interest Rate Election, but being not less than three (3) Business
Days after the receipt by the Agent before 12:00 o'clock P.M. on a Business Day
of an Interest Rate Election electing the Libor Rate as the interest rate on
such Loan; and (ii) as to any Libor Loan, the last Business Day of the Interest
Period pertaining to such Libor Loan.
"INTEREST EXPENSE" means, with respect to any fiscal quarter, the
aggregate amount required to be accrued by the Borrower and any Subsidiaries in
such fiscal quarter for interest, fees (excluding, however, the Facility Fee),
charges and expenses, however characterized, on its Indebtedness, including,
without limitation, all such interest, fees, charges and expenses required to be
accrued with respect to Indebtedness under the Financing Documents, all
determined in accordance with GAAP.
"INTEREST PERIOD" means:
With respect to each Libor Loan:
(i) initially, the period commencing on the date of such Libor
Loan and ending one, two, three or six months thereafter as the
Borrower may elect in the applicable Interest Rate Election and subject
to SECTION 2.9; and
(ii) thereafter, each period commencing on the last day of the
immediately preceding Interest Period applicable to such Libor Loan and
ending one, two, three or six months thereafter as the Borrower may
elect in the applicable Interest Rate Election and subject to SECTION
2.9;
PROVIDED THAT clauses (i) and (ii) of this definition are subject to
the following:
(A) any Interest Period (other than an Interest Period determined
pursuant to clause (C) below) which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in another calendar month, in which case such Interest Period
shall end on the immediately preceding Business Day;
(B) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall, subject to
clause (C) below, end on the last Business Day of a calendar month; and
(C) no Interest Period shall end after the Repayment Date; and
(D) with respect to all Libor Loans, no more than three (3) Interest
Periods may be in effect at any time.
"INTEREST RATE ELECTION" means the Borrower's irrevocable telecopied or
telephonic notice of election, which shall be promptly confirmed by a written
notice of election that Effective
9
<PAGE> 16
Prime or the Libor Rate shall apply to all or any portion of the Loans, which
shall, subject to this Agreement, be effective on the next Interest Adjustment
Date, such telecopied or telephonic notice and written confirmation thereof to
be in the form of EXHIBIT 1.4 and to be received by the Agent prior to 12:00
o'clock P.M. on a Business Day and at least three (3) Business Days prior to an
Interest Adjustment Date in the case of a Libor Loan, and by 12:00 p.m. on an
Interest Adjustment Date in the case of a Prime Rate Loan (or four (4) Business
Days in the case of an Interest Rate Election as to which the consent of the
Lenders is required), each such Interest Rate Election, subject to the terms of
this Agreement to apply to the Advance or the Loan referred to in such Interest
Rate Election or to effect a change in the interest rate on the applicable
portion of the Loans then outstanding, as applicable, with respect to which such
Interest Rate Election was made, such change to occur on the Interest Adjustment
Date next succeeding receipt of such Interest Rate Election by the Agent. Any
Interest Rate Election received by the Agent after 12 o'clock P.M. on a Business
Day shall be deemed, for all purposes of this Agreement to have been received
prior to 12 o'clock P.M. on the next succeeding Business Day.
"INVESTMENT" means any investment in any Person whether by means of a
purchase of capital stock, notes, bonds, debentures or other evidences of
Indebtedness and/or by means of a capital or partnership contribution, loan,
deposit, advance or other means.
"LENDER" means Fleet or any financial institution which hereafter
becomes a party hereto pursuant to the terms of SECTION 9.11, each in their
individual capacity, and "Lenders" means Fleet and each of such financial
institutions.
"LETTER OF CREDIT" means an irrevocable stand-by or commercial letter
of credit issued by the Agent for the account of the Borrower pursuant to a
Letter of Credit Agreement subject to and in accordance with this Agreement.
"LETTER OF CREDIT AGREEMENT" means an application and agreement for
stand-by or commercial letter of credit in such form as may at any time be
customarily required by the Agent for its issuance of stand-by or commercial
letters of credit.
"LIBOR LOAN" means any portion of any Loan bearing interest at the
Libor Rate.
"LIBOR RATE" means, for any Interest Period, the Adjusted Libor Rate in
effect on the first day of such Interest Period (subject to adjustment as
provided in the definition of Adjusted Libor Rate) plus the Applicable Margin
for Libor Loans from time to time in effect.
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other) or other security agreement
or preferential arrangement of any kind or nature whatsoever (including without
limitation any conditional sale or other title retention agreement and any
Capitalized Lease Obligation) having substantially the same economic effect as
any of the foregoing and the filing of any financing statement under the
applicable Uniform Commercial Code or comparable law of any jurisdiction in
respect of any of the foregoing.
10
<PAGE> 17
"LOANS" and "LOAN" means at any time the outstanding principal amount
of Indebtedness owed to the Lenders or to any lender, as the context may require
pursuant to this Agreement.
"MAJORITY LENDERS" means Lenders holding an aggregate Pro Rata Share of
the outstanding principal balance of the Loans in an amount in excess of 50.1%
of the total outstanding principal balance of the Loans and if there is no
outstanding principal balance of the Loans, Lenders having at least 50.1% of the
Commitment.
"MATERIAL ADVERSE EFFECT" means material adverse effect on (i) the
ability of the Borrower or any Subsidiary to fulfill their obligations under any
of the Financing Documents, (ii) the Business Condition of the Borrower or any
Subsidiary or (iii) the ability of the Borrower to consummate the Related
Transactions.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"NET INCOME" means, for any fiscal period, the net after tax income
(loss) of the Borrower and any Subsidiaries for such period determined on an
accrual and consolidated basis in accordance with GAAP.
"NOTE" means any promissory note of the Borrower payable to the order
of a Lender and substantially in the form of EXHIBIT 1.5 and evidencing all or a
portion of the Loan and "Notes" means all of the Notes, collectively.
"OBLIGATIONS" mean any and all Indebtedness, obligations and
liabilities of Borrower and/or any Subsidiaries under any of the Financing
Documents to any one or more of the Lenders and/or the Agent of every kind and
description, absolute or contingent, due or to become due, whether for payment
or performance, now existing or hereafter arising, including, without
limitation, all Loans, interest, taxes, fees, charges, and expenses under the
Financing Documents and attorneys' fees chargeable to the Borrower and/or any
Subsidiaries or incurred by any of the Lenders and/or the Agent under any of the
Financing Documents.
"OFFICER'S CERTIFICATE" means a certificate signed by an Authorized
Representative and delivered to the Agent on behalf of the Lenders.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to subtitle A of Title IV of ERISA.
"P.M." means a time from and including 12 o'clock noon on any Business
Day to the end of such Business Day using Eastern Standard (Daylight Savings)
time.
"PERMITTED ACQUISITION" means any acquisition (whether in one
transaction or in a series of transactions) of all or any substantial portion of
the assets or ownership interests in another Person, or any merger,
consolidation or combination(whether in one transaction or in a series of
transactions) with another Person permitted pursuant to the terms of SECTION
5.2.3 hereof,
11
<PAGE> 18
including, without limitation, the acquisition of the Acquired Company by the
Borrower pursuant to the Related Transaction Documents.
"PERMITTED ENCUMBRANCES" means each Lien granted pursuant to any of the
Security Documents, those Liens, security interests and defects in title
permitted under SECTION 5.2.1 and those Liens listed on EXHIBIT 1.8 hereto.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, trust, or unincorporated organization, or a
government or any agency or political subdivision thereof.
"PLAN" means an employee benefit plan as defined in Section 3(3) of
ERISA maintained for employees of the Borrower or any Commonly Controlled
Entity.
"POST-CLOSING LETTER" means that certain letter agreement between the
Borrower and the Agent dated the Closing Date and listing certain post-closing
actions to be completed by the Borrower.
"PREMISES" has the meaning assigned to such term in SECTION 4.1.22.1.
"PRIME RATE" means the higher of (i) the floating rate of interest per
annum designated from time to time by the Agent as being its "prime rate" of
interest, such interest rate to be adjusted on the effective date of any change
thereof by the Agent, it being understood that such rate of interest may not be
the lowest rate of interest from time to time charged by the Agent and (ii) the
Federal Funds Rate, such interest rate to be adjusted on the effective date of
any change thereof by the Federal Reserve Bank of New York.
"PRIME RATE LOAN(S)" means any portion of the Loans bearing interest at
Effective Prime.
"PROJECTIONS" means the Borrower's written projections of Borrower's
1-year future performance on a consolidated basis delivered to the Agent prior
to the Closing and attached to this Agreement as EXHIBIT 1.12.
"PRO RATA SHARE" means (i) with respect to the Commitment, each
Lender's percentage share of the Commitment as set forth immediately opposite
such Lender's name on EXHIBIT 1.9, and (ii) with respect to the Loans, each
Lender's percentage share of the aggregate outstanding principal balance of the
Loans and "Pro Rata Shares" means such percentage shares of the Lenders.
"REFERENCE LENDER(S)" means the Agent unless the Agent resigns said
responsibility, at which time and thereafter such term means one or two Lenders
selected by the Agent in its discretion from time to time as a reference lender
for purposes of determining the Adjusted Libor Rate.
"RELATED TRANSACTION" means the acquisition by the Borrower of the
Acquired Company.
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<PAGE> 19
"RELATED TRANSACTION DOCUMENTS" means the documents listed on EXHIBIT
1.2.
"REPAYMENT DATE" means the earlier to occur of (i) June 30, 2003 and
(ii) such earlier date on which the Revolving Credit/Term Loan becomes due and
payable pursuant to the terms hereof.
"REPORTABLE EVENT" shall have the meaning assigned to that term in
Section 4043 of ERISA for which the requirement of 30 days' notice to the PBGC
has not been waived by the PBGC.
"REQUEST" means a written request for the Loans in the form of EXHIBIT
1.10, received by the Agent on behalf of the Lenders from the Borrower in
accordance with this Agreement, specifying the date on which the Borrower
desires such Loans and the disbursement instructions of the Borrower with
respect thereto.
"REVOLVING CREDIT FORMULA AMOUNT means an amount equal to (i) 2.50
multiplied by (ii) Adjusted EBITDA as at each Borrower fiscal quarter end for
the rolling four Borrower fiscal quarter period consisting of the Borrower
fiscal quarter then ending and the three immediately preceding Borrower fiscal
quarters. Any change in the Revolving Credit Formula Amount shall become
effective on the fifth Business Day after the Agent receives the Borrower's
financial statement for the Borrower's fiscal quarter or year-end, as the case
may be, in question; provided, however, that the Revolving Credit Formula Amount
shall remain in effect only so long as Borrower qualifies therefor.
"REVOLVING CREDIT/TERM LOAN" means the revolving credit/term loans to
be made by the Lenders to the Borrower from time to time in the maximum
outstanding principal amount of the Commitment, all subject and pursuant to
SECTION 2.1.0.
"REVOLVING CREDIT/TERM NOTE" means each revolving credit/term note of
the Borrower, payable to the order of a Lender in the form of EXHIBIT 1.5 hereto
evidencing the Indebtedness of the Borrower to such Lender with respect to the
Revolving Credit/Term Loan.
"SECTION" means, when followed by a number, the section or subsection
of this Agreement bearing that number.
"SECURITY DOCUMENTS" means any and all documents, instruments and
agreements now or hereafter providing security for the Loans and any other
Indebtedness of the Borrower or any Subsidiary to any of the Lenders and/or the
Agent, including without limitation the following documents, instruments and
agreements between the Agent and the Borrower or any Subsidiary; any mortgages
on and collateral assignments of real property interests (fee, leasehold and
easement) of the Borrower and any Subsidiary granting Liens thereon; landlord
lien waivers and consents as may be reasonably requested by the Agent; security
agreements granting first Liens on all Borrower's and any Subsidiary's fixtures
and tangible and intangible personal property; collateral assignments of
Borrower's and any Subsidiary's contracts, licenses, permits, easements and
leases; collateral assignments of Borrower's and any Subsidiary's copyrights;
conditional assignments of Borrower's and any Subsidiary's trademarks; any
Subordination Agreement; any
13
<PAGE> 20
guaranty by a Subsidiary; any pledge of the capital stock of any Subsidiary;
casualty and liability insurance policies providing coverage to the Agent for
the benefit of the Lenders, UCC-1 financing statements or similar filings
perfecting the above-referenced security interests, pledges and assignments, all
as executed, delivered to and accepted by the Agent on or prior to the Closing
Date or subsequent to the Closing Date as may be required by this Agreement, as
any of the foregoing may be amended in writing by the Agent and any other party
or parties thereto.
"SELLING LENDER" shall have the meaning assigned to such term in
SECTION 9.11.1.
"SIDE LETTER" means that certain side letter of even date with this
Agreement between the Borrower and the Agent regarding certain fees payable by
the Borrower.
"SINGLE EMPLOYER PLAN" means any Plan as defined in Section 4001(a)(15)
of ERISA.
"STOCKHOLDERS" means collectively, TA Associates, Nicholas A. and
Annette M. Canitano (and/or any trusts established fore the benefit of Nicholas
A. and Annette M. Canitano) and Kenneth L. and Karen M. Conley (and/or any
trusts established for the benefit of Kenneth L. and Karen M. Conley).
"SUBSIDIARY" means any corporation or entity other than the Borrower of
which more than 50% of the outstanding capital stock or voting interests or
rights having ordinary voting power to elect a majority of the board of
directors or other managers of such entity (irrespective of whether or not at
the time capital stock or voting interests or rights of any other class or
classes of such Person shall or might have voting power upon the occurrence of
any contingency) is at the time directly or indirectly owned by the Borrower or
by the Borrower and/or one or more Subsidiaries or the management of which
corporation or entity is under control of the Borrower and/or any other
Subsidiary, directly or indirectly through one or more Persons and any other
Person which, under GAAP, should at any time for financial reporting purposes be
consolidated or combined with the Borrower and/or any other Subsidiary.
"SUBSTITUTED LENDER" has the meaning set forth in SECTION 9.11 hereof.
"SUBSTITUTION AGREEMENT" has the meaning assigned to such term in
SECTION 9.11.1.
"TA ASSOCIATES" means any venture capital or other fund or entity for
which TA Associates, Inc., a Delaware corporation and/or one or more general
partners of TA Associates, Inc. directly or indirectly through one or more
intermediaries serves as general partner, manager or in a like capacity.
"TOTAL DEBT SERVICE" means, at any date of determination, the sum of
(i) Interest Expense and (ii) scheduled and mandatory principal payments for the
fiscal period in question due on account of any Indebtedness of the Borrower,
but excluding any mandatory payments of principal required pursuant to SECTIONS
2.6.1.2, 2.6.1.3 and 2.6.1.4.
"UNUSED FEES" has the meaning assigned to such term in SECTION 2.2.2.
14
<PAGE> 21
SECTION 1.2. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, calculations of
amounts for the purposes of calculating any financial covenants or ratios
hereunder shall be made in accordance with GAAP applied on a basis consistent
with those used in the Borrower's financial statements referred to in SECTION
4.1.5 (other than departures therefrom not material in their impact), and all
financial data submitted pursuant to this Agreement shall be prepared in
accordance with GAAP (except, in the case of unaudited financial statements, the
absence of footnotes and that such statements are subject to changes resulting
from year-end adjustments made in accordance with GAAP).
SECTION 1.3. OTHER TERMS. References to "Articles", "Sections",
"subsections" and "Exhibits" shall be to Sections, subsections and Exhibits and
of this Agreement unless otherwise specifically provided. In this Agreement,
"hereof," "herein," "hereto," "hereunder" and the like mean and refer to this
Agreement as a whole and not merely to the specific section, paragraph or clause
in which the respective word appears; words importing any gender include the
other genders; references to "writing" include printing, typing, lithography and
other means of reproducing words in a tangible visible form; the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include subsequent amendments, assignments, and
other modifications thereto, but only to the extent such amendments, assignments
and other modifications are not prohibited by the terms of this Agreement or any
other Financing Document; references to Persons include their respective
permitted successors and assigns or, in the case of governmental Persons,
Persons succeeding to the relevant functions of such Persons; and all references
to statutes and related regulations shall include any amendments of same and any
successor statutes and regulations.
ARTICLE 2.
AMOUNT AND TERMS OF THE LOANS
SECTION 2.1. THE LOANS.
SECTION 2.1.0. THE REVOLVING CREDIT/TERM LOANS. Each of the
Lenders severally agrees, subject to the terms and conditions of this Agreement,
to make Advances of Revolving Credit/Term Loans to the Borrower in a minimum
aggregate amount of Advances from the Lenders pursuant to any Request of $50,000
and an integral multiple of $50,000 thereafter after receipt by the Agent from
time to time of, and at the times provided for in, a Request and an Interest
Rate Election from the Borrower in accordance with this Agreement, during the
period commencing on the Closing Date and ending on the Business Day immediately
preceding the Conversion Date, in an aggregate principal amount at any one time
outstanding not to exceed the lesser of (i) such Lender's Pro Rata Share of the
Revolving Credit Formula Amount and (ii) such Lender's Pro Rata Share of the
Commitment less, in each case, such Lender's Pro Rata Share of the aggregate
amount of the outstanding stated amount of any Letter of Credit or Letter of
Credit Agreement, and any unreimbursed amounts thereunder.
15
<PAGE> 22
Promptly after receipt of a Request and Interest Rate Election, Agent
shall notify each Lender by telephone, telex or telecopy of the proposed
borrowing. Subject to the immediately preceding paragraph, each Lender agrees
that after its receipt of notification from Agent of Agent's receipt of a
Request and Interest Rate Election, such Lender shall send its Pro Rata Share
(or such portion thereof as may be necessary to provide Agent with such Pro Rata
Share in Dollars and in immediately available funds, without consideration or
use of any contra accounts of any Lender) of the requested Loan by wire transfer
to Agent so that Agent receives such Pro Rata Share in Dollars and in
immediately available funds not later than 12:00 P.M. (Boston, Massachusetts
time) on the first day of the Interest Period for any such requested Libor Loan
and on the Business Day for such Advance set forth in Borrower's Request for any
such requested Prime Rate Loan, and Agent shall advance funds to the Borrower by
depositing such funds in Borrower's account with the Agent upon Agent's receipt
of such Pro Rata Shares in the amount of the Pro Rata Shares of such Loan in
Agent's possession. Unless Agent shall have been notified by any Lender (which
notice may be telephonic if confirmed promptly in writing) prior to the first
day of the Interest Period in respect of any Loan which such Lender is obligated
to make under this Agreement, that such Lender does not intend to make available
to Agent such Lender's Pro Rata Share of such Loan on such date, Agent may
assume that such Lender has made such amount available to Agent on such date and
Agent in its sole discretion may, but shall not be obligated to, make available
to the Borrower a corresponding amount on such date. If such corresponding
amount is not in fact made available to Agent by such Lender, Agent shall be
entitled to recover such corresponding amount from such Lender promptly upon
demand by Agent together with interest thereon, for each day from such date
until the date such amount is paid to Agent, at the Federal Funds Rate for three
(3) Business Days and thereafter at the interest rate on the Loan in question.
If such Lender does not pay such corresponding amount forthwith upon Agent's
demand therefor, Agent shall promptly notify the Borrower and the Borrower shall
promptly pay such corresponding amount to Agent. Nothing contained in this
Section shall be deemed to relieve any Lender from its obligation to fulfill its
obligations hereunder or to prejudice any rights which the Borrower may have
against any Lender as a result of any default by such Lender hereunder.
Prior to the Conversion Date, $2,500,000 of the Commitment and
principal amount of the Loans may, in the Agent's discretion, be made available
to the Borrower by issuance of Letters of Credit having (A) an expiration date
prior to the earlier to occur of (a) the first anniversary date of the date of
issuance of any such Letter of Credit or (b) three (3) Business Days prior to
the Conversion Date or (B) an expiration date on or before June 30, 2000, only
for such Letters of Credit as the Borrower shall have provided to the Agent cash
collateral securing the Borrower's obligations under the Letter of Credit
Agreements pursuant to which such Letters of Credit were issues in an amount
equal to the outstanding amount of any such Letters of Credit and in form and
substance reasonably satisfactory to the Agent. Any such Letter of Credit will
be issued reasonably promptly after submission by the Borrower to the Agent of a
Letter of Credit Agreement, duly completed and executed by the Borrower and
otherwise in form and substance satisfactory to the Agent. The Borrower shall
pay upon demand by the Agent such fees and costs as the Agent and/or the Lenders
may from time to time establish for issuance, transfer, amendment and
negotiation of each Letter of Credit and shall pay to the Agent for the Lenders'
accounts equal to their respective Pro Rata Shares upon issuance of any Letter
of Credit an annual Letter of Credit fee in an amount equal to the product of
(i) the stated amount of each
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<PAGE> 23
Letter of Credit multiplied by (ii) the Applicable Margin then in effect with
respect to any Libor Loan. In the event that the Borrower shall fail to
reimburse the Agent under any Letter of Credit or Letter of Credit Agreement,
and any outstanding Indebtedness of the Borrower relating thereto, the Agent
shall promptly notify each Lender of the unreimbursed amount together with
accrued interest thereon, and each Lender agrees to purchase, and it shall be
deemed to have purchased, a participation in such Letter of Credit or Letter of
Credit Agreement and such Indebtedness in an amount equal to its Pro Rata Share
of the unpaid amount together with unpaid interest thereon. Upon one (1)
Business Day's notice from the Agent, each Lender shall deliver to the Agent an
amount equal to its respective participation in same day funds, at the place and
on the date and by the time notified by the Agent. The obligation of each Lender
to deliver to the Agent an amount equal to its respective participation pursuant
to the foregoing sentence shall be absolute and unconditional and such
remittance shall be made notwithstanding the occurrence or continuation of an
Event of Default or the failure to satisfy any condition set forth in Article
III of this Agreement.
From and after the Conversion Date, the Borrower shall not be entitled
to any further Advances of the Revolving Credit/Term Loans. The Borrower shall
pay to the Agent for the respective pro rata accounts of the Lenders on the last
day of each calendar quarter ending on or in between the dates set forth below
an amount equal to the product of (i) the percentage set forth immediately
opposite such dates below multiplied by (ii) the amount by which the outstanding
principal balance of the Revolving Credit/Term Loan on the Business Day
immediately preceding the Conversion Date EXCEEDS $5,000,000:
<TABLE>
<CAPTION>
Repayment Quarterly
Dates Percentage Amount
----- -----------------
<S> <C>
September 30, 1999 through
June 30, 2000 5.0%
September 30, 2000 through
June 30, 2001 5.83%
September 30, 2001 through
June 30, 2002 6.66%
September 30, 2002 through
March 31, 2003 7.51%
</TABLE>
and on the Repayment Date the Borrower shall pay to the Agent for
respective pro rata accounts of the Lenders the entire then-outstanding
principal balance of the Revolving Credit/Term Loan.
SECTION 2.2. INTEREST AND FEES ON THE LOANS.
SECTION 2.2.1. INTEREST. Interest shall accrue and be paid
currently on the Loans at Effective Prime or the Libor Rate for each of the
Loans' Interest Periods in accordance with the
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<PAGE> 24
Borrower's Interest Rate Elections for the Loans subject to and in accordance
with the terms and conditions of this Agreement and the Note(s); provided that
if a Default or an Event of Default exists and is continuing, no Interest Rate
Election electing the Libor Rate shall be effective and any Loan or portion
thereof with respect to which any such Interest Rate Election would otherwise
have been effective shall bear interest at Effective Prime plus, so long as an
Event of Default exists and is continuing, two percent (2.0%); all of the
foregoing being applicable until such Default or Event of Default is cured or
waived and an Interest Rate Election electing the Libor Rate for such Loan or
portion thereof which is effective in accordance with this Agreement is
submitted to the Agent; and provided further that the Borrower shall submit
Interest Rate Elections so that on any date on which under SECTION 2.1.0 a
regularly scheduled payment of principal of the Loans is to be made, at least
the amount of the Loans to be so repaid is bearing interest at Effective Prime
and/or such payment date is an Interest Adjustment Date for outstanding Libor
Loans in such amount of the Loans. The Borrower shall pay such interest to the
Agent for the pro rata account of each Lender in arrears on the Loans (including
without limitation Libor Loans) outstanding from time to time after the Closing
Date, such payments to be made, with respect to Libor Loans with Interest
Periods of three months or less on each Interest Adjustment Date for such Loans,
and with respect to Libor Loans with Interest Periods of more than three months,
quarterly on the last Business Day of each calendar quarter of each year
commencing March 31, 1998, and with respect to Prime Rate Loans, monthly on the
last Business Day of each calendar month commencing March 31, 1998. In the event
no Interest Rate Election has been made by the Borrower with respect to any Loan
or Advance (or an Interest Rate Election shall have expired without an effective
substitute Interest Rate Election), Effective Prime shall be the rate applicable
to such Loan or Advance. All provisions of each Note and any other agreements
between the Borrower and the Lenders are expressly subject to the condition that
in no event, whether by reason of acceleration of maturity of the Indebtedness
evidenced by any Note or otherwise, shall the amount paid or agreed to be paid
to the Lenders which is deemed interest under applicable law exceed the maximum
permitted rate of interest under applicable law (the "Maximum Permitted Rate"),
which shall mean the law in effect on the date of this Agreement, except that if
there is a change in such law which results in a higher Maximum Permitted Rate,
then each Note shall be governed by such amended law from and after its
effective date. In the event that fulfillment of any provision of any Note, or
this Agreement or any document, instrument or agreement providing security for
any Note results in the rate of interest charged under any Note being in excess
of the Maximum Permitted Rate, the obligation to be fulfilled shall
automatically be reduced to eliminate such excess. If, notwithstanding the
foregoing, any Lender receives an amount which under applicable law would cause
the interest rate under any Note to exceed the Maximum Permitted Rate, the
portion thereof which would be excessive shall automatically be deemed a
prepayment of and be applied to the unpaid principal balance of such Note to the
extent of then outstanding Prime Rate Loans and not a payment of interest and to
the extent said excessive portion exceeds the outstanding principal amount of
Prime Rate Loans, said excessive portion shall be repaid to the Borrower.
SECTION 2.2.2. FEES. On the last Business Day of each March,
June, September and December commencing March 31, 1998 and continuing through
the Conversion Date, the Borrower shall pay to the Agent for the pro rata
account of each Lender, a fee in an amount equal to .50% per annum of the
amount, if any, by which the average actual daily amount of the Commitment for
the quarterly period just ended (or in the case of the first such payment, the
18
<PAGE> 25
period from the Closing Date to the date such payment is due) exceeds the sum of
(i) the average of the actual daily outstanding principal balances of the
Revolving Credit/Term Loans plus (ii) the average of the actual daily aggregate
amount of the outstanding stated amount of any Letter of Credit or Letter of
Credit Agreement, and any unreimbursed amounts thereunder (the "Unused Fees").
In addition, the Borrower shall pay to the Agent for its own account the
Facility Fee and certain other fees as specified in the Side Letter.
SECTION 2.2.3. INCREASED COSTS - CAPITAL. If, after the date
hereof, any Lender shall have reasonably determined that the adoption after the
date hereof of any applicable law, governmental rule, regulation or order
regarding capital adequacy of banks or bank holding companies, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Lender or such
Lender's holding company with any policy, guideline, directive or request
regarding capital adequacy (whether or not having the force of law and whether
or not failure to comply therewith would be unlawful) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the capital of such Lender or such Lender's holding company as
a consequence of the obligations hereunder of such Lender to a level below that
which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration the policies of such Lender or such
Lender's holding company with respect to capital adequacy immediately before
such adoption, change or compliance and assuming that the capital of such Lender
or such Lender's holding company was fully utilized prior to such adoption,
change or compliance) by an amount reasonably deemed by such Lender to be
material, then such Lender shall notify the Agent and the Borrower thereof and
the Borrower shall pay to the Agent for the account of such Lender from time to
time as specified by such Lender such additional amounts as shall be sufficient
to compensate such Lender for such reduced return, each such payment to be made
by the Borrower within five (5) Business Days after each demand by such Lender;
provided that the liability of the Borrower to pay such costs shall only accrue
with respect to costs accruing from and after the 180th day prior to the date of
each such demand. A certificate in reasonable detail of one of the officers of
such Lender describing the event giving rise to such reduction and setting forth
the amount to be paid to such Lender hereunder and a computation of such amount
shall accompany any such demand and shall, in the absence of manifest error, be
conclusive. In determining such amount, such Lender shall act reasonably and
will use any reasonable averaging and attribution methods. If the Borrower
shall, as a result of the requirements of this SECTION 2.2.3 above, be required
to pay any Lender the additional costs referred to above and the Borrower, in
its sole discretion, shall deem such additional amounts to be material, the
Borrower shall have the right to substitute another bank satisfactory to the
Agent for such Lender which has certified the additional costs to the Borrower,
and the Agent shall use reasonable efforts at no cost to the Agent to assist the
Borrower to locate such substitute bank. Any such substitution shall take place
in accordance with SECTION 9.11 and shall otherwise be on terms and conditions
reasonably satisfactory to the Agent, and until such time as such substitution
shall be consummated, the Borrower shall continue to pay such additional costs.
Upon any such substitution, the Borrower shall pay or cause to be paid to the
Lender that is being replaced, all principal, interest (to the date of such
substitution) and other amounts owing hereunder to such Lender and such Lender
will be released from liability hereunder.
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SECTION 2.3. NOTATIONS. At the time of (i) the making of each Advance
evidenced by any Note, (ii) each change in the interest rate under any Note
effected as a result of an Interest Rate Election; and (iii) each payment or
prepayment of any Note, each Lender may enter upon its records an appropriate
notation evidencing (a) such Lender's Pro Rata Share of the Loans and (b) the
interest rate and Interest Adjustment Date applicable thereto or (c) such
payment or prepayment (voluntary or involuntary) of principal and (d) in the
case of payments or prepayments (voluntary or involuntary) of principal, the
portion of the applicable Loan which was paid or prepaid. No failure to make any
such notation shall affect the Borrower's unconditional obligations to repay the
Loans and all interest, fees and other sums due in connection with this
Agreement and/or any Note in full, nor shall any such failure, standing alone,
constitute grounds for disproving a payment of principal by the Borrower.
However, in the absence of manifest error, such notations and each Lender's
records containing such notations shall constitute presumptive evidence of the
facts stated therein, including, without limitation, the outstanding amount of
such Lender's Pro Rata Share of the Loans and all amounts due and owing to such
Lender at any time. Any such notations and such Lender's records containing such
notations may be introduced in evidence in any judicial or administrative
proceeding relating to this Agreement, the Loans or any Note.
SECTION 2.4. COMPUTATION OF INTEREST. Interest due under this Agreement
and any Note shall be computed on the basis of a year of 360 days for the actual
number of days elapsed.
SECTION 2.5. TIME OF PAYMENTS AND PREPAYMENTS IN IMMEDIATELY AVAILABLE
FUNDS.
SECTION 2.5.1. TIME. All payments and prepayments of
principal, fees, interest and any other amounts owed from time to time under
this Agreement and/or under each Note shall be made to the Agent for the pro
rata account of each Lender at the address referred to in SECTION 9.6 in Dollars
and in immediately available funds prior to 12:00 o'clock P.M. on the Business
Day that such payment is due, provided that the Borrower hereby authorizes and
instructs the Agent to charge against the Borrower's accounts with the Agent on
each date on which a payment is due hereunder and/or under any Note and on any
subsequent date if and to the extent any such payment is not made when due an
amount up to the principal, interest and fees due and payable to the Lenders,
the Agent or any Lender hereunder and/or under any Note and such charge shall be
deemed payment hereunder and under the Note(s) in question to the extent that
immediately available funds are then in such accounts. The Agent shall use
reasonable efforts in accordance with the Agent's customary procedures to give
subsequent notice of any such charge to the Borrower, but the failure to give
such notice shall not affect the validity of any such charge. To the extent that
immediately available funds are then in such accounts, the failure of the Agent
to charge any such account or the failure of the Agent to charge any such
account prior to 12 o'clock P.M. shall not be basis for an Event of Default
under SECTION 6.1.1 and any amount due on the Loans on such date shall be deemed
paid; provided that the Agent shall have the right to charge any such account on
any subsequent date for such unpaid payment and an Event of Default shall exist
if sufficient immediately available funds are not in such accounts on the date
the Agent so charges such account after the expiration of any applicable cure
period. In the event of any charge against the Borrower's accounts by the Agent
pursuant to the immediately preceding sentence, the Agent shall use reasonable
efforts to provide notice to the Borrower of such charge in accordance with the
Agent's customary procedures, but
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the failure to provide such notice shall not in any way be a basis for any
liability of the Agent nor shall such failure adversely affect the validity and
effectiveness of any such action by the Agent. Any such payment or prepayment
which is received by the Agent in Dollars and in immediately available funds
after 12 o'clock P.M. on a Business Day shall be deemed received for all
purposes of this Agreement on the next succeeding Business Day unless the
failure by Agent to receive such funds prior to 12 o'clock P.M. is due to
Agent's failure to charge the account of Borrower prior to 12 o'clock P.M.,
except that solely for the purpose of determining whether a Default or Event of
Default has occurred under SECTION 6.1.1, any such payment or prepayment, if
received by the Agent prior to the close of the Agent's business on a Business
Day, shall be deemed received on such Business Day. All payments of principal,
interest, fees and any other amounts which are owing to any or all of the
Lenders or the Agent hereunder and/or under any of the Notes that are received
by the Agent in immediately available Dollars prior to 12:00 o'clock P.M. on any
Business Day shall, to the extent owing to the Lenders other than the Agent, be
sent by wire transfer by the Agent to any such other Lenders (in each case,
without deduction for any claim, defense or offset of any type) before 3:00
o'clock P.M. on the same Business Day. Each such wire transfer shall be
addressed to each Lender in accordance with the wire instructions set forth in
EXHIBIT 1.9 hereto. The amount of each payment wired by the Agent to each such
Lender shall be such amount as shall be necessary to provide such Lender with
its Pro Rata Share of such payment (without consideration or use of any contra
accounts of any Lender), or with such other amount as may be owing to such
Lender in accordance with this Agreement (in each case, without deduction for
any claim, defense or offset of any type). Each such wire transfer shall be sent
by the Agent only after the Agent has received immediately available Dollars
from or on behalf of the Borrower and each such wire transfer shall provide each
Lender receiving same with immediately available Dollars on receipt by such
Lender. Any such payments of immediately available Dollars received by the Agent
after 12:00 o'clock P.M. and before 3:00 o'clock P.M. on any Business Day shall
be forwarded in the same manner by the Agent to such Lender(s) as soon as
practicable on said Business Day, and if any such payments of immediately
available Dollars are received by the Agent after 3:00 o'clock P.M. on a
Business Day, the Agent shall so forward same to such Lender(s) before 10:00
o'clock A.M. on the immediately succeeding Business Day.
SECTION 2.5.2. SETOFF, ETC. Regardless of the adequacy of any
collateral for any of the Obligations, upon the occurrence and during the
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, without notice to the Borrower (any such notice
being expressly waived by the Borrower), to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and any other Indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower irrespective of whether or not such Lender shall have made any
demand under this Agreement or any Note and although such obligations may be
unmatured. Each such Lender agrees to promptly notify the Borrower and the Agent
after any such setoff and application; provided that the failure to give such
notice shall not affect the validity of such setoff and application. Promptly
following any notice of setoff received by the Agent from a Lender pursuant to
the foregoing, the Agent shall notify each other Lender thereof. The rights of
each Lender under this SECTION 2.5.2 are in addition to all other rights and
remedies (including, without limitation, other rights of setoff) which such
Lender may have and are subject to SECTION 9.12.
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SECTION 2.5.3. UNCONDITIONAL OBLIGATIONS AND NO DEDUCTIONS.
The Borrower's obligation to make all payments provided for in this Agreement
and the other Financing Documents shall be unconditional. Each such payment
shall be made without deduction for any claim, defense or offset of any type,
including without limitation any withholdings and other deductions on account of
income or other taxes and regardless of whether any claims, defenses or offsets
of any type exist.
SECTION 2.6. PREPAYMENT AND CERTAIN PAYMENTS.
SECTION 2.6.1. MANDATORY PAYMENTS.
SECTION 2.6.1.1. In addition to each other principal
payment required hereunder, the outstanding principal balances of the Loans
shall be repaid on the Repayment Date.
SECTION 2.6.1.2. On or before the 90th day after the
end of each fiscal year of the Borrower commencing with the fiscal year ending
December 31, 1999, the Borrower shall prepay to the Agent for the accounts of
the Lenders in accordance with their Pro Rata Shares an amount of the
outstanding principal balances of the Loans equal to (i) 50% of the amount, if
any, of Excess Cash Flow for such fiscal year LESS (ii) voluntary prepayments of
the Loans made during such fiscal year. Such prepayments shall be in addition to
any and all other mandatory and voluntary prepayments required or permitted
hereunder and shall be applied to the principal installments of the Loans in the
inverse order of their maturities.
SECTION 2.6.1.3. In the event that the Borrower or
any Subsidiary is entitled to receive, collectively, proceeds from any casualty
insurance policies maintained by any of them on account of any interest of the
Borrower and/or any Subsidiary in any property, which proceeds are in an
aggregate amount in excess of $100,000 during the term of this Agreement, such
proceeds shall be received by the Agent and, to the extent that such proceeds
result from a casualty to property of the Borrower and/or any Subsidiary, so
long as no Default or Event of Default exists and is continuing and the Borrower
elects to repair, replace or restore such property, such proceeds shall be
released to the Borrower subject to reasonable procedures and conditions
established by the Agent to the extent necessary to so repair, replace or
restore such property within 3 months (or as soon as reasonably practicable if
such restoration, replacement or repair is not susceptible to being completed
within 3 months) from the date of receipt of such proceeds by the Agent and to
the extent such proceeds are not so used or do not result from such a casualty,
the Borrower shall make a prepayment of the Loans for the accounts of the
Lenders in accordance with their Pro Rata Shares upon written notice from the
Agent. All such payments shall be applied to the principal installments of the
Loans in the inverse order of their maturities.
SECTION 2.6.1.4. In the event that the Borrower
and/or any Subsidiary sells, assigns or otherwise transfers title to any asset
other than in the ordinary course of its business, the Borrower and/or such
Subsidiary shall remit 100% of the net cash proceeds of such sale, assignment or
other transfer to the Agent for the accounts of the Lenders in accordance with
their Pro Rata Shares to be applied to the principal installments of the Loans
after the Conversion
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Date in the inverse order of their maturities (prior to the Conversion Date,
such proceeds shall be applied as a permanent reduction of the Commitment as
provided in SECTION 2.6.4 below) within 10 Business Days of the date of
Borrower's or any Subsidiary's receipt of such net cash proceeds; provided,
however, that Borrower may sell any of its equipment which is obsolete, worn-out
or no longer used or useful in Borrower's business and Borrower may use the
proceeds of such sale to purchase replacement equipment which is useful or
necessary in the operation of Borrower's business within ninety (90) days of any
such sale or disposition.
SECTION 2.6.1.5. If at any time prior to the
Conversion Date the aggregate principal amount of the Loans together with the
aggregate amount of the outstanding stated amount of any Letter of Credit or
Letter of Credit Agreement, and any unreimbursed amounts thereunder shall exceed
the Revolving Credit Formula Amount, the Borrower shall immediately pay to the
Agent in immediately available dollars the amount of such excess.
SECTION 2.6.2. VOLUNTARY PREPAYMENTS. All or any portion of
the unpaid principal balance of the Loans (other than portions of any Loans
constituting Libor Loans) may be prepaid at any time, without premium or
penalty, by giving the Agent at least one (1) Business Day's prior written
notice of such prepayment and by a payment to the Agent for the accounts of the
Lenders in accordance with their Pro Rata Shares of such prepayment in
immediately available Dollars by the Borrower; provided that each such partial
payment or prepayment of principal of the Loans after the Conversion Date shall
be in a principal amount of at least $100,000 or an integral multiple of $50,000
in excess thereof and provided further that each such prepayment of the Loans
shall be applied to the principal installments of the Loans in the inverse order
of their maturities.
SECTION 2.6.3. PREPAYMENT OF LIBOR LOANS.Notwithstanding
anything to the contrary contained in any Note or in any other agreement
executed in connection herewith or therewith, the Borrower shall be permitted to
prepay any portion of the Loans constituting Libor Loans only in accordance with
SECTION 2.9 hereof.
SECTION 2.6.4. PERMANENT REDUCTION OF COMMITMENT. At the
Borrower's option the Commitment may be permanently and irrevocably reduced in
whole or in part by an amount of at least $100,000 and to the extent in excess
thereof in integral multiples of $50,000 at any time; provided that (i) the
Borrower gives the Agent written notice of the exercise of such option at least
one (1) Business Day's prior to the effective date thereof, (ii) the aggregate
outstanding balance of the Loans, if any, does not exceed the Commitment as so
reduced in any such case on the effective date of such reduction and (iii) the
Borrower is not, and after giving effect to such reduction, would not be in
violation of SECTION 2.6.3. Any such reduction shall concurrently reduce the
Dollar amount of each Lender's Pro Rata Share of the Commitment.
SECTION 2.7. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder or under any Note shall be stated to be due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day, and
such extension of time shall in such case be included in the computation of
payment of fees, if any, and interest under this Agreement and under such Note.
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SECTION 2.8. USE OF PROCEEDS. The Borrower shall use the proceeds of
the Revolving Credit/Term Loans to complete the Related Transaction for
consideration not in excess of $6,800,000, to pay costs incurred by the Borrower
in connection with the closing of the Loans and the Related Transaction and for
Borrower's working capital needs and for Investments permitted by SECTION
5.2.12.
SECTION 2.9. SPECIAL LIBOR LOAN PROVISIONS. The Libor Loans shall be
subject to and governed by the following terms and conditions:
SECTION 2.9.1. REQUESTS. Each Request accompanied by an
Interest Rate Election selecting the Libor Rate must be received by the Agent in
accordance with the definition of Interest Rate Election.
SECTION 2.9.2. LIBOR LOANS UNAVAILABLE. Notwithstanding any
other provision of this Agreement, if, prior to or on the date on which all or
any portion of the Loans is to be made as or converted into a Libor Loan, any of
the Lenders (or the Agent with respect to (ii) below) shall reasonably determine
(which determination shall be conclusive and binding on the Borrower), that
(i) Dollar deposits in the relevant amounts and for the relevant
Interest Period are not offered to such Lender in the London interbank
market,
(ii) by reason of circumstances affecting the London interbank market,
adequate and reasonable means do not exist for ascertaining the Adjusted
Libor Rate, or
(iii) the Adjusted Libor Rate shall no longer represent the effective
cost to such Lender for Dollar deposits in the London interbank market
for reasons other than the fact, standing alone, that the Adjusted Libor
Rate is based on an averaging of rates determined by the Agent and that
such Lender's rate may exceed such average,
such Lender may elect not to accept any Interest Rate Election electing a Libor
Loan and such Lender shall notify the Agent by telephone or telex thereof,
stating the reasons therefor, not later than the close of business on the second
Business Day prior to the date on which such Libor Loan is to be made. The Agent
shall promptly give notice of such determination and the reason therefor to the
Borrower, and all or such portion of the Loans, as the case may be, which are
subject to any of SECTION 2.9.2 (i), (ii) through (iii) as a result of such
Lender's determination shall be made as or converted into, as the case may be,
Prime Rate Loans and such Lender shall have no further obligation to make Libor
Loans, until further written notice to the contrary is given by the Agent to the
Borrower. If such circumstances subsequently change so that such Lender shall no
longer be so affected, such Lender's obligation to make or maintain its Pro Rata
Share of all or any portion of the Loans as Libor Loans shall be reinstated when
such Lender obtains actual knowledge of such change of circumstances and
promptly after obtaining such actual knowledge such Lender shall forward written
notice thereof to the Agent. After receipt of such notice, the Agent shall
promptly forward written notice thereof to the Borrower. Upon or after receipt
by the Borrower of such written notice, the Borrower may submit an Interest Rate
Election in accordance with this Agreement electing an Interest Period ending no
later than the
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Interest Adjustment Date for the then current Interest Period for the other
Lenders' Pro Rata Shares of Libor Loans and electing the Libor Rate for such
Lenders' or Lender's Pro Rata Share(s) of the Loans as to which such Lender's or
Lenders' obligation(s) to make or maintain its or their Pro Rata Share(s) of the
Loans as Libor Loans was suspended and such Pro Rata Share(s) shall be converted
to Libor Loans in accordance with this Agreement. During any period throughout
which any of the Lenders has or have no obligation to make or maintain its or
their Pro Rata Share(s) of the Loans as Libor Loans, no Interest Rate Elections
electing the Libor Rate shall be effective with regard to the Loans to the
extent of the Pro Rata Share(s) of such Lender(s), but shall be effective as to
the other Lenders.
SECTION 2.9.3. LIBOR LENDING UNLAWFUL. In the event that any
change in applicable laws or regulations (including the introduction of any new
applicable law or regulation) or in the interpretation thereof (whether or not
having the force of law) by any governmental or other regulatory authority
charged with the administration thereof, shall make it unlawful for any of the
Lenders to make or continue to maintain its Pro Rata Share of all or any portion
of the Loans as Libor Loans, each such Lender shall promptly notify the Agent by
telephone or telex thereof, and of the reasons therefor, and the obligation of
such Lender to make or maintain its Pro Rata Share of the Loans or such portion
thereof as Libor Loans shall, upon the happening of such event, terminate and
the Agent shall, by telephonic notice to the Borrower, declare that such
obligation has so terminated with respect to such Lender, and such Pro Rata
Share of the Loans or any portion thereof to the extent then maintained as Libor
Loans, shall, on the last day on which such Lender can lawfully continue to
maintain such Pro Rata Share of the Loans or any portion thereof as Libor Loans,
automatically convert into Prime Rate Loans without additional cost to the
Borrower. If circumstances subsequently change so that such Lender shall no
longer be so affected, such Lender's obligation to make or maintain its Pro Rata
Share of all or any portion of the Loans as Libor Loans shall be reinstated when
such Lender obtains actual knowledge of such change of circumstances, and
promptly after obtaining such actual knowledge such Lender shall forward written
notice thereof to the Agent. After receipt of such notice, the Agent shall
promptly forward written notice thereof the Borrower. Upon or after receipt by
the Borrower of such written notice, the Borrower may submit an Interest Rate
Election in accordance with this Agreement electing an Interest Period ending no
later than the Interest Adjustment Date for the then current Interest Period for
the other Lenders' Pro Rata Shares of Libor Loans and electing the Libor Rate
for such Lenders' or Lender's Pro Rata Share(s) of the Loans as to which such
Lender's or Lenders' obligation(s) to make or maintain its or their Pro Rata
Share(s) of the Loans as Libor Loans was suspended and such Pro Rata Share(s)
shall be converted to Libor Loans in accordance with this Agreement. During any
period throughout which any of the Lenders has or have no obligation to make or
maintain its or their Pro Rata Share(s) of the Loans as Libor Loans, no Interest
Rate Elections electing the Libor Rate shall be effective with regard to the
Loans to the extent of the Pro Rata Share(s) of such Lender(s), but shall be
effective as to the other Lenders.
SECTION 2.9.4. ADDITIONAL COSTS ON LIBOR LOANS. The Borrower
further agrees to pay to the Agent for the account of the applicable Lender or
Lenders such amounts as will compensate any of the Lenders for any increase in
the cost to such Lender of making or maintaining (or of its obligation to make
or maintain) all or any portion of its Pro Rata Share of the Loans as Libor
Loans and for any reduction in the amount of any sum receivable by such
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Lender under this Agreement in respect of making or maintaining all or any
portion of such Lender's Pro Rata Share of the Loans as Libor Loans, in either
case, from time to time by reason of:
(i) any reserve, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, such Lender, under or pursuant to any law, treaty, rule,
regulation (including, without limitation, any Regulations of the Board
of Governors of the Federal Reserve System) or requirement in effect on
or after the date hereof, any interpretation thereof by any
governmental authority charged with administration thereof or by any
central bank or other fiscal or monetary authority or other authority,
or any requirement imposed by any central bank or such other authority
whether or not having the force of law; or
(ii) any change in (including the introduction of any new)
applicable law, treaty, rule, regulation or requirement or in the
interpretation thereof by any official authority, or the imposition of
any requirement of any central bank, whether or not having the force of
law, which shall subject such Lender to any tax (other than taxes on
net income imposed on such Lender), levy, impost, charge, fee, duty,
deduction or withholding of any kind whatsoever or change the taxation
of such Lender with respect to making or maintaining all or any portion
of its Pro Rata Share of the Loans as Libor Loans and the interest
thereon (other than any change which affects, and to the extent that it
affects, the taxation of net income of such Lender); provided, that
with respect to any withholding the foregoing shall not apply to any
withholding tax described in sections 1441, 1442 or 3406 of the Code,
or any succeeding provision of any legislation that amends, supplements
or replaces any such section, or to any tax, levy, impost, duty,
charge, fee, deduction or withholding that results from any
noncompliance by a Lender with any federal, state or foreign law or
from any failure by a Lender to file or furnish any report, return,
statement or form the filing or furnishing of which would not have an
adverse effect on such Lender and would eliminate such tax, impost,
duty, deduction or withholding;
In any such event, such Lender shall promptly notify the Agent thereof, and of
the reasons therefor, and the Agent shall promptly notify the Borrower thereof
in writing stating the reasons provided to the Agent by such Lender therefor and
the additional amounts required to fully compensate such Lender for such
increased or new cost or reduced amount as reasonably determined by such Lender.
Such additional amounts shall be payable on each date on which interest is to be
paid hereunder or, if there is no outstanding principal amount under any of the
Notes, within 10 Business Days after the Borrower's receipt of said notice. Such
Lender's certificate as to any such increased or new cost or reduced amount
(including calculations, in reasonable detail, showing how such Lender computed
such cost or reduction) shall be submitted by the Agent to the Borrower and
shall, in the absence of manifest error, be conclusive. In determining any such
amount, the Lender(s) may use any reasonable averaging and attribution methods.
Notwithstanding anything to the contrary set forth above, the Borrower shall not
be obligated to pay any amounts pursuant to this SECTION 2.9.4 as a result of
any requirement or change referenced above with respect to any period prior to
the one hundred and eightieth (180th) day prior to the date on which the
Borrower is first notified thereof (other than any amounts which relate to any
such requirement or change which is adopted with retroactive effect
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in which case the Borrower shall be obligated to pay all such amounts accrued
from the date as of which such requirement or change is retroactively effective)
unless the failure to give such notice within such one hundred and eighty (180)
day period resulted from reasonable circumstances beyond such Lender's
reasonable control.
SECTION 2.9.5. LIBOR FUNDING LOSSES. In the event that any
payment or prepayment of a Libor Loan is received on a date other than the last
day of an Interest Period, such payment or prepayment shall be held by the Agent
in a separate account and be pledged to the Agent as collateral for the
obligations of the Borrower arising in connection with this Agreement, the Notes
and the other Financing Documents until the end of the then current Interest
Period, at which time the Agent shall apply such payment or prepayment, for the
accounts of the Lenders in accordance with their Pro Rata Shares, to the
outstanding Libor Loans. Notwithstanding the foregoing, in the event any of the
Lenders shall incur any loss or expense (including, without limitation, any loss
or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Lender to fund or maintain all or any portion of
the Loans as Libor Loans) as a result of:
(i) payment or prepayment by the Borrower of all or any
portion of any Libor Loan on a date other than the Interest
Adjustment Date for such Libor Loan, for any reason;
provided, however that this clause shall not be deemed to
grant the Borrower any right to convert a Libor Loan to a
Prime Rate Loan prior to the end of any Interest Period or to
imply such right;
(ii) conversion of all or any portion of any Libor Loan on a
day other than the last day of an Interest Period applicable
to such Loan to a Prime Rate Loan for any reason including,
without limitation, acceleration of the Loans upon or after
an Event of Default, any Interest Rate Election or any other
cause whether voluntary or involuntary and whether or not
referred to or described in this Agreement, other than any
such conversion resulting solely from application of SECTIONS
2.9.2 or 2.9.3 by any Lender; or
(iii) any failure by the Borrower to borrow the Loans as
Libor Loans on the date specified in any Interest Rate
Election selecting the Libor Rate, other than any such
failure resulting solely from application of SECTIONS 2.9.2
or 2.9.3 by any Lender;
such Lender shall promptly notify the Agent thereof, and of the reasons
therefor. Upon the request of the Agent, the Borrower shall pay directly to the
Agent for the account of such Lender such amount as will (in the reasonable
determination of such Lender, which shall be correct in the absence of manifest
error) reimburse such Lender for such loss or expense. Each Lender shall furnish
to the Borrower, upon written request from the Borrower received by the Agent, a
written statement setting forth the computation of any such amounts payable to
such Lender under this SECTION 2.9.5.
SECTION 2.9.6. BANKING PRACTICES. Each Lender agrees that upon
the occurrence of any of the events described in SECTIONS 2.2.3 and/or 2.9.2,
2.9.4 or 2.9.5, such Lender will exercise all reasonable efforts to take such
reasonable actions at no expense to such Lender (other than reasonable expenses
which are covered by the Borrower's advance deposit of funds with
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such Lender for such purpose, or if such Lender agrees, which the Borrower has
agreed to pay or reimburse to such Lender in full upon demand), in accordance
with such Lender's usual banking practices in such situations and subject to any
statutory or regulatory requirements applicable to such Lender, as such Lender
may take without the consent or participation of any other Person to, in the
case of an event described in SECTIONS 2.2.3 and/or 2.9.4 or 2.9.5, mitigate the
cost of such events to the Borrower and, in the case of an event described in
SECTIONS 2.9.2(i), (ii) or (iii), to seek Dollar deposits in any other interbank
Libor market in which such Lender regularly participates and in which the
applicable determination(s) described in SECTIONS 2.9.2(i), (ii) or (iii), as
the case may be, does not apply.
SECTION 2.9.7. BORROWER'S OPTIONS ON UNAVAILABILITY OR
INCREASED COST OF LIBOR LOANS. In the event of any conversion of all or any
portion of any Lender's Pro Rata Share of any Libor Loans to a Prime Rate Loan
for reasons beyond the Borrower's control or in the event that any Lender's Pro
Rata Share of all or any portion of the Libor Loans becomes subject, under
SECTIONS 2.9.4 or 2.9.5, to additional costs, the Borrower shall have the
option, subject to the other terms and conditions of this Agreement, to convert
such Lender's Pro Rata Share to a Prime Rate Loan by making Interest Rate
Elections for Interest Periods which (i) end on the Interest Adjustment Date for
such Libor Loan or (ii) end on Business Days occurring prior to such Interest
Adjustment Date, in which case, at the end of the last of such Interest Periods
any such Libor Rate Loan shall automatically convert to a Prime Rate Loan and
the Borrower shall have no further right to make an Interest Rate Election with
respect to such Prime Rate Loan other than an Interest Rate Election which is
effective on the Interest Adjustment Date for such Libor Loan. The Borrower's
options set forth in this SECTION 2.9.7 may be exercised, if and only if the
Borrower pays, concurrently with delivery to the Agent of each such Interest
Rate Election and thereafter in accordance with SECTIONS 2.9.4, 2.9.5 and 2.9.6
all amounts provided for therein to the Agent in accordance with this Agreement.
If the Borrower shall, as a result of the requirements of
SECTION 2.9.4 above, be required to pay any Lender the additional costs referred
to therein, but not be required to pay such additional costs to the other Lender
or Lenders and the Borrower, in its sole discretion, shall deem such additional
amounts to be material or in the event that Libor Loans from a Lender are
unavailable to the Borrower as a result solely of the provisions of SECTIONS
2.9.2, 2.9.3 or 2.9.4, but are available from the other Lender or Lenders, the
Borrower shall have the right to substitute another bank satisfactory to the
Agent for such Lender which is entitled to such additional costs or which is
relieved from making Libor Loans and the Agent shall use reasonable efforts
(with all reasonable costs of such efforts by the Agent to be borne by the
Borrower) to assist the Borrower to locate such substitute bank. Any such
substitution shall take place in accordance with SECTION 9.11 and otherwise be
on terms and conditions reasonably satisfactory to the Agent, and until such
time as such substitution shall be consummated, the Borrower shall continue to
pay such additional costs and comply with the above-referenced Sections. Upon
any such substitution, the Borrower shall pay or cause to be paid to the Lender
that is being replaced, all principal, interest (to the date of such
substitution) and other amounts owing hereunder to such Lender and such Lender
will be released from liability hereunder.
SECTION 2.9.8. ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS.
The calculation of all amounts payable to the Lenders under this SECTION 2.9
shall be made as though each Lender
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actually funded its relevant Libor Loans through the purchase of a deposit in
the London interbank market bearing interest at the Libor Rate in an amount
equal to that Libor Loan and having a maturity comparable to the relevant
Interest Period and through the transfer of such deposit from an offshore office
of such Lender to a domestic office of such Lender in the United States of
America; provided, however, that each Lender may fund each of its Libor Loans in
any manner it sees fit and the foregoing assumption shall be utilized solely for
the calculation of amounts payable under this SECTION 2.9.
ARTICLE 3.
CONDITIONS OF LENDING
SECTION 3.1. CONDITIONS PRECEDENT TO THE COMMITMENT AND TO ALL LOANS.
SECTION 3.1.1. THE COMMITMENT AND INITIAL LOANS. The
Commitment and the obligation of the Lenders to make the initial Advances of the
Loans and/or to issue any Letter of Credit or Letter of Credit Agreement are
subject to performance by the Borrower of all of its obligations under this
Agreement and to the satisfaction of the conditions precedent that all legal
matters incident to the transactions contemplated hereby or incidental to the
Loans shall be reasonably satisfactory to counsel for the Agent and that the
Lenders shall have received on or before the Closing Date all of the following,
each dated the Closing Date or another date acceptable to the Lenders and each
to be in form and substance reasonably satisfactory to the Agent or if any of
the following is not a deliverable, the satisfaction of such condition in form
and substance reasonably satisfactory to the Agent:
SECTION 3.1.1.1. The Financing Documents, including,
without limitation, those hereinafter set forth and the Borrower's and any
Subsidiary's certificate of incorporation or other organizational documents.
SECTION 3.1.1.2. Certificate of the secretary of the
Borrower and each Subsidiary certifying as to the resolutions of the
shareholders or board of directors of the Borrower and each Subsidiary
authorizing and approving each of the Financing Documents to which the Borrower
and each Subsidiary is a party and other matters contemplated hereby and
certifying as to the names and signatures of the Authorized Representative(s) of
the Borrower and each Subsidiary authorized to sign each Financing Document to
be executed and delivered by or on behalf of the Borrower and each Subsidiary.
The Agent and the Lenders may conclusively rely on each such certificate until
the Agent shall receive a further certificate canceling or amending the prior
certificate and submitting the signatures of the Authorized Representative(s)
named in such further certificate.
SECTION 3.1.1.3. Favorable opinions of Jones, Day,
Reavis & Pogue, counsel for the Borrower, in form and substance reasonably
satisfactory to the Agent.
SECTION 3.1.1.4. An Officer's Certificate stating that:
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SECTION 3.1.1.4.1. The representations and
warranties contained in SECTION 4.1 and/or contained in any of the other
Financing Documents are correct on and as of the Closing Date as though made on
and as of such date; and
SECTION 3.1.1.4.2. No Default or Event of
Default has occurred and is continuing, or would result from the making of the
Loans.
SECTION 3.1.1.5. Certificates of good standing or
legal existence of the secretaries of state of the states of organization and
qualification of and covering the Borrower and any Subsidiaries dated reasonably
near the Closing Date.
SECTION 3.1.1.6. Evidence that (i) the ownership
interests in the Borrower are as set forth in EXHIBIT 1.1 and (ii) that except
for receipt and application of certain proceeds of the Loans, the Related
Transaction has been completed in accordance with the Related Transaction
Documents, without any waiver or amendment of any term or condition contained
therein without the prior written approval of the Lenders, and in compliance
with any applicable laws and necessary governmental authority approvals.
SECTION 3.1.1.7. A Request and an Interest Rate
Election.
SECTION 3.1.1.8. All documents, instruments and
agreements necessary to terminate, cancel and discharge the documents,
instruments and agreements evidencing or securing any and all existing
Indebtedness of the Borrower and any Subsidiary and Liens securing such
Indebtedness other than those listed in EXHIBIT 3.1.1.8.
SECTION 3.1.1.9. Payment to the Agent and the Lenders
of the fees specified in this Agreement or in the Side Letter as being payable
on the Closing Date and all reasonable out-of-pocket costs and expenses incurred
by the Agent and Fleet National Bank in connection with the transactions
contemplated hereby, including, but not limited to, reasonable outside legal
expenses and any accounting fees, auditing fees, appraisal fees, and other fees
associated with any independent analyses of the Borrower and any Subsidiary and
evidence that all other reasonable fees and costs payable by the Borrower in
connection with the transactions contemplated by this Agreement and completed on
the Closing Date have been paid in full.
SECTION 3.1.1.10. An Officer's Certificate in the
form of EXHIBIT 3.1.1.10, duly completed and reflecting, INTER ALIA, compliance
by the Borrower as of the opening of business on the first Business Day after
the Closing Date but based on the Borrower's financial information as of the
last day of the Borrower's most recent fiscal quarter, adjusted to give effect
to the Loans made on the Closing Date and completion of the Related Transaction
to be completed on or prior to the Closing Date, with the financial covenants
provided for herein.
SECTION 3.1.1.11. Such other information about the
Borrower and/or its Business Condition as the Lenders may reasonably request.
SECTION 3.1.1.12. True copies of, and/or true copies
of any revisions to, the financial statements, the Projections, the pro forma
Closing Date financial statements giving
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effect to the Loans and completion of the Related Transaction to be completed on
or prior to the Closing Date, and other information provided pursuant to SECTION
4.1.5 and certification by the Borrower of the Projections. In the event that
the Borrower's audited financial statements for the Borrower fiscal year ended
December 31, 1997 will not be available to the Agent as of the Closing Date, the
Borrower will afford the Agent the opportunity to speak with the Borrower's
accountants and the Agent shall be reasonably satisfied with the results of such
due diligence.
SECTION 3.1.1.13. Certificates of fire, business
interruption, liability and extended coverage insurance policies, each such
policy to name the Agent as mortgagee and loss payee and, on all liability
policies, as additional insured.
SECTION 3.1.1.14. True descriptions of any pending or
threatened litigation against or by Borrower or any Subsidiary.
SECTION 3.1.1.15. Evidence that all necessary
material third party consents to the Related Transaction and the Loans have been
obtained and remain in effect without the imposition of any conditions or terms
not reasonably acceptable to the Lenders, all required filings with any
governmental authority have been duly completed and any applicable waiting
periods shall have expired without any adverse action being taken by any
competent authority.
SECTION 3.1.1.16. The financial statements described
in SECTION 4.1.5 together with the Borrower's pro forma Closing Date balance
sheet. Such financial statements shall be accompanied by an Officer's
Certificate of the chief financial officer of the Borrower to the effect that no
Material Adverse Effect has occurred since the date of the Borrower's most
recent audited financial statements delivered to the Lenders except as set forth
or reflected in the financial statements described in SECTION 4.1.5 or otherwise
disclosed in writing and acceptable to the Agent.
SECTION 3.1.1.17. True copies of all documents,
instruments and agreements relating to the Borrower's capital structure and the
Related Transaction Documents.
SECTION 3.1.1.18. The fact that the representations
and warranties of the Borrower contained in Article 4, INFRA, and in each of the
other Financing Documents are true and correct in all material respects on and
as of the Closing Date except as altered hereafter by actions not prohibited
hereunder. The Borrower's delivery of each Note to the Lenders and of each
Request to the Agent shall be deemed to be a representation and warranty by the
Borrower as of the date thereof to such effect.
SECTION 3.1.1.19. That there has been no enactment of
any law or regulation by any governmental authority which would make it (i)
unlawful, (ii) prevent, (iii) restrain or (iv) impose conditions which the
Lenders determine to be adverse, in any respect as to the foregoing, to the
making of the Loans and/or the completion of the Related Transaction.
SECTION 3.1.1.20. The Security Documents, after the
completion of any required filings or recordations, will grant to the Agent
perfected, first priority security interests or mortgages, as the case may be,
with respect to the collateral identified therein and the Agent
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shall received the favorable opinions of counsel referred to in SECTION 3.1.1.3
above with respect to such perfection. The Agent shall also have received such
searches, landlord consents, access agreements and/or title insurance
commitments as reasonably requested by the Agent, all in form and substance
reasonably satisfactory to the Agent and/or its counsel. Without limiting the
generality of the foregoing, the Agent shall be reasonably satisfied with the
terms and conditions of all real property leases in which the Borrower and any
Subsidiary has a leasehold interest, including the terms of such leaseholds and
the assumability of the lessee's obligations thereunder upon the transfer of or
foreclosure upon of the Borrower's or any Subsidiary's leasehold interest.
SECTION 3.1.1.21. No Material Adverse Effect has
occurred and there shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental or regulatory agency or authority that could reasonably be expected
to result in a Material Adverse Effect.
SECTION 3.1.1.22. All information and materials
supplied to the Agent prior to the date hereof shall be true and correct in all
material aspects; and no additional information shall have come to the attention
of the Agent or the Lenders that is inconsistent in any material respect with
the information and materials supplied to the Agent prior to the date hereof or
that could reasonably be expected to have a Material Adverse Effect.
SECTION 3.1.2. THE COMMITMENT AND THE LOANS. The Commitment
and the obligation of each Lender to make or maintain its Pro Rata Share of any
Advance or Loan and/or to issue any Letter of Credit or Letter of Credit
Agreement are subject to performance by the Borrower of all its obligations
under this Agreement and to the satisfaction of the following further conditions
precedent:
(a) The fact that, immediately prior to and upon the making of
each Loan, no Event of Default or Default shall have occurred and be continuing;
(b) The fact that the representations and warranties of the
Borrower contained in Article 4, INFRA and in each of the other Financing
Documents, are true and correct in all material respects on and as of the date
of each Advance or Loan except as altered hereafter by actions consented to or
not prohibited hereunder. The Borrower's delivery of the Notes to the Lenders
and of each Request to the Agent shall be deemed to be a representation and
warranty by the Borrower as of the date of such Advance or Loan as to the facts
specified in SECTIONS 3.1.2(a) and (b);
(c) Receipt by Agent on or prior to the Business Day specified
in the definition of Interest Rate Election of a written Request stating the
amount requested for the Loan or Advance in question and an Interest Rate
Election for such Loan or Advance, all signed by a duly authorized officer of
the Borrower on behalf of the Borrower;
(d) That there exists no law or regulation by any governmental
authority having jurisdiction over the Agent or any of the Lenders which would
make it unlawful in any respect for such Lender to make its Pro Rata Share of
the Loan or Advance, including, without
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limitation, Regulations U, T, G and X of the Board of Governors of the Federal
Reserve System and no Material Adverse Effect has occurred.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
SECTION 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants to the Agent and the Lenders that, after giving
effect to the Loans and the application of the proceeds thereof (which
representations and warranties shall survive the making of the Loans) as
follows:
SECTION 4.1.1. ORGANIZATION AND EXISTENCE. The Borrower and
any Subsidiary is a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and is
duly qualified to do business in all jurisdictions in which such qualification
is required, all as noted on EXHIBIT 4.1.1, except where failure to so qualify
would not have a Material Adverse Effect, and has all requisite power and
authority to conduct its business, to own its properties and to execute and
deliver, and to perform all of its obligations under the Financing Documents.
SECTION 4.1.2. AUTHORIZATION AND ABSENCE OF DEFAULTS. Except
as described on EXHIBIT 4.1.2, the execution, delivery to the Agent and/or the
Lenders and performance by the Borrower and any Subsidiary of the Financing
Documents and Related Transaction Documents have been duly authorized by all
necessary corporate and governmental action and do not and will not (i) require
any consent or approval of the shareholders or board of directors of the
Borrower or any Subsidiary which has not been obtained, (ii) violate any
provision of any law, rule, regulation (including, without limitation,
Regulations U and X of the board of governors of the federal reserve system),
order, writ, judgment, injunction, decree, determination or award presently in
effect having applicability to the Borrower and/or any Subsidiary and/or the
articles of organization or by-laws, as applicable, of the Borrower and/or any
Subsidiary, (iii) result in a material breach of or constitute a material
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which the Borrower and/or any Subsidiary is or are a
party or parties or by which it or they or its or their properties may be bound
or affected; or (iv) result in, or require, the creation or imposition of any
Lien on any of the Borrower's and/or any Subsidiary's respective properties or
revenues other than Liens granted to the Agent by any of the Financing Documents
securing the Obligations. The Borrower and any Subsidiary are in compliance with
any such applicable law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award or any such indenture, other agreement, lease or
instrument, except where the failure to be in compliance does not have a
Material Adverse Effect.
SECTION 4.1.3. ACQUISITION OF CONSENTS. Except as noted on
EXHIBIT 4.1.3, no authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, other than those
which have been obtained, is or will be necessary to the valid execution and
delivery to the Agent and/or the Lenders or performance by the Borrower or any
Subsidiary
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of any Financing Documents or any of the Related Transaction Documents and each
of the foregoing which has been obtained is in full force and effect.
SECTION 4.1.4. VALIDITY AND ENFORCEABILITY. Each of the
Financing Documents when delivered hereunder will constitute the legal, valid
and binding obligations of each of the Borrower and any Subsidiary which is or
are a party thereto enforceable against the Borrower, and any Subsidiary which
is or are a party thereto in accordance with their respective terms except as
the enforceability thereof may be limited by the effect of general principles of
equity and bankruptcy and similar laws affecting the rights and remedies of
creditors generally.
SECTION 4.1.5. FINANCIAL INFORMATION. The following
information with respect to the Borrower has heretofore been furnished to the
Agent:
SECTION 4.1.5.1. Audited annual financial statements
of the Borrower for the periods ended December 31, 1996 and internally prepared
financial statements of the Borrower for the period ending December 31, 1997;
and
SECTION 4.1.5.2. The Projections.
SECTION 4.1.5.3. The pro forma financial statements
of the Borrower as of the Closing Date provided pursuant to SECTION 3.1.1.12.
Each of the financial statements referred to above in
SECTION 4.1.5.1 was prepared in accordance with GAAP (subject, in the case of
interim statements, to the absence of footnotes and normal year-end adjustments)
applied on a consistent basis, except as stated therein. To the best of the
Borrower's knowledge, each of the financial statements referred to above in
SECTIONS 4.1.5.1 and 4.1.5.3 fairly presents the financial condition or pro
forma financial condition, as the case may be, of the Person being reported on
at such dates and is complete and correct in all material respects and no
Material Adverse Effect has occurred since the date thereof. The Projections
were prepared by the Borrower in good faith.
SECTION 4.1.6. NO LITIGATION. There are no actions, suits or
proceedings pending or, to the knowledge of the Borrower, threatened against or
affecting the Borrower and/or any Subsidiary or any of their properties before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which if determined adversely to the
Borrower and/or any Subsidiary would draw into question the legal existence of
the Borrower and/or any such Subsidiary and/or the validity, authorization
and/or enforceability of any of the Financing Documents and/or any provision
thereof and/or could have a Material Adverse Effect except those matters, if
any, described on EXHIBIT 4.1.6 none of which, in Borrower's good faith opinion,
will (i) have such Material Adverse Effect or (ii) draw into question (a) the
legal existence of the Borrower and/or any such Subsidiary or (b) the validity,
authorization and/or enforceability of any of the Financing Documents and/or any
provision thereof.
SECTION 4.1.7. REGULATION U. The Borrower is not
engaged in the business of extending credit for the purpose of purchasing or
carrying "margin stock" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR Part 221), does
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not own and has no present intention of acquiring any such margin stock or a
"margin security" within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System (12 CFR, Part 207). None of the proceeds of the
Loans will be used directly or indirectly by the Borrower for the purpose of
purchasing or carrying, or for the purpose of reducing or retiring any
Indebtedness which was originally incurred to purchase or carry, any such margin
security or margin stock or for any other purpose which might constitute the
transaction contemplated hereby a "purpose credit" within the meaning of said
Regulation G or Regulation U, or cause this Agreement to violate any other
regulation of the Board of Governors of the Federal Reserve System or the
Securities and Exchange Act of 1934, as amended, or any rules or regulations
promulgated under either said statute.
SECTION 4.1.8. ABSENCE OF ADVERSE AGREEMENTS. Neither the
Borrower nor any Subsidiary is a party to any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
corporate or partnership restriction which would have a Material Adverse Effect.
SECTION 4.1.9. TAXES. The Borrower and each Subsidiary (and as
to the Acquired Company only, to the Borrower's best knowledge after reasonable
inquiry) has filed all tax returns (federal, state and local) required to be
filed and paid all taxes shown thereon to be due, including interest and
penalties, except for those taxes, if any, which are being contested in good
faith and by appropriate proceedings, and for which proper reserve or other
provision has been made in accordance with GAAP and except where any failure to
file or pay would not have a Material Adverse Effect on the Borrower or any
Subsidiary and except as described in EXHIBIT 4.1.9.
SECTION 4.1.10. ERISA. Borrower and any Commonly Controlled
Entity do not maintain or contribute to any Plan which is not in substantial
compliance with ERISA, or any Single Employer Plan which has incurred any
accumulated funding deficiency within the meaning of sections 412 and 418 of the
Code, or which has applied for or obtained a waiver from the Internal Revenue
Service of any minimum funding requirement under section 412 of the Code.
Borrower and any Commonly Controlled Entity have not incurred any liability to
the PBGC in connection with any Plan covering any employees of Borrower or any
Commonly Controlled Entity in amount exceeding Fifty Thousand Dollars ($50,000)
in the aggregate or ceased operations at any facility or withdrawn from any Plan
in a manner which could subject any of them to liability under sections 4062(e),
4063 or 4064 of ERISA in amount exceeding Fifty Thousand Dollars ($50,000) in
the aggregate, and know of no facts or circumstance which might give rise to any
liability of Borrower or any Commonly Controlled Entity to the PBGC under Title
IV of ERISA in amount exceeding Fifty Thousand Dollars ($50,000) in the
aggregate. Borrower and any Commonly Controlled Entity have not incurred any
withdrawal liability in amount exceeding Fifty Thousand Dollars ($50,000) in the
aggregate (including but not limited to any contingent or secondary withdrawal
liability) within the meaning of sections 4201 and 4202 of ERISA, to any
Multiemployer Plan, and no event has occurred, and there exists no condition or
set of circumstances known to the Borrower, which presents a risk of the
occurrence of any withdrawal from or the partition, termination, reorganization
or insolvency of any Multiemployer Plan which could result in any liability to a
Multiemployer Plan in amount exceeding Fifty Thousand Dollars ($50,000) in the
aggregate.
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Except for payments for which the minimum funding requirement
has been waived under section 412 of the Code, full payment has been made of all
amounts which Borrower and any Commonly Controlled Entity are required to have
paid as contributions to any Plan under applicable law or under any plan or any
agreement relating to any Plan to which Borrower or any Commonly Controlled
Entity is a party. Borrower and each Commonly Controlled Entity have made
adequate provision for reserves to meet contributions that have not been made
because they are not yet due under the terms of any Plan or related agreements.
Neither Borrower nor any Commonly Controlled Entity has any
knowledge, nor do any of them have any reason to believe, that any Reportable
Event which could result in a liability or liabilities of Fifty Thousand Dollars
($50,000) or more in the aggregate has occurred with respect to any Plan.
SECTION 4.1.11. OWNERSHIP OF PROPERTIES.
SECTION 4.1.11.1. Except for Permitted Encumbrances,
Borrower and any Subsidiary has good title to all of its properties and assets
free and clear of all restrictions and Liens of any kind other than those which
could not have a Material Adverse Effect or a material adverse effect on the
validity, authorization and/or enforceability of the Financing Documents and/or
any provision thereof.
SECTION 4.1.11.2. EXHIBIT 4.1.11 accurately and
completely lists the location of all real property owned or leased by Borrower
or any Subsidiary. Borrower and each Subsidiary enjoys quiet possession under
all material leases of real property to which it is a party as a lessee, and all
of such leases are valid, subsisting and, to Borrower's knowledge, in full force
and effect.
SECTION 4.1.11.3. To Borrower's knowledge, except as
specified in EXHIBIT 4.1.11, none of the real property occupied by Borrower or
any Subsidiary is located within any federal, state or municipal flood plain
zone.
SECTION 4.1.11.4. Except as set forth in EXHIBIT
4.1.11, all of the material properties used in the conduct of the Borrower's and
each Subsidiary's business (i) are in good repair, working order and condition
(reasonable wear and tear excepted) and reasonably suitable for use in the
operation of Borrower's, and each Subsidiary's business; and (ii) to Borrower's
knowledge are currently operated and maintained, in all material respects, in
accordance with the requirements of applicable governmental authorities.
SECTION 4.1.12. ACCURACY OF REPRESENTATIONS AND WARRANTIES.
None of Borrower's representations or warranties set forth in this Agreement or
in any document or certificate furnished pursuant to this Agreement or in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary to make
any statement of fact contained herein or therein, in light of the circumstances
under which it was made, not misleading; except that unless provided otherwise
any such document or certificate which is dated speaks as of the date stated and
not the present.
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SECTION 4.1.13. NO INVESTMENT COMPANY. Neither the Borrower
nor any Subsidiary is an "investment company" or a company "controlled" by an
"investment company" as such terms are defined in the Investment Company Act of
1940, as amended, which is required to register thereunder.
SECTION 4.1.14. SOLVENCY, ETC. After giving effect to the
consummation of each Loan outstanding and to be made under this Agreement as of
the time this representation and warranty is given, the Borrower (a) will be
able to pay its debts as they become due, (b) will have funds and capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (c) will own property in the aggregate having a value both at fair
valuation and at fair saleable value in the ordinary course of the Borrower's
business greater than the amount required to pay its Indebtedness, including for
this purpose unliquidated and disputed claims. The Borrower will not be rendered
insolvent by the execution and delivery of this Agreement and the consummation
of any transactions contemplated herein.
SECTION 4.1.15. APPROVALS. Except as set forth in EXHIBIT
4.1.3, all approvals required from all Persons including without limitation all
governmental authorities with respect to the Financing Documents have been
obtained.
SECTION 4.1.16. OWNERSHIP INTERESTS. The schedule of ownership
interests in the Borrower and any Subsidiaries set forth in EXHIBIT 1.1 is true,
accurate and complete.
SECTION 4.1.17. LICENSES, REGISTRATIONS, COMPLIANCE WITH LAWS,
ETC. EXHIBIT 4.1.17 accurately and completely describes all permits,
governmental licenses, registrations and approvals, material to carrying out of
Borrower's and each of the Subsidiaries' businesses as presently conducted and
as required by law or the rules and regulations of any federal, foreign
governmental, state, county or local association, corporation or governmental
agency, body, instrumentality or commission having jurisdiction over the
Borrower or any of the Subsidiaries, including but not limited to the United
States Environmental Protection Agency, the United States Department of Labor,
the United States Occupational Safety and Health Administration, the United
States Equal Employment Opportunity Commission, the Federal Trade Commission and
the United States Department of Justice and analogous and related state and
foreign agencies. All existing authorizations, licenses and permits are in full
force and effect, are duly issued in the name of, or validly assigned to the
Borrower or a Subsidiary and the Borrower or a Subsidiary has full power and
authority to operate thereunder. There is no material violation or material
failure of compliance or, to Borrower's knowledge, allegation of such violation
or failure of compliance on the part of the Borrower or any Subsidiary with any
of the foregoing permits, licenses, registrations, approvals, rules or
regulations and there is no action, proceeding or investigation pending or to
the knowledge of the Borrower threatened nor has the Borrower or any Subsidiary
received any notice of such which might result in the termination or suspension
of any such permit, license, registration or approval which in any case could
have a Material Adverse Effect.
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SECTION 4.1.18. PRINCIPAL PLACE OF BUSINESS; BOOKS AND
RECORDS. The Borrower's chief executive offices are located at Borrower's
addresses set forth in SECTION 9.6. All of the Borrower's books and records are
kept at one or more of its addresses set forth in SECTION 9.6.
SECTION 4.1.19. SUBSIDIARIES. The Borrower has only the
Subsidiaries identified on EXHIBIT 1.1.
SECTION 4.1.20. COPYRIGHT. Except as set forth in EXHIBIT
4.1.20 the Borrower has not violated any of the provisions of the Copyright
Revision Act of 1976, 17 U.S.C. 101, ET SEQ. The Borrower has filed all
registration statements, notices and statements of account and all necessary
supplements and adjustment schedules thereto with the United States Copyright
Office and has made all payments to the United States Copyright Office that are
required. EXHIBIT 4.1.20 accurately and completely sets forth all copyrights
held by the Borrower or any of the Subsidiaries and contains exceptions to the
representations contained in this SECTION 4.1.20. No inquiries regarding any
such filings have been received by the Copyright Office. The Borrower has not
allocated revenues in any manner inconsistent with the rules and regulations of
the Copyright Office.
SECTION 4.1.21. ENVIRONMENTAL COMPLIANCE. Neither the Borrower
nor, to the knowledge of the Borrower, any other Person:
SECTION 4.1.21.1. has ever caused, permitted, or
suffered to exist any Hazardous Material to be spilled, placed, held, located or
disposed of on, under, or about, any of the facilities owned, leased or used by
the Borrower (the "Premises"), or from the Premises into the atmosphere, any
body of water, any wetlands, or on any other real property, nor to Borrower's
knowledge does any Hazardous Material exist on, under or about the Premises
other than as disclosed on EXHIBIT 4.1.21, or in respect of Hazardous Material
used or disposed of in compliance with law;
SECTION 4.1.21.2. has any knowledge that any of the
Premises has ever been used (whether by the Borrower or, to the knowledge of the
Borrower, by any other Person) as a treatment, storage or disposal (whether
permanent or temporary) site for any Hazardous Waste as defined in 42 U.S.C.A.
6901, ET SEQ. (the Resource Recovery and Conservation Act); and
SECTION 4.1.21.3. has any knowledge of any notice of
violation, Lien or other notice issued by any governmental agency with respect
to the environmental condition of the Premises or any other property occupied by
the Borrower, or any other property which was included in the property
description of the Premises or such other real property within the preceding
three years except as disclosed to the Agent.
SECTION 4.1.22. MATERIAL AGREEMENTS, ETC. EXHIBIT 4.1.22
attached hereto accurately and completely lists all material agreements to which
the Borrower or any of the Subsidiaries are a party including without limitation
all software licenses, and all material construction, engineering, consulting,
employment, management, operating and related agreements, if any, which are
presently in effect. All of the material agreements to which
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Borrower or any Subsidiary is a party, are legally valid, binding, and, to
Borrower's knowledge, in full force and effect and neither the Borrower, any of
the Subsidiaries nor, to Borrower's knowledge, any other parties thereto are in
material default thereunder.
SECTION 4.1.23. PATENTS, TRADEMARKS AND OTHER PROPERTY RIGHTS.
EXHIBIT 4.1.23 attached hereto contains a complete and accurate schedule of all
registered trademarks, registered copyrights and patents of the Borrower and/or
any of the Subsidiaries, and pending applications therefor, and all other
intellectual property in which the Borrower and/or any of the Subsidiaries has
any rights other than "off-the shelf" software which is generally available to
the general public at retail. Except as set forth in EXHIBIT 4.1.23, the
Borrower and any Subsidiaries own, possess, or have licenses to use all the
patents, trademarks, service marks, trade names, copyrights and non-governmental
licenses, and all rights with respect to the foregoing, necessary for the
conduct of their respective businesses as now conducted, without, to the
Borrower's knowledge any conflict with the rights of others with respect
thereto.
SECTION 4.1.24. RELATED TRANSACTION DOCUMENTS. The Borrower
has, on or prior to the date hereof, delivered to the Lenders true copies of the
Related Transaction Documents, and each and every amendment or modification
thereto.
SECTION 4.1.25. MATERIAL ADVERSE EFFECT. No Material Adverse
Effect has occurred and there exists no action, suit, investigation, litigation
or proceeding pending or threatened in any court or before any arbitrator or
governmental or regulatory agency or authority that could reasonably be expected
to result in a Material Adverse Effect.
SECTION 4.1.26. TRANSACTIONS WITH AFFILIATES. Except as set
forth on EXHIBIT 5.2(3), or except as contemplated by the Related Transaction
Documents and this Agreement, the Borrower and each Subsidiary have not engaged
in any transaction or entered into any agreement with an Affiliate, except
transactions which are in the ordinary course upon fair and reasonable terms and
no less favorable to the Borrower or the Subsidiary than as could be obtained on
an arm's length basis.
ARTICLE 5.
COVENANTS OF THE BORROWER
SECTION 5.1. AFFIRMATIVE COVENANTS OF THE BORROWER OTHER THAN REPORTING
REQUIREMENTS. From the date hereof and thereafter for so long as there is
Indebtedness of the Borrower to any Lender and/or the Agent under any of the
Financing Documents or any part of the Commitment is in effect, the Borrower
will, with respect to itself and, unless noted otherwise below, with respect to
each of its Subsidiaries, ensure that each Subsidiary will, unless the Majority
Lenders shall otherwise consent in writing:
SECTION 5.1.1. PAYMENT OF TAXES, ETC. Pay and discharge all
taxes and assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims for the same which, if
unpaid, might become a Lien upon any of its properties,
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provided that (unless and until foreclosure, restraint, sale or any similar
proceeding is pending and is not stayed, discharged or bonded within 30 days
after commencement) the Borrower shall not be required to pay any such tax,
assessment, charge, levy or claim which is being contested in good faith and by
proper proceedings and for which proper reserve or other provision has been made
in accordance with GAAP, unless failure to pay could not result in a Material
Adverse Effect.
SECTION 5.1.2. MAINTENANCE OF INSURANCE. Maintain insurance in
accordance with the Security Documents including, without limitation, casualty,
liability and business interruption insurance reasonably acceptable to the Agent
and, to the extent not covered by any of the Security Documents, with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties and in accordance with the requirements
of any governmental agency having jurisdiction over the Borrower and/or any
Subsidiary. The Borrower shall provide the Lenders with such evidence as the
Agent may request from time to time as to the maintenance of all such insurance.
Certificates of all such insurance shall be delivered to the Agent concurrently
with the execution and delivery of this Agreement, and thereafter all renewal or
replacement certificates shall be delivered to the Agent not less than thirty
(30) days prior to the expiration date of the policy to be renewed or replaced,
accompanied by evidence satisfactory to the Agent that all premiums payable with
respect to such policies have been paid by Borrower. Borrower shall have the
right of free choice in the selection of the agent or the insurer through or by
which the insurance required hereunder is to be placed; provided, however, said
insurer has at all times a general policyholder's rating of A or A+ in Best's
latest rating guide. Furthermore, the Agent shall have the right and is hereby
constituted and appointed the true and lawful attorney irrevocable of Borrower,
in the name and stead of Borrower, but in the uncontrolled discretion of said
attorney, (i) to adjust, sue for, compromise and collect any amounts due under
such insurance policies in the event of loss and (ii) to give releases for any
and all amounts received in settlement of losses under such policies; and the
same shall, subject to SECTION 2.6.1.3 of this Agreement, at the option of the
Agent, be applied, after first deducting the costs of collection, on account of
any Indebtedness the payment of which is secured by any of the Financing
Documents, whether or not then due, or, notwithstanding the claims of any
subsequent lienor, be used or paid over to Borrower in accordance with
reasonable procedures established by the Agent for use in repairing or replacing
any damaged or destroyed collateral under any of the Security Documents.
SECTION 5.1.3. PRESERVATION OF EXISTENCE, ETC. Preserve and
maintain in full force and effect its legal existence, and all material rights,
franchises and privileges in the jurisdiction of its organization, preserve and
maintain all material licenses, governmental approvals, trademarks, patents,
trade secrets, copyrights and trade names owned or possessed by it and which are
necessary or, in the reasonable business judgment of the Borrower, desirable in
view of its business and operations or the ownership of its properties and
qualify or remain qualified as a foreign corporation in each jurisdiction in
which such qualification is necessary or, in its reasonable business judgment,
desirable in view of its business and operations and ownership of its properties
except where the failure to so qualify will not have a Material Adverse Effect.
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SECTION 5.1.4. COMPLIANCE WITH LAWS, ETC. Comply with the
requirements of all present and future applicable laws, rules, regulations and
orders of any governmental authority having jurisdiction over it and/or its
business including, without limitation, regulations of the United States
Copyright Office and the Copyright Royalty Tribunal, except where the failure to
comply would not have a Material Adverse Effect.
SECTION 5.1.5. VISITATION RIGHTS. At any time after the
occurrence of a Default or an Event of Default and otherwise not more often than
twice in any Borrower fiscal year, permit, during normal business hours and upon
the giving of reasonable notice, the Agent, the Lenders and any agents or
representatives thereof, to examine and make copies of (at Borrower's cost and
expense) and abstracts from the records and books of account of, and visit the
properties of the Borrower and any Subsidiary to discuss the affairs, finances
and accounts of the Borrower or any Subsidiary with any of their partners,
officers or management level employees and/or any independent certified public
accountant of the Borrower and/or any Subsidiary.
SECTION 5.1.6. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep
adequate records and books of account, in which complete entries will be made in
accordance with GAAP and with applicable requirements of any governmental
authority having jurisdiction over the Borrower and/or any Subsidiary in
question, reflecting all financial transactions.
SECTION 5.1.7. MAINTENANCE OF PROPERTIES, ETC. Maintain and
preserve all of its properties necessary or useful in the proper conduct of its
business, in good working order and condition, ordinary wear and tear excepted,
and in accordance with each of the Security Documents.
SECTION 5.1.8. POST-CLOSING ITEMS. Complete in a timely
fashion all actions required in the Post-Closing Letter.
SECTION 5.1.9. OTHER DOCUMENTS, ETC. Except as otherwise
required by this Agreement, pay, perform and fulfill all of its obligations and
covenants under each material document, instrument or agreement to which it is a
party including, without limitation, the Related Transaction Documents; provided
that so long as the Borrower or any Subsidiary is contesting any claimed default
by it or them under any of the foregoing by proper proceedings conducted in good
faith and for which any proper reserve or other provision in accordance with and
to the extent required by GAAP has been made, such default shall not be deemed a
violation of this covenant.
SECTION 5.1.10. MINIMUM INTEREST COVERAGE RATIO. Maintain a
ratio of Adjusted EBITDA to Interest Expense of not less than 3.0:1.0, such
ratio to be measured (i) at each Borrower fiscal quarter end on or prior to June
30, 1998 for the period commencing on the Closing Date and ending on such fiscal
quarter end and (ii) at each Borrower fiscal quarter end thereafter for the
rolling two Borrower fiscal quarter period consisting of the Borrower fiscal
quarter then ending and the immediately preceding Borrower fiscal quarter.
SECTION 5.1.11. MINIMUM DEBT SERVICE COVERAGE RATIO. Maintain
a ratio of (i) Adjusted EBITDA LESS, for the fiscal period in question, the sum
of taxes paid or payable and
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Capital Expenditures to (ii) the sum of Total Debt Service of not less than
1.25:1.00, such ratio to be measured (i) at each Borrower fiscal quarter end on
or prior to June 30, 2000 for the period commencing July 1, 1999 and ending on
such fiscal quarter end and (ii) at each Borrower fiscal quarter end thereafter
for the rolling four Borrower fiscal quarter period consisting of the Borrower
fiscal quarter then ending and the three immediately preceding Borrower fiscal
quarters.
SECTION 5.1.12. MAXIMUM RATIO OF TOTAL INDEBTEDNESS FOR
BORROWED MONEY TO ADJUSTED EBITDA. Maintain at the end of each fiscal quarter of
the Borrower a ratio of (i) total Indebtedness for Borrowed Money of the
Borrower and its Subsidiaries on a consolidated basis as of the last day of such
fiscal quarter to (ii) Adjusted EBITDA for the rolling four Borrower fiscal
quarter period consisting of such fiscal quarter and the three immediately
preceding Borrower fiscal quarters of not greater than 2.50:1.00.
SECTION 5.1.12.1. MINIMUM PROFITABILITY. Maintain at
the end of each Borrower fiscal quarter for the period commencing as of the
Closing Date and ending December 31, 1998, Adjusted EBITDA of at least
$5,000,000 and thereafter maintain at the end of each Borrower fiscal quarter,
Adjusted EBITDA of at least $6,500,000, to be measured for the rolling four
Borrower fiscal quarter period consisting of the Borrower fiscal quarter then
ending and the three immediately preceding Borrower fiscal quarters.
SECTION 5.1.12.2. MINIMUM QUICK RATIO. Maintain at
the end of each fiscal quarter of the Borrower a ratio of (i) the sum of (w)
cash on hand or on deposit in any bank or trust company which has not suspended
business, (x) Cash Equivalent Investments (without duplication with (w);
provided however that if the amount outstanding under the Loans shall be equal
to or greater than $1,000,000, the sum of (w) and (x) shall not exceed
$1,000,000 for the purposes of calculating compliance with this ratio) and (y)
net outstanding amount of accounts receivable taking into account allowances for
doubtful or uncollectible accounts receivable to (ii) (x) Current Liabilities
less the sum of (y) the outstanding amount of the Loan (to the extent included
in Current Liabilities) and (z) the amount of any deferred revenue of not less
than 1.25:1.00. Each item described in clauses (i) and (ii) of this SECTION
5.1.25 shall be calculated as of the last day of the Borrower fiscal quarter and
include only the item(s) in question of the Borrower and its Subsidiaries on a
consolidated basis.
SECTION 5.1.13. OFFICER'S CERTIFICATES AND REQUESTS. Provide
each Officer's Certificate required under this Agreement and each Request so
that the statements contained therein are accurate and complete in all material
respects.
SECTION 5.1.14. DEPOSITORY. Use the Agent as a principal
depository of Borrower's funds.
SECTION 5.1.15. CHIEF EXECUTIVE OFFICER. Maintain Nicholas A.
Canitano as president of the Borrower and Kenneth L. Conley as Executive Vice
President of the Borrower and as the Persons with principal executive, operating
and management responsibility for the Borrower's business or obtain a
replacement of comparable experience and training in the
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Borrower's industry reasonably satisfactory to the Majority Lenders within 120
days of either Person ceasing to act in such capacity.
SECTION 5.1.16. NOTICE OF PURCHASE OF REAL ESTATE AND LEASES.
Promptly notify the Agent in the event that the Borrower shall purchase any real
estate or enter into any lease of real estate or of equipment material to the
operation of the Borrower's business, supply the Agent with a copy of the
related purchase agreement or of such lease, as the case may be, and if
requested by the Agent, execute and deliver, or cause to be executed and
delivered, to the Agent for the benefit of the Lenders a deed of trust,
mortgage, assignment or other document, together with landlord consents, in the
case of leased property, reasonably satisfactory in form and substance to the
Agent, granting a valid first Lien (subject to any Liens permitted under SECTION
5.2.1 hereof) on such real property or leasehold as security for the Financing
Documents, all subject to the limitations of SECTION 5.2.17.
SECTION 5.1.17. ADDITIONAL ASSURANCES. From time to time
hereafter, execute and deliver or cause to be executed and delivered, such
additional instruments, certificates and documents, and take all such actions,
as the Agent shall reasonably request for the purpose of implementing or
effectuating the provisions of the Financing Documents, and upon the exercise by
the Agent of any power, right, privilege or remedy pursuant to the Financing
Documents which requires any consent, approval, registration, qualification or
authorization of any governmental authority or instrumentality, exercise and
deliver all applications, certifications, instruments and other documents and
papers that the Agent may be so required to obtain.
SECTION 5.1.18. APPRAISALS. Permit the Agent and its agents,
at any time and in the sole discretion of the Agent or at the request of the
Majority Lenders, to conduct appraisals of the Borrower's business, the cost of
which shall be borne by the Borrower.
SECTION 5.1.19. ENVIRONMENTAL COMPLIANCE. Comply strictly and
in all material respects with the requirements of all federal, state, and local
environmental laws; notify the Lenders promptly in the event of any spill of
Hazardous Material materially affecting the Premises occupied by the Borrower
from time to time; forward to the Lenders promptly any written notices relating
to such matters received from any governmental agency; and pay promptly when due
any uncontested fine or assessment against the Premises.
SECTION 5.1.20. REMEDIATION. Immediately contain and remove
any Hazardous Material found on the Premises in compliance with applicable laws
and at the Borrower's expense, subject however, to the right of the Agent, at
the Agent's option but at the Borrower's expense, to have an environmental
engineer or other representative review the work being done.
SECTION 5.1.21. SITE ASSESSMENTS. Promptly upon the request of
the Agent, based upon the Agent's reasonable belief that a material Hazardous
Waste or other environmental problem exists with respect to any Premises,
provide the Agent with a Phase I environmental site assessment report and, if
Agent finds a reasonable basis for further assessment in such Phase I
assessment, a Phase II environmental site assessment report, or an update of any
existing report, all in scope, form and content and performed by such company as
may be reasonably satisfactory to the Agent.
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SECTION 5.1.22. INDEMNITY. Indemnify, defend, and hold the
Agent and the Lenders harmless from and against any claim, cost, damage
(including without limitation consequential damages), expense (including without
limitation reasonable attorneys' fees and expenses), loss, liability, or
judgment now or hereafter arising as a result of any claim for environmental
cleanup costs, any resulting damage to the environment and any other
environmental claims against the Borrower, any Subsidiary, the Lenders and/or
the Agent arising out of the transactions contemplated by this Agreement, or any
of the Premises. The provisions of this Section shall continue in effect and
shall survive (among other events), until the applicable statute of limitations
has expired, any termination of this Agreement, foreclosure, a deed in lieu
transaction, payment and satisfaction of the Obligations of Borrower, and
release of any collateral for the Loans.
SECTION 5.1.23. TRADEMARKS, COPYRIGHTS, ETC. Concurrently with
the acquisition of any trademark, tradename, copyright, patent or service mark
collaterally assign and grant a first priority perfected Lien thereon to the
Agent pursuant to documents in form and substance reasonably satisfactory to the
Agent.
SECTION 5.2. NEGATIVE COVENANTS OF THE BORROWER. From the date hereof
and thereafter for so long as there is Indebtedness of the Borrower to any
Lender and/or the Agent under any of the Financing Documents or any part of the
Commitment is in effect, the Borrower will not, with respect to itself and,
unless noted otherwise below, with respect to each of the Subsidiaries, will
ensure that each such Subsidiary will not, without the prior written consent of
the Majority Lenders:
SECTION 5.2.1. LIENS, ETC. Create, incur, assume or suffer to
exist any Lien of any nature, upon or with respect to any of its properties, now
owned or hereafter acquired, or assign as collateral or otherwise convey as
collateral, any right to receive income, except that the foregoing restrictions
shall not apply to any Liens:
SECTION 5.2.1.1. For taxes, assessments or
governmental charges or levies on property if the same shall not at the time be
delinquent or thereafter can be paid without penalty or interest, or (if
foreclosure, distraint, sale or other similar proceedings shall not have been
commenced or if commenced not stayed, bonded or discharged within 30 days after
commencement) are being contested in good faith and by appropriate proceedings
diligently conducted and for which proper reserve or other provision has been
made in accordance with and to the extent required by GAAP;
SECTION 5.2.1.2. Imposed by law, such as landlords',
carriers', warehousemen's and mechanics' liens, bankers' set off rights and
other similar Liens arising in the ordinary course of business for sums not yet
due or being contested in good faith and by appropriate proceedings diligently
conducted and for which proper reserve or other provision has been made in
accordance with and to the extent required by GAAP;
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SECTION 5.2.1.3. Arising in the ordinary course of
business out of pledges or deposits under worker's compensation laws,
unemployment insurance, old age pensions, or other social security or retirement
benefits, or similar legislation;
SECTION 5.2.1.4. Arising from or upon any judgment or
award, provided that such judgment or award is being contested in good faith by
proper appeal proceedings and only so long as execution thereon shall be stayed;
SECTION 5.2.1.5. Those set forth on EXHIBIT 1.8;
SECTION 5.2.1.6. Those now or hereafter granted
pursuant to the Security Documents or otherwise now or hereafter granted to the
Agent for the benefit of the Lenders as collateral for the Loans and/or
Borrower's other Obligations arising in connection with or under any of the
Financing Documents;
SECTION 5.2.1.7. Deposits to secure the performance
of bids, trade contracts (other than for Borrowed Money), leases, statutory
obligations, surety bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of the Borrower's or any Subsidiary's
business;
SECTION 5.2.1.8. Easements, rights of way,
restrictions and other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property subject
thereto or materially interfere with the ordinary conduct of business by any
Borrower or any Subsidiary;
SECTION 5.2.1.9. Liens securing Indebtedness
permitted to exist under SECTION 5.2.8.3; provided that the Lien securing any
such Indebtedness is limited to the item of property purchased or leased in each
case;
SECTION 5.2.1.10. UCC-1 financing statements filed
solely for notice or precautionary purposes by lessors under operating leases
which do not secure Indebtedness and which are limited to the items of equipment
leased pursuant to the lease in question; and
SECTION 5.2.2. ASSUMPTIONS, GUARANTIES, ETC. OF INDEBTEDNESS
OF OTHER PERSONS. Assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligation or Indebtedness of any
other Person, except:
SECTION 5.2.2.1. Guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business;
SECTION 5.2.2.2. Assumptions, guaranties,
endorsements and contingent liabilities within the definition of Indebtedness
and permitted by SECTION 5.2.8; and
SECTION 5.2.2.3. Those set forth on EXHIBIT 5.2.2.
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SECTION 5.2.3. ACQUISITIONS, DISSOLUTION, ETC. Acquire, in one
or a series of transactions, all or any substantial portion of the assets or
ownership interests in another Person, or dissolve, liquidate, wind up, merge or
consolidate or combine with another Person or sell, assign, lease or otherwise
dispose of (whether in one transaction or in a series of transactions) any
material assets, whether now owned or hereafter acquired, or any of the
Borrower's or any Subsidiary's interests in real property other than assets
which are replaced within 90 days of any asset sale, assignment, lease or
disposition with assets of like kind, usefulness and value; provided, however,
that the Borrower shall be permitted to acquire all or any portion of the assets
or ownership interests in another Person (by merger, consolidation or otherwise
so long as the Borrower survives) having aggregate (for all such acquisitions
from and after the Closing Date, but excluding however the acquisition of the
Acquired Company) consideration not to exceed $15,000,000, of which not more
than $10,000,000 of such consideration shall be in the form of cash. At the time
of any such Permitted Acquisition the Borrower shall provide or grant or cause
to be provided or granted to the Agent a first priority perfected Lien on the
assets or ownership interests acquired, including without limitation the assets
owned by any Subsidiary, to the extent that the Agent does not already have such
a Lien. Prior to the consummation of any such Permitted Acquisition, Borrower
shall submit to the Agent a pro-forma Compliance Certificate on a consolidated
basis (including the to-be-acquired assets and any assumed liabilities or if
ownership interests are acquired, the to-be-acquired Person if such Person is to
be a Subsidiary and if not, the to-be-acquired ownership interests, all measured
as set forth below in this SECTION 5.2.3), which such pro-forma Compliance
Certificate shall indicate that no Default or Event of Default exists or would
exist following consummation of the Permitted Acquisition and that the Borrower
would be, in compliance with (on a consolidated basis including the
to-be-acquired assets and any assumed liabilities or if ownership interests are
acquired, the to-be-acquired Person if such Person is to be a Subsidiary and if
not, the to-be-acquired ownership interests), SECTIONS 5.1.10, 5.1.11, 5.1.12,
5.1.12.1 and 5.1.12.2 following consummation of the Permitted Acquisition,
including the to-be-acquired assets, Person or ownership interests and the
operating results thereof on the same basis and for the same periods as the
Borrower is measured for each such covenant, respectively.
SECTION 5.2.4. CHANGE IN NATURE OF BUSINESS. Make any material
change in the nature of its business.
SECTION 5.2.5. OWNERSHIP. Cause or permit the occurrence of
any Change of Control.
SECTION 5.2.6. SALE AND LEASEBACK. Enter into any sale and
leaseback arrangement with any lender or investor, or enter into any leases
except in the normal course of business at reasonable rents comparable to those
paid for similar leasehold interests in the area.
SECTION 5.2.7. SALE OF ACCOUNTS, ETC. Sell, assign, discount
or dispose in any way of any accounts receivable, promissory notes or trade
acceptances held by the Borrower or any Subsidiary, with or without recourse,
except in the ordinary course of the Borrower's or any Subsidiary's business.
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SECTION 5.2.8. INDEBTEDNESS. Incur, create, become or be
liable directly or indirectly in any manner with respect to or permit to exist
any Indebtedness except:
SECTION 5.2.8.1. Indebtedness under the Financing
Documents;
SECTION 5.2.8.2. Indebtedness with respect to trade
payable obligations and other normal accruals and customer deposits in the
ordinary course of business not yet due and payable in accordance with customary
trade terms or with respect to which the Borrower or any Subsidiary is
contesting in good faith the amount or validity thereof by appropriate
proceedings and then only to the extent such person has set aside on its books
adequate reserves therefor in accordance with and to the extent required by
GAAP;
SECTION 5.2.8.3. Indebtedness with respect to
Capitalized Lease Obligations and purchase money Indebtedness with respect to
real or personal property in an aggregate amount outstanding at any time not to
exceed $1,000,000; provided that the amount of any purchase money Indebtedness
does not exceed 90% of the lesser of the cost or fair market value of the asset
purchased with the proceeds of such Indebtedness;
SECTION 5.2.8.4. Unsecured Indebtedness in an
aggregate amount outstanding at any time not to exceed $250,000;
SECTION 5.2.8.5. Indebtedness listed on EXHIBIT
3.1.1.8;
SECTION 5.2.8.6. Indebtedness permitted by SECTION
5.2.2.
SECTION 5.2.8.7. Indebtedness outstanding as a
refinancing of Indebtedness permitted under another clause of this SECTION 5.2.8
other than SECTIONS 5.2.8.2 or this 5.2.8.7; provided that such Indebtedness as
refinanced continues to qualify as permitted Indebtedness under the clause of
this SECTION 5.2.8 under which the refinanced Indebtedness was permitted under
this SECTION 5.2.8.
SECTION 5.2.9. OTHER AGREEMENTS. Amend any of the terms or
conditions of any of the Related Transaction Documents in a manner materially
adverse to the Agent or any of the Lenders, its certificate of incorporation, if
any, any subordination agreement or any indenture, agreement, document, note or
other instrument evidencing, securing or relating to any other Indebtedness
permitted under SECTION 5.2.8.
SECTION 5.2.10. [RESERVED].
SECTION 5.2.11. DIVIDENDS, PAYMENTS AND DISTRIBUTIONS. Declare
or pay any dividends, management fees or like fees or make any other
distribution of cash or property or both to any of the Stockholders other than
compensation for services rendered to the Borrower and/or any Subsidiary or use
any of its assets for payment, purchase, conversion, redemption, retention,
acquisition or retirement of any beneficial interest in the Borrower or set
aside or reserve assets for sinking or like funds for any of the foregoing
purposes, make any other
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distribution by reduction of capital or otherwise in respect of any beneficial
interest in the Borrower or permit any Subsidiary which is not a wholly-owned
Subsidiary so to do.
SECTION 5.2.12. INVESTMENTS IN OR TO OTHER PERSONS. Make or
commit to make any Investment in or to any other Person (including, without
limitation, any Subsidiary) other than (i) advances to employees for business
expenses not to exceed $10,000 in the aggregate outstanding for any one employee
and not to exceed $50,000 in the aggregate outstanding at any one time to all
such employees, (ii) other employee loans not to exceed $100,000 in the
aggregate outstanding at any one time to all such employees, (iii) Cash
Equivalent Investments, (iv), Investments in accounts, contract rights and
chattel paper (as defined in the Uniform Commercial Code) and notes receivable,
arising or acquired in the ordinary course of business, (v) Investments
constituting Permitted Acquisitions and (vi) Investments described on EXHIBIT
5.2.2.
SECTION 5.2.13. TRANSACTIONS WITH AFFILIATES. Engage in any
transaction or enter into any agreement with an Affiliate, or in the case of
Affiliates or Subsidiaries, with the Borrower or another Affiliate or
Subsidiary, except in the ordinary course of business, upon fair and reasonable
terms and no less favorable to the Borrower than could be obtained on an arm's
length basis, except as set forth on EXHIBIT 5.2.13.
SECTION 5.2.14. CHANGE OF FISCAL YEAR. Change its accounting
policies, reporting practices or its fiscal year from that which was in effect
on the Closing Date.
SECTION 5.2.15. SUBORDINATION OF CLAIMS. Subordinate any
present or future claim against or obligation of another Person, except as
ordered in a bankruptcy or similar creditors' remedy proceeding of such other
Person.
SECTION 5.2.16. COMPLIANCE WITH ERISA. With respect to
Borrower and any Commonly Controlled Entity (a) withdraw from or cease to have
an obligation to contribute to, any Multiemployer Plan, (b) engage in any
"prohibited transaction" (as defined in Section 4975 of the Code) involving any
Plan, (c) except for any deficiency caused by a waiver of the minimum funding
requirement under sectionS 412 and/or 418 of the Code, as described above, incur
or suffer to exist any material "accumulated funding deficiency" (as defined in
section 302 of ERISA and section 412 of the Code) of the Borrower or any
Commonly Controlled Entity, whether or not waived, involving any Single Employer
Plan, (d) incur or suffer to exist any Reportable Event or the appointment of a
trustee or institution of proceedings for appointment of a trustee for any
Single Employer Plan if, in the case of a Reportable Event, such event continues
unremedied for ten (10) days after notice of such Reportable Event pursuant to
sections 4043(a), (c) or (d) of ERISA is given, if in the reasonable opinion of
the Majority Lenders any of the foregoing is likely to result in a material
liability of the Borrower or any Commonly Controlled Entity, (e) permit the
assets held under any Plan to be insufficient to protect all accrued benefits,
(f) allow or suffer to exist any event or condition, which presents a material
risk of incurring a material liability of the Borrower or any Commonly
Controlled Entity to PBGC by reason of termination of any such Plan or (g) cause
or permit any Plan maintained by Borrower and/or any Commonly Controlled Entity
to be out of compliance with ERISA. For purposes of this SECTION 5.2.16
"material liability" shall be deemed to mean any liability of Fifty Thousand
Dollars ($50,000) or more in the aggregate.
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SECTION 5.2.17. CAPITAL EXPENDITURES. Incur Capital
Expenditures during any Borrower fiscal year in excess of $1,000,000.
Subject to the foregoing, the Borrower shall make its Capital
Expenditures substantially in accordance with and for the purposes outlined in
the Budget for the Borrower fiscal year in question.
SECTION 5.2.18. HAZARDOUS WASTE. Become involved, or permit,
to the extent reasonably possible after the exercise by the Borrower of
reasonable due diligence and preventive efforts, any tenant of its real property
to become involved, in any operations at such real property generating, storing,
disposing, or handling Hazardous Material or any other activity that could lead
to the imposition on the Borrower or the Agent or any Lender, or any such real
property of any material liability or Lien under any environmental laws.
SECTION 5.2.19. OTHER RESTRICTIONS ON LIENS. Enter into any
agreement or otherwise agree to or grant any restriction substantially similar
to the provisions of SECTION 5.2.1 hereof or which would otherwise have the
effect of prohibiting, restricting, impeding or interfering with the creation
subsequent to the Closing Date of Liens to secure the Obligations.
SECTION 5.3. REPORTING REQUIREMENTS. From the date hereof and
thereafter for so long as the Borrower is indebted to any Lender and/or the
Agent under any of the Financing Documents, the Borrower will, unless the
Majority Lenders shall otherwise consent in writing, furnish or cause to be
furnished to the Agent for distribution to the Lenders:
SECTION 5.3.1. As soon as possible and in any event upon
acquiring knowledge of an Event of Default or Default, continuing on the date of
such statement, the written statement of an Authorized Representative setting
forth details of such Event of Default or Default and the actions which the
Borrower has taken and proposes to take with respect thereto;
SECTION 5.3.2. As soon as practicable after the end of each
Borrower fiscal year and in any event within 90 days after the end of each such
fiscal year, consolidated and consolidating balance sheets of the Borrower and
any Subsidiaries as at the end of such year, and the related statements of
income and cash flows or shareholders' equity of the Borrower and any
Subsidiaries setting forth in each case the corresponding figures for the
preceding fiscal year, such statements to be certified by a firm of independent
certified public accountants selected by Borrower and reasonably acceptable to
the Majority Lenders, to be accompanied by a true copy of said auditors'
management letter, if one was provided to the Borrower, and to contain a
statement to the effect that such accountants have examined SECTIONS 5.1.10
through 5.1.13 and 5.2.17 and that no Default or Event of Default exists on
account of Borrower's failure to have been in compliance therewith on the date
of such statement;
SECTION 5.3.3. As soon as is practicable after the end of each
fiscal quarter of each Borrower fiscal year and in any event within 45 days
thereafter, consolidated balance sheets of the Borrower and any Subsidiaries as
of the end of such period and the related statements of income and cash flows
and shareholders' equity of the Borrower and any Subsidiaries, subject to
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changes resulting from year-end adjustments, together, subject to SECTION 5.3.7,
with a comparison to the Budget for the applicable period, such balance sheets
and statements to be prepared and certified by an Authorized Representative in
an Officer's Certificate as having been prepared in accordance with GAAP except
for footnotes and year-end adjustments, and to be in form reasonably
satisfactory to the Agent;
SECTION 5.3.4. Simultaneously with the furnishing of each of
the year-end consolidated and consolidating financial statements of the Borrower
and any Subsidiaries to be delivered pursuant to SECTION 5.3.2 and each of the
consolidated quarterly statements of the Borrower and the Subsidiaries to be
delivered pursuant to SECTION 5.3.3 an Officer's Certificate of an Authorized
Representative which shall contain a statement in the form of EXHIBIT 3.1.1.10
to the effect that no Event of Default or Default has occurred, without having
been waived in writing, or if there shall have been an Event of Default not
previously waived in writing pursuant to the provisions hereof, or a Default,
such Officer's Certificate shall disclose the nature thereof and the actions the
Borrower has taken and prepare to take with respect thereto. Each such Officer's
Certificate shall also contain a calculation of and certify to the accuracy of
the amounts required to be calculated in the financial covenants of the Borrower
contained in this Agreement and described in EXHIBIT 3.1.1.10;
SECTION 5.3.5. Promptly after the commencement thereof, notice
of all material actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, affecting the Borrower and/or any Subsidiary;
SECTION 5.3.6. [Reserved];
SECTION 5.3.7. On or before January 31 of each fiscal year of
the Borrower, an updated proposed budget, prepared on a quarterly basis, and
updated financial projections for the Borrower and any Subsidiaries on a
consolidated basis (together, the "Budget") for such fiscal year, setting forth
in detail reasonably satisfactory to the Agent the projected results of
operations of the Borrower and any Subsidiaries on a consolidated quarterly
basis, detailed Capital Expenditures plan and stating underlying assumptions and
accompanied by a written statement of an Authorized Representative certifying as
to the approval of such Budget by Borrower's board of directors.
SECTION 5.3.8. Such other information respecting the Business
Condition of the Borrower or any Subsidiaries as the Agent or any Lender may
from time to time reasonably request;
SECTION 5.3.9. Written notice of the fact and of the details
of any sale or transfer of any ownership interest in the Borrower or any
Subsidiary given promptly after the Borrower acquires knowledge thereof;
provided, however, that this clause shall not be deemed to constitute or imply
any consent to any such sale or transfer;
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SECTION 5.3.10. Prompt written notice of loss of any key
personnel or any Material Adverse Effect and an explanation thereof and of the
actions the Borrower and/or such Subsidiary propose to take with respect
thereto; and
SECTION 5.3.11. Written notice of the following events, as
soon as possible and in any event within 15 days after the Borrower knows or has
reason to know thereof: (i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan, or (ii) the institution of
proceedings or the taking or expected taking of any other action by PBGC or the
Borrower or any Commonly Controlled Entity to terminate, withdraw or partially
withdraw from any Plan and, with respect to any Multiemployer Plan, the
Reorganization (as defined in Section 4241 of ERISA) or Insolvency (as defined
in Section 4245 of ERISA) of such Multiemployer Plan and in addition to such
notice, deliver to the Agent whichever of the following may be applicable: (a)
an Officer's Certificate setting forth details as to such Reportable Event and
the action that the Borrower or Commonly Controlled Entity proposes to take with
respect thereto, together with a copy of any notice of such Reportable Event
that may be required to be filed with PBGC, or b) any notice delivered by PBGC
evidencing its intent to institute such proceedings or any notice to PBGC that
such Plan is to be terminated, as the case may be.
ARTICLE 6.
EVENTS OF DEFAULT
SECTION 6.1. EVENTS OF DEFAULT. The Borrower shall be in default under
each of the Financing Documents, upon the occurrence of any one or more of the
following events ("Events of Default"):
SECTION 6.1.1. If the Borrower shall fail to make due and
punctual payment of any principal, fees, interest and/or other amounts payable
under this Agreement as provided in any Note and/or in this Agreement when the
same is due and payable, whether at the due date thereof or at a date fixed for
prepayment or if the Borrower shall fail to make any such payment of fees,
interest, principal and/or any other amount under this Agreement and/or under
any Note on the date when such payment becomes due and payable by acceleration;
SECTION 6.1.2. If the Borrower or any Subsidiary shall make an
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or shall admit in writing its inability to pay its
debts as they become due or shall file a voluntary petition in bankruptcy, or
shall file any petition or answer seeking any reorganization, arrangement,
composition, adjustment, liquidation, dissolution or similar relief under the
present or any future federal bankruptcy laws or other applicable federal, state
or other statute, law or regulation, or shall seek or consent to or acquiesce in
the appointment of any trustee, receiver or liquidator of it or of all or any
substantial part of its properties, or if partnership or corporate action shall
be taken for the purpose of effecting any of the foregoing; or
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SECTION 6.1.3. To the extent not described in SECTION 6.1.2,
(i) if the Borrower or any Subsidiary shall be the subject of a bankruptcy
proceeding, or (ii) if any proceeding against any of them seeking any
reorganization, arrangement, composition, adjustment, liquidation, dissolution,
or similar relief under the present or any future federal bankruptcy law or
other applicable federal, foreign, state or other statute, law or regulation
shall be commenced, or (iii) if any trustee, receiver or liquidator of any of
them or of all or any substantial part of any or all of their properties shall
be appointed without their consent or acquiescence; provided that in any of the
cases described above in this SECTION 6.1.3, such proceeding or appointment
shall not be an Event of Default if the Borrower or the Subsidiary in question
shall cause such proceeding or appointment to be discharged, vacated, dismissed
or stayed within sixty (60) days after commencement thereof; or
SECTION 6.1.4. If final judgment or judgments aggregating more
than $500,000 shall be rendered against the Borrower or any Subsidiary and shall
remain undischarged, unstayed or unpaid for an aggregate of thirty (30) days
(whether or not consecutive) after entry thereof; or
SECTION 6.1.5. If the Borrower or any Subsidiary shall default
(after giving effect to any applicable grace period) in the due and punctual
payment of the principal of or interest on any Indebtedness exceeding in the
aggregate $500,000 (other than the Loans and the Letter of Credit Agreements),
or if any default shall have occurred and be continuing after any applicable
grace period under any mortgage, note or other agreement evidencing, securing or
providing for the creation of such Indebtedness, which results in the
acceleration of such Indebtedness or which permits, or with the giving of notice
would permit, any holder or holders of any such Indebtedness to accelerate the
stated maturity thereof; or
SECTION 6.1.6. If there shall be a default in the performance
of the Borrower's obligations under SECTION 5.1.3 (insofar as such Section
requires the preservation of the corporate existence of the Borrower or any
Subsidiary), any of SECTIONS 5.1.2, 5.1.10 through 5.1.12.2 or SECTION 5.2 of
this Agreement or under any covenant, representation or warranty contained in
any of the Security Documents for which no cure period is provided in such
Security Document; or
SECTION 6.1.7. If there shall be any Default in the
performance of any covenant or condition contained in this Agreement or in any
of the other Financing Documents to be observed or performed pursuant to the
terms hereof or any Financing Document, as the case may be, or to the extent
such Default would have a Material Adverse Effect, by the Borrower under any of
the Related Transaction Documents, other than a covenant or condition referred
to in any other subsection of this SECTION 6.1 and such Default shall continue
unremedied or unwaived, (i) in the case of any covenant or condition contained
in SECTION 5.3, for fifteen (15) Business Days, or (ii) in the case of any other
covenant or condition for which no other grace period is provided, for thirty
(30) days, or (iii) in the case of any other covenant or condition for which
another grace period is provided, for such grace period, or (iv) if any of the
representations and warranties made or deemed made by the Borrower to the Agent
and/or any Lender pursuant to any of the Financing Documents proves to have been
false or misleading in any material respect when made and such falseness or
misleading representation or warranty would be reasonably likely to have a
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material adverse effect on the Agent or any Lender or their rights and remedies
or a Material Adverse Effect; or
SECTION 6.1.8. If there shall be any attachment of any
deposits or other property of the Borrower and/or any Subsidiary in the
possession of any Lender or any attachment of any other property of the Borrower
and/or any Subsidiary in an amount exceeding $100,000, which shall not be
discharged, vacated or stayed within thirty (30) days of the date of such
attachment; or
SECTION 6.1.9. Any certification of the financial statements,
furnished to the Agent pursuant to SECTION 5.3.2, shall contain any
qualification; provided, however, that such qualifications will not be deemed an
Event of Default if in each case (i) such certification shall state that the
examination of the financial statements covered thereby was conducted in
accordance with generally accepted auditing standards, including but not limited
to all such tests of the accounting records as are considered necessary in the
circumstances by the independent certified public accountants preparing such
statements, (ii) such financial statements were prepared in accordance with GAAP
and (iii) such qualification does not involve the "going concern" status of the
entity being reported upon.
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ARTICLE 7.
REMEDIES OF LENDERS
Upon the occurrence and during the continuance of any one or more of
the Events of Default, the Agent, at the request of the Majority Lenders, shall,
by written notice to the Borrower, declare the obligation of the Lenders to make
or maintain the Loans to be terminated, whereupon the same and the Commitment
shall forthwith terminate, and the Agent, at the request of the Majority
Lenders, shall, by notice to the Borrower, declare the entire unpaid principal
amount of each Note and all fees and interest accrued and unpaid thereon and/or
under this Agreement, and/or any of the other Financing Documents and any and
all other Indebtedness under this Agreement, each Note and/or any of the other
Financing Documents to the Agent and/or any of the Lenders and/or to any holder
of all or any portion of each Note to be forthwith due and payable, whereupon
each Note, and all such accrued fees and interest and other such Indebtedness
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower; provided, however, that upon the occurrence of an Event of
Default under SECTIONS 6.1.2 or 6.1.3, all of the unpaid principal amount of
each Note, all fees and interest accrued and unpaid thereon and/or under this
Agreement and/or under any of the other Financing Documents and any and all
other such Indebtedness of the Borrower to any of the Lenders and/or to any such
holder shall thereupon be due and payable in full without any need for the Agent
and/or any Lender to make any such declaration or take any action and the
Lenders' obligations to make the Loans shall simultaneously terminate. The Agent
shall, in accordance with the votes of the Majority Lenders, exercise all
remedies on behalf of and for the account of each Lender and on behalf of its
respective Pro Rata Share of the Loans, its Note and Indebtedness of the
Borrower owing to it or any of the foregoing, including, without limitation, all
remedies available under or as a result of this Agreement, the Notes or any of
the other Financing Documents or any other document, instrument or agreement now
or hereafter securing any Note without any such exercise being deemed to modify
in any way the fact that each Lender shall be deemed a separate creditor of the
Borrower to the extent of its Note and Pro Rata Share of the Loans and any other
amounts payable to such Lender under this Agreement and/or any of the other
Financing Documents and the Agent shall be deemed a separate creditor of the
Borrower to the extent of any amounts owed by the Borrower to the Agent.
ARTICLE 8.
AGENT
SECTION 8.1. APPOINTMENT. The Agent is hereby appointed as Agent,
hereunder and each Lender hereby authorizes the Agent to act under the Financing
Documents as its Agent hereunder and thereunder, respectively. The Agent agrees
to act as such upon the express conditions contained in this Article 8. The
provisions of this Article 8 are solely for the benefit of the Agent, and,
except as expressly provided in SECTION 8.6, neither the Borrower nor any third
party shall have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under this Agreement
and the other Financing Documents to which the
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Agent is a party, the Agent shall act solely as Agent of the Lenders and does
not assume nor shall the Agent be deemed to have assumed any obligation towards
or relationship of agency or trust with or for the Borrower, any of the
Stockholders, any Affiliate or any Subsidiary.
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SECTION 8.2. POWERS; GENERAL IMMUNITY.
SECTION 8.2.1. DUTIES SPECIFIED. Each Lender irrevocably
authorizes the Agent to take such action on such Lender's behalf, including,
without limitation, to execute and deliver the Financing Documents to which the
Agent is a party and to exercise such powers hereunder and under the Financing
Documents and other instruments and agreements referred to herein as are
specifically delegated to the Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto. The Agent shall have only
those duties and responsibilities which are expressly specified in this
Agreement or in any of the Financing Documents and may perform such duties by or
through its agents or employees. The duties of the Agent shall be mechanical and
administrative in nature; and the Agent shall not have by reason of this
Agreement or any of the Financing Documents a fiduciary relationship in respect
of any Lender; and nothing in this Agreement or any of the Security Documents,
expressed or implied, is intended to or shall be so construed as to impose upon
the Agent any obligations in respect of this Agreement or any of the Financing
Documents or the other instruments and agreements referred to herein except as
expressly set forth herein or therein.
SECTION 8.2.2. NO RESPONSIBILITY FOR CERTAIN MATTERS. The
Agent shall not be responsible to any Lender for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of any of
the Financing Documents or any other document, instrument or agreement now or
hereafter executed in connection herewith or therewith, or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other statements,
instruments, reports, certificates or any other documents in connection herewith
or therewith by or on behalf of the Borrower, any of the Stockholders, and/or
any Subsidiary to the Agent or any Lender, or be required to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained herein or therein or as to the use
of the proceeds of the Loans or of the existence or possible existence of any
Default or Event of Default.
SECTION 8.2.3. EXCULPATORY PROVISIONS. Neither the Agent nor
any of its officers, directors, employees or agents shall be liable to any
Lender for any action taken or omitted hereunder or under any of the Financing
Documents, or in connection herewith or therewith unless caused by its or their
gross negligence or willful misconduct. If the Agent shall request instructions
from Lenders with respect to any action (including the failure to take an
action) in connection with any of the Financing Documents, the Agent shall be
entitled to refrain from taking such action unless and until the Agent, shall
have received instructions from the Majority Lenders (or all of the Lenders if
the action requires their consent). Without prejudice to the generality of the
foregoing, (i) the Agent shall be entitled to rely, and shall be fully protected
in relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for the Borrower, any
of the Stockholders, and/or any Subsidiary), accountants, experts and other
professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against the Agent as a result of the Agent acting or (where so
instructed) refraining from acting under any of the Financing Documents or the
other instruments and agreements referred to herein in accordance with the
instructions of the Majority Lenders (or all of the
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Lenders if the action requires their consent). The Agent shall be entitled to
refrain from exercising any power, discretion or authority vested in it under
any of the Financing Documents or the other instruments and agreements referred
to herein unless and until it has obtained the instructions of the Majority
Lenders (or all of the Lenders if the action requires their consent).
SECTION 8.2.4. AgENT ENTITLED TO ACT AS LENDER. The agency
hereby created shall in no way impair or affect any of the rights and powers of,
or impose any duties or obligations upon, Fleet National Bank in its individual
capacity as a Lender hereunder. With respect to its participation in the Loans
and the Commitment, Fleet National Bank shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
performing the duties and functions delegated to it hereunder, and the term
"Lender" or "Lenders" or any similar term shall, unless the context clearly
otherwise indicates, include Fleet National Bank in its individual capacity. The
Agent and its affiliates may accept deposits from, lend money to and generally
engage in any kind of banking, trust, financial advisory or other business with
the Borrower, any of the Stockholders, or any Affiliate or Subsidiary as if it
were not performing the duties specified herein, and may accept fees and other
consideration from the Borrower and/or any of such other Persons for services in
connection with this Agreement and otherwise without having to account for the
same to Lenders.
SECTION 8.3. REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR
APPRAISAL OF CREDITWORTHINESS. Each Lender represents and warrants that it has
made its own independent investigation of the financial condition and affairs of
the Borrower, the Stockholders and any Subsidiaries of any of them in connection
with the making of the Loans hereunder and has made and shall continue to make
its own appraisal of the creditworthiness of the Borrower, the Stockholders and
the Subsidiaries. The Agent shall not have any duty or responsibility, either
initially or on a continuing basis, to make any such investigation or any such
appraisal on behalf of Lenders or to provide any Lender with any credit or other
information with respect thereto whether coming into its possession before the
making of any Loan or any time or times thereafter (except for information
received by the Agent under SECTION 5.3 hereof which the Agent will promptly
forward to the Lenders), and the Agent shall further not have any responsibility
with respect to the accuracy of or the completeness of the information provided
to any of the Lenders.
SECTION 8.4. RIGHT TO INDEMNITY. Each Lender severally agrees to
indemnify the Agent proportionately to its Pro Rata Share of the Loans, to the
extent the Agent shall not have been reimbursed by or on behalf of the Borrower,
for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent in performing its duties hereunder or in any way relating to or arising
out of this Agreement and/or any of the other Financing Documents; PROVIDED that
no Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or willful misconduct.
If any indemnity furnished to the Agent for any purpose shall, in the opinion of
the Agent, be insufficient or become impaired, the Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished.
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SECTION 8.5. PAYEE OF NOTE TREATED AS OWNER. The Agent may deem and
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority or consent of any person or entity
who, at the time of making such request or giving such authority or consent, is
the holder of any Note shall be conclusive and binding on any subsequent holder,
transferee or assignee of that Note or of any Note or Notes issued in exchange
for such Note.
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SECTION 8.6. RESIGNATION BY AGENT.
SECTION 8.6.1. The Agent may resign from the performance of
all its functions and duties under the Financing Documents at any time by giving
30 days' prior written notice to the Borrower and each of the Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent, of
appointment pursuant to SECTIONS 8.6.2 and 8.6.3 below or as otherwise provided
below.
SECTION 8.6.2. Upon any such notice of resignation, the
Majority Lenders shall appoint a successor Agent, who shall be a Lender and, so
long as no Default or Event of Default exists and is continuing, who shall be
reasonably satisfactory to the Borrower and in any event shall be an
incorporated bank or trust company with a combined surplus and undivided capital
of at least Five Hundred Million Dollars ($500,000,000).
SECTION 8.6.3. If a successor Agent shall not have been so
appointed within said 30 day period, the resigning Agent, with the consent of
the Borrower, which shall not be unreasonably withheld or delayed, shall then
appoint a successor Agent, who shall be a Lender and who shall serve as the
Agent, until such time, if any, as the Majority Lenders, and so long as no
Default or Event of Default exists and is continuing, with the consent of the
Borrower, which shall not be unreasonably withheld or delayed, appoint a
successor Agent as provided above.
SECTION 8.6.4. If no successor Agent has been appointed
pursuant to SECTIONS 8.6.2 or 8.6.3 by the 40th day after the date such notice
of resignation was given by the resigning Agent, the resigning Agent's
resignation shall become effective and the Majority Lenders shall thereafter
perform all the duties of the resigning Agent under the Financing Documents
including without limitation directing the Borrower on how to submit Requests
and Interest Rate Elections and otherwise on administration of the Agent's
duties under the Financing Documents and the Borrower shall comply therewith so
long as such directions do not have a Material Adverse Effect on the Borrower or
any Subsidiary until such time, if any, as the Majority Lenders, and so long as
no Default or Event of Default exists and is continuing, with the consent of the
Borrower, which shall not be unreasonably withheld or delayed, appoint a
successor Agent, as provided above.
SECTION 8.7. SUCCESSOR AGENT. Upon the acceptance of any appointment as
the Agent hereunder by a successor Agent, that successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent and the retiring Agent, shall be discharged from its
duties and obligations as the Agent under the Financing Documents. After any
retiring Agent's resignation hereunder as the Agent the provisions of this
Article 8 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was the Agent under the Financing Documents.
ARTICLE 9.
MISCELLANEOUS
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SECTION 9.1. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
SECTION 9.1.1. Except to the extent prohibited by applicable
law, the Borrower irrevocably:
SECTION 9.1.1.1. agrees that any suit, action, or
other legal proceeding arising out of any of the Financing Documents or any of
the Loans may be brought in the courts of record of The Commonwealth of
Massachusetts or any other state(s) in which any of the Borrower's assets are
located or the courts of the United States located in The Commonwealth of
Massachusetts or any other state(s) in which any of the Borrower's assets are
located;
SECTION 9.1.1.2. consents to the jurisdiction of each
such court in any such suit, action or proceeding; and
SECTION 9.1.1.3. waives any objection which it may
have to the laying of venue of such suit, action or proceeding in any of such
courts.
For such time as any of the Indebtedness of the Borrower to any Lender
and/or the Agent shall be unpaid in whole or in part and/or the Commitment is in
effect, the Borrower irrevocably designates the registered agent or agent for
service of process of the Borrower as reflected in the records of the Secretary
of State of the State of Ohio as its registered agent, and, in the absence
thereof, the Secretary of State of the State of Ohio as its agent to accept and
acknowledge on its behalf service of any and all process in any such suit,
action or proceeding brought in any such court and agrees and consents that any
such service of process upon such agent and written notice of such service to
the Borrower by registered or certified mail shall be taken and held to be valid
personal service upon the Borrower regardless of where the Borrower shall then
be doing business and that any such service of process shall be of the same
force and validity as if service were made upon it according to the laws
governing the validity and requirements of such service in each such state and
waives any claim of lack of personal service or other error by reason of any
such service. Any notice, process, pleadings or other papers served upon the
aforesaid designated agent shall, within three (3) Business Days after such
service, be sent by the method provided therefor under SECTION 9.6 to the
Borrower at its address set forth in this Agreement. EACH OF THE PARTIES HERETO
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF ANY DISPUTE BETWEEN THE
BORROWER AND THE AGENT AND/OR THE LENDERS WITH RESPECT TO THE FINANCING
DOCUMENTS AND/OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY.
SECTION 9.2. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy
conferred upon or reserved to the Agent and/or the Lenders in any of the
Financing Documents is intended to be exclusive of any other right or remedy,
and every right and remedy shall, to the extent permitted by law, be cumulative
and in addition to every other right and remedy given under any of the Financing
Documents or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy under any of the Financing
Documents, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
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SECTION 9.3. DELAY OR OMISSION NOT WAIVER. No delay in exercising or
failure to exercise by the Agent and/or the Lenders of any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by any of the Financing
Documents or by law to the Agent and/or any of the Lenders may be exercised from
time to time, and as often as may be deemed expedient, by the Agent and/or any
of the Lenders.
SECTION 9.4. WAIVER OF STAY OR EXTENSION LAWS. The Borrower covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of any of
the Financing Documents; and the Borrower (to the extent that it may lawfully do
so) hereby expressly waives all benefit and advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Agent and/or any of the Lenders, but will suffer and
permit the execution of every such power as though no such law had been enacted,
except to the extent the Agent or any Lender is guilty of willful misconduct or
gross negligence.
SECTION 9.5. AMENDMENTS, ETC. No amendment, modification, termination,
or waiver of any provision of any of the Financing Documents nor consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be in a written notice given to the Borrower by the Agent and
consented to in writing by the Majority Lenders (or by the Agent acting alone if
any specific provision of this Agreement provides that the Agent, acting alone,
may grant such amendment, modification, termination, waiver or departure) and
the Agent shall give any such notice if the Majority Lenders so consent or
direct the Agent to do so; provided, however, that any such amendment,
modification, termination, waiver or consent shall require a written notice
given to the Borrower by the Agent and consented to in writing by all of the
Lenders if the effect thereof is to (i) change any of the provisions affecting
the interest rate on the Loans, (ii) extend or modify the Commitment, (iii)
discharge or release the Borrower from its obligation to repay all principal due
under the Loans or release any collateral or guaranty for the Loans, (iv) change
any Lender's Pro Rata Share of the Commitment or the Loans, (v) modify this
SECTION 9.5, (vi) change the definition of Majority Lenders, (vii) extend any
scheduled due date for payment of principal, interest or fees or (viii) permit
the Borrower to assign any of its rights under or interest in this Agreement,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. Any amendment or modification of
this Agreement must be signed by the Borrower, the Agent and at least all of the
Lenders consenting thereto who shall then hold the Pro Rata Shares of the Loans
required for such amendment or modification under this SECTION 9.5 and the Agent
shall sign any such amendment if such Lenders so consent or direct the Agent to
do so provided that any Lender dissenting therefrom shall be given an
opportunity to sign any such amendment or modification. Any amendment of any of
the Security Documents must be signed by each of the parties thereto. No notice
to or demand on the Borrower and no consent, waiver or departure from the terms
of this Agreement granted by the Agent and/or the Lenders in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances.
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SECTION 9.6. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands
and other communications provided for hereunder (other than those which, under
the terms of this Agreement, may be given by telephone, which shall be effective
when received verbally) shall be in writing (including telecopied communication)
and mailed (provided that in the case of items referred to in the next-to-last
sentence of SECTION 9.1 and the items set forth below as requiring a copy to
legal counsel for the Borrower, the Agent or a Lender, such items shall be
mailed by overnight courier for delivery the next Business Day), telecopied or
delivered to the applicable party at the addresses indicated below:
If to the Borrower:
CCAi Renaissance Centre
5800 Landerbrook Drive
Mayfield Heights, Ohio 44124
Attention: Nicholas A. Canitano
Telecopy: (440) 684-6700
With a copy to (if given pursuant to any of SECTIONS 5.3.1, 5.3.5,
5.3.9, 5.3.10 and 5.3.11):
Jones, Day, Reavis & Pogue
North Point
901 Lakeside Avenue
Cleveland, Ohio 44114
Attn: John Saada
Telecopy: (216) 579-0212
If to Fleet National Bank as the Agent and/or a Lender:
Fleet National Bank
Mailstop: MA OF D07A
One Federal Street
Boston, MA 02110
Attention: Thomas W. Davies, Senior Vice President
Telecopy: (617) 346-0151
With a copy to (if given pursuant to any of SECTIONS 5.3.1, 5.3.5,
5.3.9, 5.3.10 and 5.3.11)
Hinckley, Allen & Snyder
28 State Street
Boston, MA 02109
Attention: Malcolm Farmer III
Telecopy: (617) 345-9020
If to any other Lender, to the address set forth on EXHIBIT 1.9.
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or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party complying as to the delivery with the
terms of this Section. All such notices, requests, demands and other
communications shall be effective when received. Requests, certificates, other
items provided pursuant to SECTION 5.3 and other routine mailings or notices
need not be accompanied by a copy to legal counsel for the Lenders or the
Borrower.
SECTION 9.7. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on
demand the reasonable fees and out-of-pocket expenses of Messrs. Hinckley, Allen
& Snyder, counsel for the Agent and of any local counsel retained by the Agent
in connection with the preparation, execution, delivery and administration
(excluding expenses of any Lender's sale of a participation in or sale or
assignment of all or a portion of such Lender's Commitment or Loans other than
any such sale pursuant to SECTIONS 2.2.3 or 2.9.7) of the Financing Documents
and the Loans. The Borrower agrees to pay on demand all reasonable costs and
expenses (including without limitation reasonable attorneys' fees) incurred by
the Agent and/or any Lender, upon or after the occurrence and during the
continuance of any Default or Event of Default, if any, in connection with the
enforcement of any of the Financing Documents and any amendments, waivers, or
consents with respect thereto. In addition, the Borrower shall pay on demand any
and all stamp and other taxes and fees payable or determined to be payable in
connection with the execution and delivery of the Financing Documents, and
agrees to save the Lenders and the Agent harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes or fees, except those resulting from the Lenders' or Agent's
gross negligence or willful misconduct.
SECTION 9.8. PARTICIPATIONS. Subject to compliance with the proviso in
the first sentence of SECTION 9.11, any Lender may sell participations in all or
part of the Loans made by it and/or its Pro Rata Share of the Commitment or any
other interest herein to a financial institution having at least $500,000,000 of
assets, in which event the participant shall not have any rights under any of
the Financing Documents (the participant's rights against such Lender in respect
of that participation to be those set forth in the Agreement executed by such
Lender in favor of the participant relating thereto) and all amounts payable by
the Borrower hereunder or thereunder shall be determined as if such Lender had
not sold such participation. Such Lender may furnish any information concerning
the Borrower and any Subsidiary in the possession of such Lender from time to
time to participants (including prospective participants); provided that such
Lender and any participant comply with the proviso in SECTION 9.11.7 as if any
such participant was a Substituted Lender.
SECTION 9.9. BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Borrower, the Agent and the Lenders
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights hereunder or any interest herein without the
prior written consent of the Agent and the Lenders. This Agreement and all
covenants, representations and warranties made herein and/or in any of the other
Financing Documents shall survive the making of the Loans, the execution and
delivery of the Financing Documents and shall continue in effect so long as any
amounts payable under or in connection with any of the Financing Documents or
any other Indebtedness of the Borrower to the Agent and/or any Lender remains
unpaid or the Commitment remains outstanding; provided, however, that SECTIONS
2.2.3 and 9.7 shall, except to the extent agreed to in a pay-off letter by the
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Agent and the Lenders in their complete discretion, survive and remain in full
force and effect for 90 days following repayment in full of all amounts payable
under or in connection with all of the Financing Documents and any other such
Indebtedness.
SECTION 9.10. ACTUAL KNOWLEDGE. For purposes of this Agreement, neither
the Agent nor any Lender shall be deemed to have actual knowledge of any fact or
state of facts unless the senior loan officer or any other officer responsible
for the Borrower's account established pursuant to this Agreement at the Agent
or such Lender, shall, in fact, have actual knowledge of such fact or state of
facts or unless written notice of such fact shall have been received by the
Agent or such Lender in accordance with SECTION 9.6.
SECTION 9.11. SUBSTITUTIONS AND ASSIGNMENTS. Upon the request of any
Lender, the Agent and such Lender may assign all or any portion of its Pro Rata
Share of the Commitment and the Loans to a Federal Reserve Bank and may, subject
to the terms and conditions hereinafter set forth, take the actions set forth
below to substitute one or more financial institutions having at least
$500,000,000 in assets (a "Substituted Lender") as a Lender or Lenders hereunder
having an amount of the Loans as specified in the relevant Substitution
Agreement executed in connection therewith; provided that no Lender, Selling
Lender or Substituted Lender shall have a Pro Rata Share of the Commitment and
the Loans in the aggregate of less than 10% and Fleet National Bank and/or its
Affiliates shall retain for their own account at least 25% of the Commitment.
SECTION 9.11.1. In connection with any such substitution the
Substituted Lender and the Agent shall enter into a Substitution Agreement in
the form of EXHIBIT 9.11.1 hereto (a "Substitution Agreement") pursuant to which
such Substituted Lender shall be substituted for the Lender requesting the
substitution in question (any such Lender being hereinafter referred to as a
"Selling Lender") to the extent of the reduction in the Selling Lender's portion
of the Loans specified therein. In addition, such Substituted Lender shall
assume such of the obligations of each Selling Lender under the Financing
Documents as may be specified in such Substitution Agreement and this Agreement
shall be amended by execution and delivery of each Substitution Agreement to
include such Substituted Lender as a Lender for all purposes under the Financing
Documents and to substitute for the then existing EXHIBIT 1.9 to this Agreement
a new EXHIBIT 1.9 in the form of Schedule A to such Substitution Agreement
setting forth the portion of the Loans belonging to each Lender following
execution thereof. Each Lender and the Borrower hereby appoint the Agent as
Agent on its behalf to countersign and accept delivery of each Substitution
Agreement and, to the extent applicable, the provisions of Article 8 hereof
shall apply MUTATIS MUTANDIS with respect to such appointment and anything done
or omitted to be done by the Agent in pursuance thereof.
SECTION 9.11.2. Without prejudice to any other provision of
this Agreement, each Substituted Lender shall, by its execution of a
Substitution Agreement, agree that neither the Agent nor any Lender is any way
responsible for or makes any representation or warranty as to: (a) the accuracy
and/or completeness of any information supplied to such Substituted Lender in
connection therewith, (b) the financial condition, creditworthiness, affairs,
status or nature of the Borrower, any of the Stockholders and/or any of the
Subsidiaries or the observance by the Borrower, or any other party of any of its
obligations under this Agreement or any of the other
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Financing Documents or (c) the legality, validity, effectiveness, adequacy or
enforceability of any of the Financing Documents.
SECTION 9.11.3. The Agent shall be entitled to rely on any
Substitution Agreement delivered to it pursuant to this SECTION 9.11 which is
complete and regular on its face as to its contents and appears to be signed on
behalf of the Substituted Lender which is a party thereto, and the Agent shall
have no liability or responsibility to any party as a consequence of relying
thereon and acting in accordance with and countersigning any such Substitution
Agreement. The effective date of each Substitution Agreement shall be the date
specified as such therein and each Lender prior to such effective date shall,
for all purposes hereunder, be deemed to have and possess all of their
respective rights and obligations hereunder up to 12:00 o'clock Noon on the
effective date thereof.
SECTION 9.11.4. Upon delivery to the Agent of any Substitution
Agreement pursuant to and in accordance with this SECTION 9.11 and acceptance
thereof by the Agent (which delivery shall be evidenced and accepted exclusively
and conclusively by the Agent's countersignature thereon pursuant to the terms
hereof without which such Substitution Agreement shall be ineffective): (i)
except as provided hereunder and in SECTION 9.11.5, the respective rights of
each Selling Lender and the Borrower against each other under the Financing
Documents with respect to the portion of the Loans being assigned or delegated
shall be terminated and each Selling Lender and the Borrower shall each be
released from all further obligations to the other hereunder with respect
thereto (all such rights and obligations to be so terminated or released being
referred to in this SECTION 9.11 as "Discharged Rights and Obligations"); and
(ii) the Borrower and the Substituted Lender shall each acquire rights against
each other and assume obligations towards each other which differ from the
Discharged Rights and Obligations only in so far as the Borrower and the
Substituted Lender have assumed and/or acquired the same in place of the Selling
Lender in question; and (iii) the Agent, the Substituted Lender and the other
Lenders shall acquire the same rights and assume the same obligations between
themselves as they would have acquired and assumed had such Substituted Lender
been an original party to this Agreement as a Lender possessing the Discharged
Rights and Obligations acquired and/or assumed by it in consequence of the
delivery of such Substitution Agreement to the Agent.
SECTION 9.11.5. Discharged Rights and Obligations shall not
include, and there shall be no termination or release pursuant to this SECTION
9.11 of (i) any rights or obligations arising pursuant to any of the Financing
Documents in respect of the period or in respect of payments hereunder made
during the period prior to the effective date of the relevant Substitution
Agreement or, (ii) any rights or obligations relating to the payment of any
amount which has fallen due and not been paid hereunder prior to such effective
date or rights or obligations for the payment of interest, damages or other
amounts becoming due hereunder as a result of such nonpayment.
SECTION 9.11.6. With respect to any substitution of a
Substituted Lender taking place after the Closing Date, the Borrower shall issue
to such Substituted Lender and to such Selling Lender, new Notes reflecting the
inclusion of such Substituted Lender as a Lender and the reduction in the
respective Loans of such Selling Lender, such new Notes to be issued against
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receipt by the Borrower of the existing Notes of such Lender. The Selling Lender
or the Substituted Lender shall pay to the Agent for its own account an
assignment fee in the amount of $3,000 for each assignment hereunder, which
shall be payable at or before the effective date of the assignment.
SECTION 9.11.7. Each Lender may furnish to any financial
institution having at least $500,000,000 in assets which such Lender proposes to
make a Substituted Lender or to a Substituted Lender any information concerning
such Lender, the Borrower, Stockholders and any Subsidiary in the possession of
that Lender from time to time; provided that any Lender providing any
confidential information about the Borrower, any of the Stockholders and/or any
Subsidiary to any such financial institution shall first obtain such financial
institution's agreement to keep confidential any such confidential information.
SECTION 9.12. PAYMENTS PRO RATA. The Agent agrees that promptly after
its receipt of each payment from or on behalf of the Borrower in respect of any
obligations of the Borrower hereunder it shall distribute such payment to the
Lenders pro rata based upon their respective Pro Rata Shares, if any, of the
obligations with respect to which such payment was received. Each of the Lenders
agrees that, if it should receive any amount hereunder (whether by voluntary
payment, by realization upon security, by the exercise of the right of setoff
under SECTION 2.5.2 or otherwise or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Financing Documents, or
otherwise), which is applicable to the payment of the Obligations of a sum which
with respect to the related sum or sums received by other Lenders is in a
greater proportion than the total amount of such Obligation then owed and due to
such Lender bears to the total amount of such Obligation then owed and due to
all of the Lenders immediately prior to such receipt, except for any amounts
received pursuant to SECTION 2.2.3, then such Lender receiving such excess
payment shall purchase for cash without recourse or warranty from the other
Lenders an interest in the Obligations of the Borrower to such Lenders in such
amount as shall result in a proportional participation by all the Lenders in
such amount; provided further, however, that if all or any portion of such
excess amount is thereafter recovered from such Lender, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.
SECTION 9.13. INDEMNIFICATION. The Borrower irrevocably agrees to and
does hereby indemnify and hold harmless Agent and each of the Lenders, their
agents or employees and each Person, if any, who controls any of the Agent and
the Lenders within the meaning of Section 15 of the Securities Act of 1933, as
amended, and each and all and any of them (the "Indemnified Parties"), against
any and all losses, claims, actions, causes of action, damages or liabilities
(including any amount paid in settlement of any action, commenced or threatened
and any amount described in SECTION 8.4) (collectively, the "Damages"), joint or
several, to which they, or any of them, may become subject under statutory law
or at common law, and to reimburse the Indemnified Parties for any legal or
other out-of-pocket expenses reasonably incurred by it or them in connection
with investigating, preparing for or defending against any of the Indemnified
Parties, insofar as such losses, claims, damages, liabilities or actions arise
out of or are related to any act or omission of the Borrower and/or any
Subsidiary with respect to (i) the Related Transaction, as it may be modified
from time to time by any of the parties thereto, (ii) this Agreement, any of the
Notes, any of the Financing Documents, any of the Loans and/or any use
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made or proposed to be made with the proceeds of said Loans, (iii) any
acquisition or proposed acquisition or any other similar business combination or
proposed business combination by the Borrower and/or any of its Subsidiaries
and/or its Affiliates (whether by acquisition or exchange of capital stock or
other securities or by acquisition of all or substantially all of the assets of
any Person), (iv) any offering of securities by the Borrower and/or any
Subsidiary after the date hereof and/or in connection with the Securities and
Exchange Act of 1933 or (v) any failure to comply with any applicable federal,
state or foreign governmental law, rule, regulation, order or decree, including
without limitation, any Damages which arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact with respect to matters
relative to any of the foregoing contained in any document distributed in
connection therewith, or the omission or alleged omission to state in any of the
foregoing a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, but excluding
any Damages to the extent arising from or due to, as determined in a final
nonappealable judgment by a court of competent jurisdiction, the gross
negligence or willful misconduct of any of the Indemnified Parties; provided,
however, that notwithstanding the foregoing, no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort of otherwise) to the
Borrower or any Subsidiaries or to their respective security holders or
creditors except for direct (as opposed to consequential damages) determined in
a final nonappealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
In the case of an investigation, litigation or proceeding to which the indemnity
described in this paragraph applies, such indemnity shall be effective whether
or not such investigation, litigation or proceeding is brought by the Borrower
or any Subsidiaries or to their respective security holders or creditors or an
Indemnified Party or an Indemnified Party is otherwise a party thereto and
whether or not the Related Transaction and the transactions contemplated by the
Financing Documents are consummated.
Promptly upon receipt of notice of the commencement of any action, or
information as to any threatened action against any of the Indemnified Parties
in respect of which indemnity or reimbursement may be sought from the Borrower
on account of the agreement contained in this SECTION 9.13, notice shall be
given to the Borrower in writing of the commencement or threatening thereof,
together with a copy of all papers served, but the omission so to notify the
Borrower of any such action shall not release the Borrower from any liability
which it may have to such Indemnified Parties unless, and only to the extent
that, such omission materially prejudiced Borrower's ability to defend against
such action.
In case any such action shall be brought against any of the Indemnified
Parties, the Borrower shall be entitled to participate in (and, to the extent
that it shall wish, to select counsel and to direct) the defense thereof at its
own expense. Any of the Indemnified Parties shall have the right to employ its
or their own counsel in any case, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless the employment of such
counsel shall have been authorized in writing by the Borrower in connection with
the defense of such action or the Borrower shall not have employed counsel to
have charge of the defense of such action or such Indemnified Party shall have
received an opinion from an independent counsel that there may be defenses
available to it which are different from or additional to those available to the
Borrower (in which case the Borrower shall not have the right to direct the
defense of such
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action on behalf of such Indemnified Party), in any of which events the same
shall be borne by the Borrower. If any Indemnified Party settles any claim or
action with respect to which the Borrower has agreed to indemnify such
Indemnified Party pursuant to the terms hereof, the Borrower shall have no
liability pursuant to this SECTION 9.13 to such Indemnified Party with respect
to such claim or action unless the Borrower shall have consented in writing to
the terms of such settlement.
The provisions of SECTION 9.13 shall be effective only to the fullest
extent permitted by law. The provisions of this SECTION 9.13 shall continue in
effect and shall survive (among other events), until the applicable statute of
limitations has expired, any termination of this Agreement, foreclosure, a deed
in lieu transaction, payment and satisfaction of the Obligations of Borrower,
and release of any collateral for the Loans.
SECTION 9.14. GOVERNING LAW. This Agreement and each Note shall be
governed by, and construed in accordance with, the laws of The Commonwealth of
Massachusetts without regard to such state's conflict of laws rules.
SECTION 9.15. SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 9.16. HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 9.17. COUNTERPARTS. This Agreement may be executed and
delivered in any number of counterparts each of which shall be deemed an
original, and this Agreement shall be effective when at least one counterpart
hereof has been executed by each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument by their respective officers thereunto duly
authorized, as of April __, 1998.
In the presence of: Conley, Canitano & Assoc., Inc.
/s/ Jennifer W. Berlin By: /s/ Nicholas A. Canitano
- -------------------------- -----------------------------------
Nicholas A. Canitano
Chairman and CEO
In the presence of: Fleet National Bank, as Agent for the
Lenders and as a Lender
By: /s/ Thomas W. Davies
- -------------------------- -----------------------------------
Thomas W. Davies
Senior Vice President
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Exhibit 10.33
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT
SAP AMERICA, INC. - CONLEY, CANITANO & ASSOC., INC.
This R/3 National Implementation Partner Agreement (the "Agreement"), made this
2nd day of April, 1996, is by and between Conley, Canitano & Assoc., Inc.
("CCAi"), a Ohio corporation with offices at Signature Square, Suite 390, 25201
Chagrin Boulevard, Beachwood, Ohio 44122, and SAP America, Inc., ("SAP"), a
Delaware corporation with its principal place of business at 701 Lee Road, Suite
200. Wayne, Pennsylvania 19087.
RECITALS
A. WHEREAS CCAi and SAP, desiring to work together, in connection with the SAP
RI3 National Implementation Partner Program (as defined below), with the goal of
furthering the implementation of SAP's R/3 Software System;
B. WHEREAS SAP desires to enhance its capabilities to market and support SAP
Products through the use of CCAi's services; and
C. WHEREAS CCAi and SAP desire to formalize their relationship by entering into
this Agreement to undertake cooperative efforts for SAP R/3 Products within the
SAP CCAi Program.
NOW, THEREFORE, in reliance upon the foregoing recitals, intending to
be legally bound, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, CCAi and SAP agree as follows:
1. DEFINITIONS.
As used in this Agreement:
(a) The SAP- CCAi R/3 National Implementation Partner Program (the "R/3
NIP Program") means the business relationship set forth in this Agreement and
Appendix A to this Agreement.
(b) SOFTWARE. Software shall mean all SAP R/3 software, in whole or in
part, licensed by SAP AG or SAP America, Inc. in any release, version or
correction level and including all improvements, modifications, and extensions
thereto; whether in human or machine readable form.
(c) DOCUMENTATION. Documentation shall mean all human and machine
readable materials and copies of SAP manuals, program listings, flow charts,
logic diagrams, input and output forms, data models, specifications, and
instructions relating to the Software made available to CCAi under this
Agreement, or, generally, to SAP end-user licensees.
(d) R/3 PRODUCTS. R/3 Products shall mean the Software, Documentation
and related materials.
(e) "PROPRIETARY" INFORMATION" means; (i) with respect to SAP, the
Software and Documentation and any complete or partial copies thereof, the
Program Concepts, SAP licensors' Third-Party Database, any other third-party
software licensed with or as part of the Software, benchmark results, and any
other information identified or reasonably identifiable as confidential and
proprietary information of SAP, SAP AG, or their licensors ("SAP PROPRIETARY"
INFORMATION"); and (ii) with respect to CCAi, information identified or
reasonably
<PAGE> 2
identifiable as the confidential and proprietary information of CCAi ("CCAi
PROPRIETARY INFORMATION"); provided that, any part of the SAP or CCAi
Proprietary Information which: (a) is or becomes publicly available through no
act or failure of the other party; or (b) was or is rightfully acquired by the
other party from a source other than the disclosing party prior to receipt from
the disclosing party; or (c) becomes independently available to the other party
as a matter of right, shall be excluded.
(f) TERRITORY. Territory shall mean the United States of America.
2. AUTHORIZATION AND COMMITMENT OF RESOURCES.
(a) SAP hereby authorizes CCM to offer services as related to R/3
Products to potential users in the Territory under the terms of this Agreement
and any Appendices hereto. This authorization does not include maintenance of
the R/3 Products, physical installation of the R/3 Products, and training. This
authorization is non-exclusive and non-transferable.
(b) SAP in its sole discretion shall have the right to limit the
Territory, the R/3 Products, and the type of customers to be covered by this
Agreement, as SAP deems advisable in its sole discretion following reasonable
notice and consultation with CCAi. SAP may authorize other parties to offer
services as related to the R/3 Products in the Territory as it deems advisable
in its sole discretion.
(c) Services to be provided by either party to its clients and
customers are to be contracted for separately by each party, independently of
each other, unless otherwise expressly agreed upon in writing between SAP and
CCAi for that specific engagement. Each party shall be solely liable to its
customers and clients for its own services.
3. SERVICES AND RESPONSIBILITIES OF SAP.
(a) SAP shall provide to CCAi the Software under the terms of the
Appendix A. The Software shall only be used internally by CCAi solely for (i)
training of CCAi's personnel who are to work under this Agreement and (ii) for
demonstration of the Software to potential prospects upon the prior written
consent of SAP. The Software copy provided hereunder may not be used in the
operation of the business of CCAi or of any other entity or person.
(b) Should CCAi desire to license all or any part of the Software for
use in the operation of its own business, SAP will license it to CCAi under the
terms of SAP's standard end-user license agreement and at SAP's standard license
fees then in effect.
(c) With regard to training for the Software, SAP shall:
(i) invite CCAi, on a space available basis, at negotiated rates, to
SAP regularly scheduled alliance partner training. CCAi shall be responsible for
all related travel and living expenses;
(ii) provide access, on a space available basis, to CCAi for its
personnel participating in the R/3 NIP Program to customer training courses
generally offered by SAP, such training courses to be available at SAP's current
prices and terms;
(iii) provide marketing-oriented training courses to CCAi on a
cost-sharing basis to be agreed upon between the parties; and
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<PAGE> 3
(d) SAP shall otherwise inform and instruct CCAi as to R/3 Products and
provide guidance, as SAP deems necessary in its sole judgment, for CCAi to carry
out its responsibilities under this Agreement.
4. SERVICES AND RESPONSIBILITIES OF CCAi.
CCAi agrees that it shall:
(a) acquire as soon as possible and maintain a comprehensive and
fundamental knowledge of the R/3 Products and ensure that its employees are
technically qualified and sufficiently trained in SAP courses, including ongoing
training at SAP, and internally, to provide appropriate advice on the use of the
R/3 Products to clients and prospective users of the Software;
(b) use its best efforts to promote internally the R/3 Products and to
offer services as related to the R/3 Products throughout the Territory and
ensure that its employees who perform any services hereunder shall have the
proper skill, training and background to enable them to demonstrate the R/3
Products in a competent and professional manner, it being understood that CCAi
will have no liability to SAP in the event that it fails to successfully promote
R/3 Products and related services except as committed to in this Agreement;
(c) use its best efforts to meet the goals relative to the R/3 NIP
Program set out in CCAi's annual business plan, which is attached hereto as
Appendix B, and to update such business plan quarterly;
(d) ensure that it has the necessary number of qualified personnel
available according to CCAi's annual business plan attached as Appendix B;
(e) continually improve its training of all personnel as offered in
Section 3. who are or will be acting under this Agreement;
(f) use its best efforts to make the R/3 Products known to its
customers and potential customers; make every effort to see that the R/3
Products it suggests to each potential customer meet that entity's application
requirements; present the R/3 Products using only the product names given by
SAP; provide potential customers such marketing materials and nonconfidential
information necessary for evaluating the R/3 Products being considered (except
as limited by Section 10.(b) below); and, make no warranties, assurances or
statements concerning R/3 Product features that are misleading or materially
divergent from the descriptive literature supplied by SAP;
(g) not engage in any business activity, either directly or indirectly,
in any manner or capacity, in its own behalf or in behalf of any other person,
firm, corporation or organization, nor accept or continue any obligations which
may interfere with or impair its ability to perform any of its duties or
obligations under this Agreement;
(h) to the extent it conducts end-user training within its other
consultation activities, not offer or conduct end user training which competes
with official SAP courses offered by SAP or SAP AG or any other SAP-related
entity without prior written authorization from SAP;
(i) upon invitation by SAP to participate in SAP sponsored marketing
events by presenting speeches, providing information to potential prospects
(subject to Section 10.(b) below), and assisting, where requested, in the
organization and implementation of the events;
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<PAGE> 4
(j) expressly inform its customers that modifications and extensions to
the Software may impair or terminate the maintenance or support services
provided by SAP and may nullify the warranty;
(k) undertake to provide customers with release and version management
and migration support as related to the Software throughout the period of
productive installation of the Software; and
(l) dedicate a coordinator with an adequate support structure to act as
the central focal point to coordinate activities with SAP and designate a
contact person within the support group to be available to SAP who is authorized
to act on behalf of CCAi within the scope of this Agreement.
5. SERVICES AND RESPONSIBILITIES OF THE PARTIES.
To the extent reasonable under the circumstances, the parties shall
undertake the following cooperative activities with respect to identifying and
bringing to each other opportunities to promote the R/3 Products:
(a) Regularly inform each other about general market developments and
factors relating to the R/3 Products in the marketplace and current projects and
customer implementations in which CCAi is involved; this information shall be
designated and treated as Proprietary Information under Section 10. of this
Agreement;
(b) Furnish each other with appropriate information for support and
planning purposes; provided, however, that each party reserves the right, in its
sole discretion, to determine the content and availability of such information;
(c) Inform appropriate personnel in their respective organizations of
the existence of this Agreement;
(d) Subject to confidentiality constraints, endeavor to keep each other
appraised about new products and services;
(e) Exchange such other information and conduct such other activities
as the parties agree will carry out the intent of this Agreement.
6. GENERAL REPRESENTATIONS AND WARRANTIES.
Each party hereby represents and warrants to the other that:
(a) it has the right and power to enter into this Agreement;
(b) entering into this Agreement does not violate the terms and
conditions of any other agreement providing for cooperative marketing of
products of another entity, or any other legal obligations;
(c) the information which it may disclose to the other party, and the
process of disclosure and use of such information in accordance with the
provisions of this Agreement, will not violate any trade secret right,
trademark, issued United States patent, copyright or other proprietary right of
any third party;
(d) it holds good title or right, free and clear of all liens and
encumbrances, to the products and services which it is providing under this
Agreement;
(e) the products and services being provided under this Agreement do
not infringe any United States copyright, trademark, issued United States
patent, trade secret or other proprietary right of any third party; and 4
4
<PAGE> 5
(f) EXCEPT AS SPECIFICALLY SET FORTH HEREIN, NEITHER PARTY
MAKES ANY OTHER WARRANTY TO THE OTHER PARTY, EITHER EXPRESS, IMPLIED OR
STATUTORY, OR ARISING BY COURSE OF CONDUCT OR PERFORMANCE, CUSTOM OR USAGE IN
THE TRADE, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7. TERM AND TERMINATION.
(a) This Agreement shall have an initial term expiring on December 3 1,
1996, with an automatic renewal for one (1) additional year uniess, at least six
(6) weeks prior to the renewal date, either party gives written notice of its
intention not to renew this Agreement.
(b) At least four (4) months prior to any scheduled expiration date,
SAP will decide whether to continue or terminate the Agreement applying the
following criteria:
i. Customer satisfaction with the projects conducted by
CCAi, with special regard to the length and cost of
the project, the project objectives met by CCAi, and
the achievements and professionalism of CCAi
employees;
ii. Number and scope of R/3 projects executed;
iii. Thoroughness of employee training;
iv. Accomplishment of goals set herein and in the annual
business plans; and
v. Level of effective communication with SAP.
The procedures for such audits and the weights to be assigned each
criterion will be provided in writing by SAP to CCAi prior to the first such
audit.
On the basis of this evaluation and subsequent consultations with CCAi,
CCAi agrees that SAP, in its sole discretion, may choose to terminate this
Agreement six (6) weeks prior to the next scheduled expiration date.
(c) Notwithstanding the above, either party may terminate this
Agreement:
(i) In accordance with the provisions of Section 7.(a) and (b) at
the end of a term;
(ii) Upon a determination by SAP that CCAi is offering potential
customers of R/3 Products other products that are in competition with the R/3
Products; CCAi expressly waives any claim to damages arising from termination on
this ground;
(iii) Upon thirty (30) days prior written notice in the event of
material breach of a material provision of this Agreement by the other party,
except that the party in breach shall have the right, during that 30-day period,
to cure the claimed breach or default; or
(iv) Immediately upon prior written notice if there is: (a) a
consolidation, merger or reorganization of the other party with or into another
corporation or entity; (b) creation of a new majority
5
<PAGE> 6
interest in, or change in majority ownership of, the other party; (c) a sale of
all or substantially all of the assets of the other party; or (d) a breach of
the confidentiality provisions as specified in Section 10. below.
(d) Upon any termination of this Agreement:
(i) each party shall, within ten (10) business days after
termination is effective, return to the other party or dispose of as mutually
agreed all advertising materials and other properties, including all Proprietary
Information, furnished to it by the other party pursuant to this Agreement and
so certify in writing;
(ii) within ten (10) business days after termination is effective,
CCAi shall promptly return R/3 Products and related materials and all copies
thereof to SAP, or as the case may be, delete all R/3 Products and Proprietary
Information from CCAi's hardware, including binary or other resulting files (if
any), and erase all R/3 Products and Proprietary Information from any storage
media before discarding such, and so certify in writing;
(iii) CCAi shall not hold itself out as a participant in the R/3 NIP
Program; and
(iv) both parties shall cease acting in a manner that would suggest
any continuing relationship between the parties regarding SAP's Software, and
shall cease all display and advertising contemplated under this Agreement.
(e) Termination of this Agreement shall not impact upon any active
engagements in process prior to such termination.
(f) The following provisions of this Agreement shall in all events
survive its termination: Section 6. (General Representations and Warranties); 7.
(Provisions Applicable to Termination); 8. (Relationship of Parties); 10.
(Confidentiality); and 11. (General Provisions).
(g) Termination of this Agreement shall result in termination of
Appendix A, R/3 Software Training and Demonstration License.
8. RELATIONSHIP OF PARTIES.
(a) CCAi and SAP are independent contractors acting for their own
account, and neither party or its employees are authorized to make any
representation otherwise or any commitment on the other party's behalf unless
previously authorized by such party in writing. Neither party is responsible to
any end user for the quality of services or products provided by the other
party. Each party is solely responsible for establishing the prices for its own
products.
(b) Neither party is a distributor or agent for the products or
services of the other. Each party's products and services shall be available to
a prospective client only through separate agreement between that party and the
client. Each party shall independently develop and price its respective products
and services offered between such party and a client.
(c) It is understood and agreed upon by the parties hereto, that
during the term of this Agreement, the use of the terms "joint venturer,"
"co-venturer," "partner," "marketing partner," "partnership" or similar terms to
be used to describe the relationship between the parties under this Agreement
refer to the spirit of cooperation between CCAi and SAP, and do not describe, or
expressly or by implication create, a legal partnership or joint venture, or any
responsibility by one party for the actions of the other.
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<PAGE> 7
9. INTELLECTUAL PROPERTY RIGHTS.
(a) The name "R/3 NTP Program" shall be used by the parties only
jointly and pursuant to the terms of this Agreement; and upon any termination of
this Agreement, neither SAP nor CCAi may use the name in conjunction with the
parties' respective corporate names; however, SAP shall have the right to use
the name with any other parties who choose to participate in the SAP R/3 NIP
Programs.
(b) Nothing in this Agreement grants to either party the right to use
or display any other names, trademarks, trade names, logos or service marks of
the other party, except to identify the products and associated services and
deliverables of the other party to the extent obligations are undertaken
pursuant to this Agreement. Except in the case of correspondence and proposals
issued in the ordinary course of business, each party agrees to submit to the
other party for written prepublication approval, any materials which may use or
display any name, trademark, trade name, logo or service mark of the other
party. Notwithstanding the foregoing, nothing contained in this Agreement shall
affect either party's rights and obligations to use any trademarks, service
marks or proprietary words or symbols of the other party to properly identify
the goods or services of such other party to the extent otherwise permitted by
applicable law or by written agreement between the parties.
(c) CCAi herein acknowledges that title to all intellectual property
rights, including patent, copyright, trademark, and trade secret rights in R/3
Products, including any modifications, enhancements, versions, releases, or
correction levels thereto, program concepts including literal or nonliteral
structure, sequence and organization, training materials, literature, and other
SAP related materials shall remain exclusively with SAP AG, Walldort, Germany,
or SAP as the case may be, and that by virtue of this Agreement, no such rights
have been transferred, licensed, granted, assigned or acquired by CCAi from SAP
AG or SAP.
10. CONFIDENTIALITY.
(a) Each party acknowledges that, during the term of this Agreement, it
will receive Proprietary Information from the other party. Neither party shall
disclose, provide or otherwise make available to any third party (including any
prospective client) any Proprietary Information of the other party and shall
utilize such Proprietary Information on an internal organization need-to-know
basis only to the extent necessary to effect the provisions and purposes of, and
as expressly contemplated under the terms of, this Agreement and for no other
purpose.
(b) Each party agrees that it will protect the Proprietary Information
of the other party through the exercise of no less protection and care than it
customarily uses in safeguarding its own confidential and proprietary
information which it desires to retain in confidence, but always at least a
reasonable degree of care. Disclosure of the other party's Proprietary
Information to employees shall only be made on a need-to-know basis. Further,
each party shall take reasonable steps to advise their employees of the
confidential nature of Proprietary Information, to ensure by agreement or
otherwise that such employees are prohibited from copying, revealing or using
such Proprietary Information except to the extent required to carry out the
parties' obligations under this Agreement, and to require that Proprietary
Information be kept in a secure location. Each party will promptly notify the
other if it believes that Proprietary Information has lost its status as such.
(c) The foregoing shall not prohibit or limit a party's use of
information, including but not limited to ideas, concepts, know how, techniques
and methodologies, which: (i) is or become publicly available through no act of
failure to act of the receiving party; (ii) rightfully obtained by the receiving
party without restriction; (iii) is released by the receiving party in response
to lawful legal process and with prior notice to the other party; (iv) is
rightfully already known to or is independently developed by the receiving party
prior to disclosure.
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(d) Notwithstanding the foregoing, each party hereto understands that
they may become familiar with each other's services and that CCAi may become
familiar with SAP's R/3 Products, specifically its proprietary software.
Accordingly, CCAi agrees, with respect to the R/3 Products (including all
program concepts therein) SAP's training materials, literature and other SAP
related materials, that as the case may be, CCAi shall not copy, translate,
disassemble or decompile, nor create or attempt to create by reverse engineering
or otherwise the source code from the object code, or to use such items to
create derivative works, unless so authorized in advance, in writing, by SAP.
All updates, replacements, revisions, enhancements, additions, or conversions to
such SAP items specified above shall be subject to the provisions as stated
herein.
11. GENERAL PROVISIONS
(a) NON-SOLICITATION. During the term of this Agreement and for one (1)
year after its termination, SAP and CCAi agree that neither shall directly or
indirectly solicit for employment any staff of the other party who have been
directly and substantively involved in performance under this Agreement.
(b) NON-EXCLUSIVITY. Nothing in this Agreement shall limit or restrict
either party from entering into or continuing any agreement or other arrangement
with any other party, whether similar to this Agreement in nature or scope.
Moreover, each party shall remain free to provide products and services to any
client or prospective client so long as the terms of this Agreement are not
violated.
(c) NOTICES. All notices required to be given under this Agreement
shall be sent by certified mail to:
CCA
25201 Chagrin Blvd.
-------------------------------------
Beachwood, OH 44112
-------------------------------------
Attention: Kenneth L Conley
---------------------------
Partner
---------------------------
and to
SAP America, Inc
Attn: Contracts Department
701 Lee Road, Suite 200
Wayne, PA 19087
(d) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without reference
to its choice of law rules. To the extent that the parties are permitted under
this Agreement to seek judicial remedies, each party hereby consents to the
jurisdiction of the federal and state courts within the Commonwealth of
Pennsylvania to resolve any and all such matters.
(e) MERGER. This Agreement and any Appendices hereto constitute the
entire agreement between the parties with respect to the matters set forth
herein. All prior agreements, oral or otherwise, between the parties and
relating to the subject matter contained herein, are hereby superseded,
provided, however, that in the event CCAi executed an Alliance Agreement and
related License and Maintenance Agreement for SAP's R/2 Software Systems, such
agreement shall continue pursuant to its terms.
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(f) AMENDMENTS. This Agreement may not be modified except by a writing
signed by both parties.
(g) SEVERABILITY. If any of the provisions of this Agreement are held
invalid, such provisions shall be deemed severed and the remaining provisions
shall remain in full force and effect.
(h) NON-ASSIGNMENT. This Agreement may not be assigned or transferred,
nor may rights or obligations be delegated, without the prior written agreement
of the parties; notwithstanding the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties of this Agreement, as well as their
respective permitted successors and assigns.
(i) WAIVER. Failure of any party to enforce, in any one or more
instances, any of the terms or conditions of this Agreement shall not be
construed as a waiver of the future performance of any such terms or conditions.
(j) LIMITATION OF LIABILITY.
(i) SAP AND ITS LICENSORS SHALL NOT BE LIABLE TO CCAI OR THIRD
PARTIES FOR ANY LOSS OF BUSINESS, LOSS OF PROFITS, LOSS OF DATA OR COMPUTER
MALFUNCTION, OR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES, EVEN IF SAP HAS BEEN APPRISED OF THE POSSIBILITY THEREOF; OR
(ii) in no event shall the liability of SAP under this Agreement,
for any reason whatsoever, whether in contract, tort or statute (including,
without limitation, negligence), or otherwise, exceed $1,000,000.00; provided,
however, that this limitation shall not apply to claims for personal injury
caused by SAP's gross negligence or willful misconduct.
(k) NO ENDORSEMENT. Execution of this Agreement does not, and shall not
be construed to be, an endorsement by either party of the products or services
of the other party.
(l) PRESS RELEASES AND PUBLICITY. Any news release, public
announcement, advertisement, or publicity proposed to be released by either
party concerning the R/3 NIP Program or any matters arising under this Agreement
shall be subject to the approval of the designated representatives of both
parties.
(m) DISPUTE RESOLUTION PROCEDURES.
(i) Any dispute, disagreement, claim or controversy between the
parties arising under or relating to this Agreement or the parties' performance
thereunder (the "Disputed Matter") which cannot be resolved by consultations
between the senior executives of CCAI and SAP shall be resolved by binding
arbitration, according to the then prevailing Commercial Arbitration Rules of
the American Arbitration Association, before a panel of three arbitrators. Each
party will select one arbitrator, and the third arbitrator will be selected by
the party-selected arbitrators. Any such arbitration shall be held in the City
of Philadelphia, Pennsylvania. The parties will share the cost of the
arbitration equally, subject to any final apportionment by the arbitrators. The
arbitrators will apply Pennsylvania law, without reference to its choice of law
rules, in resolving the Disputed Matter. The decision of the arbitrators will be
final and conclusive on the parties, and each party consents that judgment upon
an award rendered by the arbitrators may be entered in any court of competent
jurisdiction.
(ii) Neither party shall institute any action or proceeding against
the other in any court concerning any Disputed Matter that is or could be the
subject of a claim or proceeding under this Section;
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provided, however, that if a party believes in good faith that a temporary or
preliminary injunction is necessary to preserve the status quo or otherwise to
avoid irreparable harm to such party, such as in the event of a breach of
Section 9. or Section 10., such party shall not be precluded by this Section
from seeking such injunctive relief from a court of competent jurisdiction.
(iii) Pending the resolution of a Disputed Matter, to the extent
feasible, both parties shall continue their performance under this Agreement.
IN WITNESS WHEREOF and intending to be legally bound, the
parties have caused this Agreement to
be signed by their authorized representatives as of the date shown
above.
Conley, Canitano & Assoc, Inc SAP America, Inc
(CCAi) (SAP)
By: /s/ Kenneth L. Conley By: /s/ Allen R. Brault
------------------------------ ---------------------------------
Printed Printed
Name: Kenneth L. Conley Name: Allen R. Brault
---------------------------- -------------------------------
Title: Partner Title: Director
--------------------------- ------------------------------
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Appendix 1 to
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT ("Agreement")
SAP AMERICA, INC. ("SAP") - CONLEY, CANITANO & ASSOC., INC. ("CCAi")
EFFECTIVE APRIL 2, 1996
ISSUED APRIL 2,1996
This Appendix is hereby annexed to and made a part of the Agreement specified
above. In each instance in which provisions of this Appendix contradict or are
inconsistent with the provisions of the Agreement, the provisions of this
Appendix shall prevail and govern, and the contradicted or inconsistent
provisions of the Agreement shall be deemed amended accordingly.
Designated Unit(s) to be identified by CCAi to SAP in writing.
Type/Model No. : DATA General
Serial No.: CCAi
Designated Site: 25201 Chagrin Blvd.
Beachwood, OH 44112
I
1. Software licensed to CCAi pursuant to the above-referenced Agreement
consists of the following SAP functional modules which are to be installed
on the above referenced Designated Unit(s) at the specified Designated
Site. For the prices set forth herein, CCAi is authorized to have fifty
(50) Named Users to access the Software, as per the terms of the Agreement,
at such Designated Site on such Designated Unit(s).
<TABLE>
<CAPTION>
Quantity
Denote "X" Licensed
<S> <C> <C>
FI Financial Accting/Asset Accting X
----------
TR-CM Cash Management X
----------
IM Investment Management X
----------
CO Controlling X
----------
EC Enterprise Controlling X
----------
PS Project System X
----------
MM Material Management X
----------
PM Plant Maintenance X
----------
SD Sales and Distribution X
----------
PP Production Planning X
----------
DW ABAP/4 Development Workbench X 1
---------- ----------
BC Basis Sys W/ ADABASD Database ($270 per user)
----------
BC Basis Sys W/ Oracle 7 Runtime Db X ($270 per user)
----------
PA Personnel Administration and Payroll
----------
PD Personnel Planning and Development
----------
BC/DS R/3 Data Model in SAP Format ($5,000 ea)
---------- ----------
SAP R/3 Analyzer ($13,500 per site)
---------- ----------
</TABLE>
<PAGE> 12
2. The License Support Fee for the Software set forth in item 1 above is USD
15,000. The annual license fee will be invoiced April 15, 1996 and is due
and payable net thirty (30) days. The Annual License Fee will be invoiced
and is due and payable annually thereafter.
3. Delivery by SAP of the Software is estimated to take place in April, 1996.
4. Delivery of one (1) set of CD-ROM Documentation, in the English language,
to the above-specified Designated Site shall be initiated upon execution of
this Appendix by the parties hereto. Additional Documentation for the
above-specified Designated Site may be ordered by CCAi at SAP's then
current prices in effect.
5. Software licensed hereunder currently requires a Third-Party Database,
which has been licensed hereunder as a runtime version at a license fee of
USD 13,500 ($270 per user). Such runtime version shall be limited to use by
CCAi for the purpose of running the Software licensed hereunder, and
utilizing SAP tools to modify and/or extend the Software as well as writing
in-house developments. Such Modification/Extension rights only apply to
Non-Productive Use of the Software. The license fee for the Third-Party
Database will be invoiced CCAi and is due and payable CCAi.
In the event CCAi uses the licensed database other than as specified above,
a Full License, including programming tools provided through such
third-party supplier can be licensed directly from a third party database
supplier, or as mutually agreed upon in writing by CCAi and SAP, the
runtime version licensed hereunder can be upgraded at agreed upon fees.
6. The Non-Productive Use copy of the Software licensed hereunder requires a
license keycode. The license keycodes will be issued by SAP AG within four
(4) weeks from the date of installation of the Software on the Designated
Unit. The required form to receive the license keycodes from SAP AG must be
executed by Licensee and faxed to SAP AG within the four (4) week period
following installation of the Software. The applicable form and fax number
will be included in each installation kit provided to CCAi upon delivery of
the Software. In the event that CCAi subsequently changes Designated Units
for Use of the licensed Software must be re-issued license keycodes for
each respective copy of the licensed Software. Failure of CCAi to obtain
necessary license keycodes for the licensed Software within four (4) weeks
of installation of such Software, will cause the Software to have limited
User access until such time as the license keycodes are issued.
7. The Software, including all third-party software, is not specifically
developed or licensed hereunder for Use in any direct and active operations
of any equipment in any nuclear, aviation, mass transit, or medical
applications, or in any other inherently dangerous applications. The
parties hereto agree that Use of the Software and third-party software for
financial application purposes or such other administrative purposes shall
not be deemed inherently dangerous applications if such Use does not affect
the operations or maintenance of such equipment. SAP, SAP AG, and its
licensors shall not be liable for any claims or damages arising from
inherently dangerous Use of the Software and/or third-party software
licensed hereunder.
8. In the event Licensee is utilizing EDI functionality, Licensee is
responsible to license or purchase a required third-party EDI
translator/interpreter. Such EDI translator/interpreter shall be license or
provided directly form a third party vendor to Licensee.
9. In the event Optional Packages are license by Licensee hereunder, all such
Optional Package Software (excluding TR-TM Treasury Management) must be
license at a minimum quantity of one (1) per Designated Site. Such
quantities of Optional Packages as well as ABAP/4 Workbenches are as
specified in item 1. above. The R/3 Analyzer may be used on one (1) or more
Personal Computers (PC's) per Designated Site, but may only be stored in
the hard disks and PC's which are part of the respective Software
installation. One (1) set of data carrier for the RI3 Analyzer will be
supplied by SAP. Licensee is not permitted to copy the RI3 Analyzer
reference model or use it to create new models. In order to copy the
reference model or create new models with the R/3 Analyzer, additional
Software must be licensed from a third-party vendor approved by SAP AG.
10. The validity of this Appendix will expire thirty (30) days from its issue
date, unless sooner executed by the parties hereto, or extended in writing
by SAP.
2
<PAGE> 13
11. Upon execution of this Appendix, Licensee's and SAP's R/3 National
Implementation Partner Agreement ("Prior Agreement") and related Appendix,
effective January 13,1995, shall be deemed terminated in their entirety.
All Software, Documentation, and Confidential Information for the Software
license hereunder, will remain in Licensee's possession and be considered
licensed to Licensee pursuant to the terms and conditions as contained
herein, and the Agreement to which this Appendix is a part. All Software,
Documentation, and Confidential Information provided to Licensee under the
Prior Agreement but not licensed hereunder shall be deleted/returned to SAP
in accordance with Section 7(d) of the Prior Agreement.
Accepted by Accepted by:
SAP America, Inc Conley, Canitano & Assoc, Inc
(SAP) (CCAi)
By: /s/ Allen R. Brault By: /s/ Kenneth L. Conley
--------------------------------- -------------------------------------
Title: Director Title: Partner
------------------------------ ----------------------------------
Date: 6/24/96 Date: 5/2/96
------------------------------- -----------------------------------
<PAGE> 14
APPENDIX A TO
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT
SAP AMERICA, INC. - CONLEY, CANETANO & ASSOC., INC.
R/3 SOFTWARE TRAINING AND DEMONSTRATION LICENSE ("LICENSE")
THIS Agreement is effective this 2nd day of April, 1996.
WHEREAS, SAP America, Inc., a Delaware corporation with offices at 701 Lee Road,
Suite 200, Wayne, Pennsylvania 19087 ("SAP") owns rights in the United States to
certain software for operation and management of businesses;
WHEREAS, Conley, Canitano & Assoc., Inc. ("CCAi"), a Ohio corporation with
offices at Signature Square, Suite 390, 25201 Chagrin Boulevard, Beachwood, Ohio
44122 desires a license for trial and demonstration purposes only; and
WHEREAS, SAP desires to grant to CCAi, and CCAi desires to license from SAP,
such software upon the terms and conditions hereinafter set forth;
IT IS THEREFORE AGREED AS FOLLOWS:
1. DEFINITIONS.
1.1. SOFTWARE. Software shall include one 50-Named User package of the software
components identified in Appendix "1" hereto or as otherwise mutually agreed
upon in writing between SAP and CCAi, in machine readable and/or printed form,
furnished to CCAi by or on behalf of SAP and any full or partial copies of any
of the foregoing.
1.2. NAMED USERS. Means that number of individuals who by password allocation
are authorized to log on to the Software and execute Software transactions.
Named Users may also be referred to as "Operational Users".
1.3. DOCUMENTATION. Means SAP's standard documentation, in human- or
machine-readable format, in any medium, which is delivered to CCAi under this
Agreement, including SAP'S standard manuals, program listings, data models, flow
charts, logic diagrams, input and output forms, functional specifications,
instructions, and complete or partial copies of the foregoing.
1.4. TERRITORY. Territory shall mean the United States of America.
1.5. DESIGNATED UNIT(S). Designated Unit(s) means each individual computer
located at a Designated Site in which the Software and Third-Party Database are
installed. Each Designated Unit must be approved by SAP as compatible with the
Software and must be identified as specified in Appendices hereto.
1.6. DESIGNATED SITE(S). Designated Site(s) means the location(s) controlled by
CCAi and listed in Appendix "1" to this Agreement.
1.7. PROPRIETARY INFORMATION. Proprietary Information means: (i) with respect to
SAP, the Software and Documentation and any complete or partial copies thereof,
the Program Concepts, SAP licensors' Third-Party Database, any other third-party
software licensed with or as part of the Software, benchmark results, and any
other information identified or reasonably identifiable as confidential and
proprietary information of SAP, SAP AG, or their licensors ("SAP PROPRIETARY
INFORMATION"); and (ii) with respect to CCAi, information identified or
reasonably identifiable as the confidential and proprietary information of CCAi
("CCAi PROPRIETARY INFORMATION"), PROVIDED that, any part of the SAP or CCAi
Proprietary Information which: (a) is or becomes publicly available through no
act or failure of the other party; or (b) was or is rightfully acquired by the
other party from a source other than the disclosing party prior to receipt from
the disclosing party; or (C) becomes independently available to the other party
as a matter of right, shall be excluded.
<PAGE> 15
1.8. PROGRAM CONCEPTS. Program Concepts are the techniques and ideas embodied
and expressed in the Software, including the structure, sequence, and
organization of the Software.
1.9. MODIFICATION. A Modification is a change in the Software in which there is
a change in the source code.
1.10. EXTENSION. An Extension is an addition to the Software which does not
require a Modification of the Software.
1.11. NON-PRODUCTIVE USE. Non-productive Use is the use of the Software for
demonstration or testing purposes.
1.12. PRODUCTIVE USE. Productive Use means the use of the Software in the
operation of CCAi's business.
1.13 THIRD-PARTY DATABASE. Third -Party Database means a third-party proprietary
database described in Section 2.6.
2. LICENSE GRANT.
2.1. SCOPE OF LICENSE. Subject to the terms and conditions and the accuracy of
CCAI's representations hereinafter set forth, SAP grants to CCAi a
non-exclusive, non-transferable license to the Software, Documentation and Third
Party Database specified in Appendix "1'. hereto or portions thereof within the
Territory solely for non-productive testing, training and demonstration purposes
as contemplated by this Agreement. No additional copies of the Software or any
part thereof may be made by CCAi without the express written consent of SAP.
2.2. RESTRICTIONS ON USE. CCAi agrees to use the Software, Documentation and
Third Party Database or other SAP Proprietary Information provided hereunder
solely for testing, trial and demonstration purposes in furtherance of this
Agreement. CCAi will not use the Software, Documentation, Third Party Database
or other SAP Proprietary Information in connection with running its own business
or the business of any firm, person or organization. Subject to the provisions
of this Section 2.2, CCAi shall use the Software exclusively on the Designated
Unit(s) identified in Appendices hereto.
2.3. SOURCE CODE. In the event source code is provided to CCAi hereunder, SAP,
in its sole discretion, reserves the right to delete, or to require the deletion
of, such source code and all copies thereof from CCAi's Designated Unit(s) and
the return of all source code on non-magnetic media. Source code shall not be
shown to any person not an employee of CCAi.
2.4. TRANSFER OF SOFTWARE. CCAi may transfer the Software and Third-Party
Database from one Designated Unit to another at a licensed Designated Site upon
prior written notice to SAP. The Software and Third-Party Database must be
promptly deleted in their entirety from the Designated Unit no longer in use and
from each archival and back-up copy for that Designated Unit.
2.5. AUDIT. Dunng normal business hours and at any time during which the
Software, Documentation, Third-Party Database, and other SAP Proprietary
Information are being utilized, SAP or its authorized representative or
licensors, shall have the right, upon reasonable advance notice, to audit and
inspect CCAi's utilization of such items, in order to verify compliance with the
terms of this Agreement.
2.6. RUNTIME LICENSE FOR APPLICATION DATABASE. The Software requires a
Third-Party Database which may be licensed as an SAP R/3 component (the "RUNTIME
LICENSE") or directly as a full license ("FULL LICENSE") from a third-party
database licensor approved by SAP. CCAi shall certify in an Appendix to this
Agreement either that it will use and maintain the Runtime License from SAP or
that it has obtained and will maintain a Full License from such a licensor. This
Agreement shall terminate automatically if; for any reason: (i) Licensee fails
to obtain or maintain a Runtime License or Full License; or (ii) Licensee's
Runtime License or Full License terminates prior to the termination of this
Agreement. SAP makes no representations or warranties as to the Third-Party
Database or its operation.
2
<PAGE> 16
3. DELIVERY.
3.1. DELIVERED COPY. One copy of the Software shall be delivered in machine
readable format and one (1) copy of the Documentation in CD ROM format.
3.2. INSTALLATION. CCAi shall be responsible for installation of the Software.
At CCAi request, and on terms to be agreed upon, SAP will install the Software.
It is CCAi responsibility, in coordination with SAP, to configure and install
required disk storage systems and network software prior to installation.
4. PRICE AND PAYMENT.
4.1. LICENSE FEE. The License fee for the Software licensed hereunder shall be
as set forth in the applicable Appendix. Additional copies may be delivered upon
written agreement by CCAi and SAP and will be provided at SAP's then current
prices in effect.
4.2. ADDITIONAL FEES. Any fees and charges set forth in this Agreement, in any
Appendices to this Agreement, and in SAP's current List of Prices do not include
federal, state, or local sales, use, excise, or other taxes now or hereafter
levied. Any taxes or amounts in lieu thereof paid or payable by SAP in respect
of any such taxes on such fees or charges (excepting only taxes on net income)
shall be added to CCAi's obligations as an additional fee which shall be due
within thirty (30) days after SAP's invoice to CCAi
5. TERM AND TERMINATION.
5.1. TERM OF LICENSE. This Agreement shall have an initial term expiring
December 31, 1996, and shall thereafter be automatically renewed for successive
one year terms, unless at least six weeks prior to the expiration of-the current
renewal term, either party gives written notice of its intention not to renew
this Agreement or unless this Agreement is otherwise terminated upon termination
of the R/3 National Implementation Partner Agreement between the parties dated
as of even date hereof; provided, however, that in the event of a material
breach of this Agreement by CCAi which has not been cured within ten (10) days
of written notice of such breach, or upon any attempt by CCAi to assign,
delegate, sublicense or otherwise transfer this Agreement in violation hereof,
this Agreement will terminate at the end of such ten (10) day cure period.
5.2. EFFECT OF TERMINATION. Upon termination of this Agreement:
(i) the provisions of Sections 6, 8.4, 9, 11 and 12.6 shall survive the
termination;
(ii) CCAi's rights under Section 2 (License Grant) shall immediately
cease; and
(iii) CCAi shall perform its obligations under Section 6.3.
Each party's right to terminate as expressed in this Agreement shall be in
addition to any other rights provided by law.
6. PROPRIETARY RIGHTS.
6.1. SAP PROPRIETARY INFORMATION.
(a) CCAi acknowledges and shall cause its authorized Affiliates to
acknowledge that ownership of and title in and to all intellectual property
rights, including patent, trademark, service mark, copyright, and trade secret
rights, in the SAP Proprietary Information are and shall remain in SAP and SAP
AG and their respective licensors. CCAi acquires only the right to use the SAP
Proprietary Information under the terms and conditions of this Agreement and
does not acquire any ownership rights or title in or to the SAP Proprietary
Information and that of their respective licensors.
(b) CCAi shall not copy, translate, disassemble, or decompile, nor
create or attempt to create, by reverse engineering or otherwise, the source
code from the object code of the Software licensed hereunder or use it to create
a derivative work, unless authorized in writing by SAP. In the event source code
is provided to CCAi, SAP, in its sole discretion, reserves the right to delete,
or to require the deletion of, such source code
3
<PAGE> 17
and all copies thereof from CCAi's Designated Unit(s), application server(s),
computer terminals or workstations, and data files whenever a future release,
version, or correction level provides for like functionality in an object code
format. Other than as specified herein, any tools licensed with or included in
the Software may not be copied, in whole or in part, without the express written
consent of SAP.
(c) CCAi shall not remove any proprietary, copyright, trademark, or
service mark legend from the Software, Documentation, Third-Party Database, or
SAP Proprietary Information.
(d) CCAi shall maintain a log of the number and location of all
originals and copies of the Software. The inclusion of a copyright notice on any
portion of the Software or Documentation shall not cause or be construed to
cause it to be a published work.
6.2. PROTECTION OF PROPRIETARY INFORMATION. In order to protect the rights of
SAP and its licensors, and CCAi in their respective Proprietary Information, SAP
and CCAi agree as follows:
(a) Neither party shall, without the other party's prior written
consent, disclose, provide, or make available any of the Proprietary Information
of the other party in any form to any person, except to bona fide employees,
officers, directors, or consultants of such party whose access is necessary to
enable such party to exercise its rights hereunder. Each party agrees that prior
to disclosing any Proprietary Information of the other party to any consultant,
it will obtain from that consultant a written acknowledgment that such
consultant will be bound by the same terms as specified in this Section 6 with
respect to the Proprietary Information.
(b) CCAi and SAP acknowledge that any disclosure to third parties of
Proprietary Information may cause immediate and irreparable harm to the owner of
the disclosed Proprietary Information; therefore, each party agrees to take all
reasonable steps and the same protective precautions to protect the Proprietary
Information from disclosure to third parties as with its own proprietary and
confidential information.
6.3. DUTIES UPON TERMINATION. Upon any termination hereunder, CCAi shall
immediately cease use of the Software, Documentation, Third-Party Database, and
other SAP Proprietary Information, and shall irretrievably delete and/or remove
such items from all Designated Units, application servers, computer terminals,
workstations, data files, and Designated Sites. Within thirty days after any
termination, each party shall deliver to the other party(adequately packaged and
insured for safe delivery) or, at the other party's request, destroy all copies
of the other party's Proprietary Information in every form. CCAi further agrees
to erase the Software, Documentation, Third-Party Database, and other provided
SAP Proprietary Information from any storage media. CCAi agrees an officer of
CCAi's organization, with the express authority to make such representation,
shall certify in writing to SAP that it has performed the foregoing.
6.4. MODIFICATIONS AND EXTENSIONS. CCAi may not modify or write extensions to
the Software without the prior written authorization of SAP. CCAi expressly
agrees that any Modifications and Extensions of the Software developed by SAP,
CCAi, their employees, agents or consultants shall become part of the Software
and will be the property of SAP AG and that CCAi will not grant, either
expressly or by implication, any rights, title, interest or licenses to the
Modifications or Extensions to any third party. CCAi shall provide complete
source code for all Modifications and Extensions to SAP. CCAi agrees that it
will not modify any provided Third Party Software hereunder unless expressly
authorized in writing by such Third Party Vendor.
6.5. OTHER DUTIES. CCAi shall be exclusively responsible for the supervision,
management and control of its use of the Software.
7. SUPPORT SERVICES.
7.1. At CCAi's request, and on terms to be agreed upon separately, SAP may agree
to provide pre-installation support, installation support training and
consulting services for the Software.
8. WARRANTY.
8.1. SOFTWARE. SAP warrants that the Software, when delivered, will be in good
working order and will substantially conform to the specifications contained in
the Documentation for six (6) months following delivery (The "Warranty Period")
when in use without material alteration, on the Designated Unit(s), in
accordance with
4
<PAGE> 18
the functional specifications set forth in the Documentation. SAP's warranty is
subject to CCAi providing SAP necessary access, including remote access to the
Software.
8.2. SOFTWARE COMPONENTS. Should any component of the Software fail to conform
substantially to the Software specifications during the warranty period SAP's
sole obligation shall be to correct the defect by bringing the performance of
the Software into substantial compliance with the specifications or replace the
component.
8.3. CCAi'S DEFECT REPORTS. CCAi must specifically identify to SAP the nature of
the perceived Software defect which causes the Software not to conform
substantially to the functional specifications and specifically describe the
conditions under which the perceived defect occurs. On SAP's request, CCAi shall
deliver such information in written form. CCAi shall provide SAP with sufficient
test time and support on CCAi's Designated Unit(s) to duplicate the problem, to
verify that the problem is with the Software, and to confirm that the problem
has been corrected.
8.4. DISCLAIMER. SAP DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
9. LIMITATION OF LIABILITY.
9.1 CCAi'S REMEDIES. Subject to the limited warranty set forth in Section 8,
CCAi's sole and exclusive remedies for any damages or loss in any way connected
with the Software or services furnished by SAP and its licensors, whether due to
SAP's negligence or breach of any other duty, shall be, at SAP's option: (i)
replacement of the Software or performance of services; or (ii) return or credit
of an appropriate portion of any payment made or to be made by CCAi with respect
to the applicable portion of the Software or services. The foregoing limitation
of liability does not apply to personal injury or death caused solely by the
gross negligence or willful misconduct of SAP. With respect to damage to
tangible property, SAP and its licensors will not be responsible in any amount
in excess of the amount by which such damage is paid by SAP's liability
insurance.
9.2 SAP NOT RESPONSIBLE. SAP will not be responsible under this Agreement for:
(i) the modification or improvement of the Software to fit the particular
requirements of CCAi; or (ii) the correction of any program errors resulting
from Modifications or Extensions; or (iii) the correction of any program errors
as a result of misuse of the Software by CCAi. Under no condition will SAP be
responsible under this Agreement for preparation or conversion of data into the
form required for use with the Software.
9.3 EXCLUSION OF DAMAGES. ANYTHING TO THE CONTRARY HEREIN NOTWITHSTANDING, UNDER
NO CIRCUMSTANCES SHALL SAP AND ITS LICENSORS BE LIABLE TO CCAi OR ANY OTHER
PERSON OR ENTITY FOR SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR INDIRECT DAMAGES,
LOSS OF GOOD WILL OR BUSINESS PROFITS, WORK STOPPAGE, DATA LOSS, COMPUTER
FAILURE OR MALFUNCTION, ANY AND ALL OTHER COMMERCIAL DAMAGES OR LOSS, OR
EXEMPLARY OR PUNITIVE DAMAGES.
9.4 SEVERABILITY OF ACTIONS. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND
EVERY PROVISION OF THIS AGREEMENT WHICH PROVIDES FOR A LIMITATION OF LIABILITY,
DISCLAIMER OF WARRANTIES, OR EXCLUSION OF DAMAGES IS INTENDED BY THE PARTIES TO
BE SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO BE ENFORCED AS SUCH.
10. NON-ASSIGNMENT.
10.1. CCAi may not assign, delegate, sublicense, pledge, or otherwise transfer
this Agreement, or any of its rights or obligations under this Agreement, to any
party.
10.2. SAP may assign this Agreement to SAP AG or to an entity designated by SAP
AG.
5
<PAGE> 19
11. EXPORT CONTROL NOTICE
Regardless of any disclosure made by CCAi to SAP of an ultimate destination of
the Software, Documentation, Third-Party Database, and other provided SAP
Proprietary Information, CCAi acknowledges that SAP's Software, Documentation,
Proprietary Information, and the Third-Party Database are being released or
transferred to CCAi in the United States and are therefore subject to the U.S.
export control laws. CCAi acknowledges its exclusive obligation to ensure that
its exports from the United States are in compliance with the U.S. export
control laws. CCAi shall also be responsible for complying with all applicable
governmental regulations of any foreign countries with respect to the use of the
Proprietary Information by its Affiliates outside of the United States. CCAi
shall defend, indemnify, and hold SAP and SAP AG and its licensors harmless from
and against any and all claims, judgments, awards, and costs (including
reasonable attorneys fees) arising out of CCAi's noncompliance with applicable
U.S. or foreign law with respect to the use or transfer of the Proprietary
Information outside the United States by CCAI.
12. OTHER PROVISIONS.
12.1. CCAi acknowledges that remedies at law may be inadequate to provide SAP
with full compensation in the event of any material breach of this Agreement by
CCAi, and that SAP shall therefore be entitled to injunctive relief in the event
of any material breach.
12.2. This Agreement and all Appendices hereto constitute the complete and
exclusive statement of the agreement between SAP and CCAi, and all previous
representations are merged in this Agreement. This Agreement may be modified
only by a writing signed by both parties. This Agreement prevails over any
additional, conflicting, or inconsistent terms and conditions appearing on any
purchase order submitted by CCAi
12.3. It is the intent of the parties that in case any one or more of the
provisions contained in this Agreement shall be held to be invalid or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect the other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provisions had
never been contained herein. In case any one or more of the provisions contained
in this Agreement shall be held to be excessively broad as to duration,
geographical scope, activity or subject, such provision shall be construed by
limiting and reducing it in accordance with a judgment of a court of competent
jurisdiction, so as to be enforceable to the extent compatible with applicable
law.
12.4. If either party should waive any breach of any provisions of this
Agreement, it shall not thereby be deemed to have waived any preceding or
succeeding breach of the same or any other provisions hereof.
12.5. The headings of the sections of this Agreement are inserted for
convenience only and shall not be deemed to constitute a part hereof nor to
affect the meaning thereof.
12.6. This Agreement shall be governed by and construed under Pennsylvania law.
CCAi consents to the jurisdiction of any federal or state court sitting in
Delaware County, Pennsylvania for all claims, suits, or actions arising under
this Agreement or in connection with CCAi's use of or possession of the
Software.
IN WITNESS WHEREOF, and intending to be legally bound, the parties hereto agree
to the foregoing Agreement as of the date first above written.
SAP America, Inc. Conley, Canitano & Assoc., Inc.
(SAP) (CCAi)
By: /s/ Allen R. Brault By: Kenneth L. Conley
---------------------------- -------------------------------
Title: Director Title: Partner
------------------------- ----------------------------
Date: 6/24/96 Date: 5/2/96
-------------------------- -----------------------------
/s/ ??????????
6
<PAGE> 20
ASAP PARTNER ADDENDUM
TO
R/3 NATIONAL IMPLEMENTATION PARTNER AGREEMENT ("NIP AGREEMENT")
BETWEEN
SAP AMERICA, INC. ("SAP") - CONLEY, CANITANO & AssOC., INC. ("PARTNER")
EFFECTIvE JULY 1, 1997
A. WHEREAS, Partner desires to utilize SAP's rapid R/3 implementation
methodology and to become an AcceleratedSAP Partner ("ASAP Partner") by meeting
the performance criteria established by SAP.
B, WHEREAS, SAP desires to offer the opportunity to Partner to achieve such
status, subject to the terms below.
C. NOW THEREFORE, SAP and Partner agree as follows:
1. SAP hereby grants Partner the right to identify itself publicly as an
ASAP Partner for so long as the NIP Agreement is in effect and Partner complies
with SAP's then-current criteria for participation in its AcceleratedSAP Partner
Program.
2. SAP's current criteria for participation in the AcceleratedSAP Partner
Program are as follows:
(a) 70% of consultants that comprise Partner's SAP Practice must be
AcceleratedSAP certified by attending SAP's 3-day course (current release)
within the timeframe (6 months) established in the business plan.
(b) All Partner consultants assigned to an accelerated project must be
AcceleratedSAP certified.
(c) All Partner project managers must be certified through SAP's
Project Manager course within three (3) months after SAP's first public offering
of such course.
(d) Partner must utilize 100% of the AcceleratedSAP methodology as
identified from time to time by SAP.
(e) Any AcceleratedSAP Project will include quality assurance
monitoring by an SAP Project Executive.
(f) Partner must adhere to SAP's status reporting criteria established
by SAP on all ASAP projects.
3. Any AcceleratedSAP materials, including the ASAP CD, made available to
Partner pursuant to this Addendum shall be considered SAP Confidential and/or
Proprietary Information as defined in the NIP Agreement.
4. Upon compliance with the terms of this Addendum, Partner shall be
authorized to represent itself as an authorized ASAP Partner and to display the
ASAP Partner logo. Partner's failure to
<PAGE> 21
comply with the terms of the Addendum shall result in termination of the
Addendum, unless such failure is cured to SAP's reasonable satisfaction within
thirty (30) days of written notice of such failure.
5. The term of this Addendum shall be coterminus with that of the NIP
Agreement, unless earlier terminated pursuant to the provisions of Section 4 of
this Addendum.
6. Except as specifically modified herein, all terms and conditions of the
NIP Agreement shall be applicable to this Appendix and the subject matter
hereof.
By: /s/ Nicholas A. Canitano By: /s/ Cheryl C. Groonel
----------------------------- -----------------------------
Title: President CCAi Title: Director
-------------------------- ---------------------------
Date: 7/16/97 Date: 7/30/97
--------------------------- ----------------------------
<PAGE> 1
Exhibit 10.35
DRAFT OF 7/10/98
----------------
[Model Form - Do not edit]
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement ("Agreement") is made as of the day of ,
__ , by and between , an Ohio corporation (the "Corporation"), and (the
"Indemnitee").
RECITALS
--------
A. The Indemnitee [is presently serving as] [has been asked to serve
as](1) a [Director and an officer [, employee] and agent of the Corporation and
as a Director and an officer [, employee] and agent of one or more of the
corporation's subsidiaries](2) and the Corporation desires the Indemnitee to
continue in those capacities. The Indemnitee is willing, subject to certain
conditions including, without limitation, the execution and performance of this
Agreement by the Corporation, to [continue to] serve in those capacities.
B. [In addition to the indemnification to which the Indemnitee is
entitled under the Regulations of the Corporation (the "Regulations"), the
Corporation [has obtained] [may obtain], at its sole expense, insurance
protecting the Corporation and its officers and directors including the
Indemnitee against certain losses arising out of actual or threatened actions,
suits, or proceedings to which such persons may be made or threatened to be made
parties. However, as a result of circumstances having no relation to, and beyond
the control of, the Corporation and the Indemnitee,
- --------
(1) Revise to reflect whether Indemnitee's role is new or continuing.
(2) Revise to reflect actual status.
<PAGE> 2
the scope of that insurance [has been or] may hereafter be reduced and there can
be no assurance of the continuation or renewal of that insurance.](3)
Accordingly, and in order to induce the Indemnitee to [continue to]
serve the Corporation [and its subsidiaries](4) [in the Indemnitee's present
capacities,] the Corporation and the Indemnitee agree as follows:
1. CONTINUED SERVICE. The Indemnitee shall [continue to] serve,[ at the
will of the Corporation or in accordance with a separate contract, to the extent
that such a contract is in effect at the time in question,](5) as a [Director
and an officer, [employee] or agent of the Corporation and as a Director and an
officer, [employee] and agent of one or more of the Corporation's subsidiaries]
so long as the Indemniteeis duly elected and qualified in accordance with the
Regulations or until the Indemniteeresigns in writing in accordance with
applicable law, or dies in office.](6)
2. INITIAL INDEMNITY. (a) The Corporation shall indemnify the
Indemnitee, if or when the Indemnitee is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(collectively, "Action"), whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that the Indemnitee is or was a Director, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a director, trustee, officer, employee, member, manager
- --------
(3)Revise to reflect actual facts concerning insurance.
(4) Delete or modify to reflect service with subsidiaries.
(5)If the Indemnitee is only a director, and not an officer or
employee, the reference to serving "at the will of the Corporation or in
accordance with a separate contract..." may be eliminated.
(6)Clarify employer; holding company officers are often employees of a
subsidiary.
2
<PAGE> 3
or agent of another corporation, domestic or foreign, nonprofit or for profit, a
limited liability company, or a partnership, joint venture, trust, or other
enterprise, or by reason of any action alleged to have been taken or omitted in
any such capacity, against (i) any and all reasonable costs, charges and
expenses (including, without limitation, reasonable fees and expenses of
attorneys and/or others; all such costs, charges and expenses being herein
jointly referred to as "Expenses"), and (ii) any and all judgments, fines, and
amounts paid in settlement of any such Action ("Other Payments"), in each
instance actually incurred by the Indemnitee in connection with such Action
including any appeal of or from any judgment or decision, unless it is proved by
clear and convincing evidence in a court of competent jurisdiction that the
Indemnitee's action or failure to act involved an act or omission (i) undertaken
with deliberate intent to cause injury to the Corporation or (ii) undertaken
with reckless disregard for the best interests of the Corporation. In addition,
with respect to any criminal investigation, action or proceeding, the
Corporation shall indemnify the Indemnitee against Expenses and Other Payments
unless the Indemnitee is determined, by a court of competent jurisdiction to
have had no reasonable cause to believe the Indemnitee's conduct was lawful. The
termination of any Action by judgment, order, settlement, or conviction, or upon
a plea of nolo contendere or its equivalent, will not, of itself, create a
presumption that the Indemnitee did not satisfy the foregoing standards of
conduct to the extent applicable thereto.
(b) The Corporation shall indemnify the Indemnitee, if or when the
Indemniteeis a party or is threatened to be made a party to any threatened,
pending, or completed Action by or in the right of the Corporation to procure a
judgment in its favor, by reason of the fact that the Indemnitee is or was a
Director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, trustee, officer, employee,
member, manager, or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, or
3
<PAGE> 4
a partnership, joint venture, trust, or other enterprise, against any and all
Expenses actually and reasonably incurred by the Indemnitee in connection with
the defense or settlement of such Action or any appeal of or from any judgment
or decision, unless (i) it is proved by clear and convincing evidence in a court
of competent jurisdiction that the Indemnitee's action or failure to act
involved an act or omission undertaken with deliberate intent to cause injury to
the Corporation or undertaken with reckless disregard for the best interests of
the Corporation, or (ii) the only liability asserted against Indemnitee is
pursuant to Section 1701.95 of the Ohio Revised Code.
(c) Any indemnification under Section 2(a) or 2(b) (unless ordered by a
court) is to be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the Indemnitee is proper in the
circumstances because the Indemnitee has met the applicable standard of conduct
set forth in Section 2(a) or 2(b). The Corporation's Directors (the "Board")
shall authorize such indemnification if the requisite determination has been
made (i) by the Directors of the Corporation (the "Board") by a majority vote of
a quorum consisting of Directors who were not and are not parties to or
threatened with such action, suit, or proceeding, or (ii) if such a quorum of
disinterested Directors is not available or if a majority of such quorum so
directs, in a written opinion by independent legal counsel (designated for such
purpose by the Board) that is not an attorney, or a firm having associated with
it an attorney, that has been retained by or that has performed services for the
Corporation, or any person to be indemnified pursuant to such determination,
within the five years preceding such determination, or (iii) by the shareholders
of the Corporation (the "Shareholders"), such approval to require the vote of
holders of the majority of shares present at a meeting of the shareholders
called in accordance with the Regulations at which a quorum is present, or (iv)
by the court of common pleas or other court in which such action, suit, or
proceeding was brought.
4
<PAGE> 5
(d) To the extent that the Indemnitee has been successful on the merits
or otherwise, including, without limitation, the dismissal of an action without
prejudice, in defense of any action, suit, or proceeding referred to in Section
2(a) or 2(b), or in defense of any claim, issue, or matter therein, the
Corporation shall indemnify the Indemnitee against Expenses actually and
reasonably incurred by the Indemnitee in connection therewith. Expenses actually
and reasonably incurred by the Indemnitee in defending any such action, suit or
proceeding are to be paid by the Corporation as they are incurred in advance of
the final disposition of such action, suit, or proceeding under the procedure
set forth in Section 4(b) hereof.
(e) For purposes of this Agreement, references to "other enterprise"
include any employee benefit plans; references to "fines" include any excise
taxes assessed on the Indemnitee with respect to any employee benefit plan;
references to "serving at the request of the Corporation" shall include any
service as a director, trustee, officer, employee, member, manager, or agent of
the Corporation that imposes duties on, or involves services by, the Indemnitee
with respect to an employee benefit plan, its participants or beneficiaries;
references to the masculine shall include the feminine; references to the
singular include the plural and vice versa; and if the Indemnitee acted in good
faith and in a manner the Indemnitee reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan, the
Indemnitee will be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to herein.
(f) No amendment to the Articles of Incorporation of the Corporation
(the "Articles") or the Regulations, or any amendment to any applicable law (to
the extent such amendment would be unconstitutional as applied to this
Agreement), will deny, diminish, or encumber the Indemnitee's rights to
indemnity pursuant to the Articles, the Regulations, the Ohio Revised Code, or
any other applicable law as applied to any act or failure to act occurring in
whole
5
<PAGE> 6
or in part prior to the date (the "Effective Date") upon which the amendment
becomes effective. In the event that the Corporation adopts any amendment to its
Articles or Regulations or takes any other action the effect of which is to
deny, diminish, or encumber the Indemnitee's rights to indemnity pursuant to the
Articles, the Regulations, the Ohio Revised Code, or any such other law, such
amendment will apply only to acts or failures to act occurring entirely after
the Effective Date thereof.
3. ADDITIONAL INDEMNIFICATION. Pursuant to Section 1701.13(E)(6) of the
Ohio Revised Code, without limiting any right that the Indemnitee may have
pursuant to Section 2 hereof or any other provision of this Agreement or the
Articles, the Regulations, the Ohio Revised Code, any policy of insurance, or
otherwise, but subject to any limitation on the maximum permissible indemnity
that may exist under applicable law at the time of any request for indemnity
hereunder and subject to the following provisions of this Section 3, the
Corporation shall indemnify the Indemnitee against any amount that the
Indemnitee is or becomes obligated to pay relating to or arising out of any
claim made against the Indemnitee because of any act, failure to act, or neglect
or breach of duty, including any actual or alleged error, misstatement, or
misleading statement, that the Indemnitee commits, suffers, permits, or
acquiesces in while acting in the Indemnitee's capacity as a Director, officer,
employee or agent of the Corporation. The payments that the Corporation is
obligated to make pursuant to this Section 3 include, without limitation, any
and all Other Payments and any and all Expenses actually and reasonably incurred
by the Indemnitee in connection therewith including any appeal of or from any
judgment or decision; PROVIDED, HOWEVER, that the Corporation shall not be
obligated under this Section 3 to make any payment in connection with any claim
against the Indemnitee:
6
<PAGE> 7
(a) to the extent of any fine or similar governmental
imposition that the Corporation is prohibited by applicable law from
paying that results from a final, nonappealable order; or
(b) to the extent based upon or attributable to the Indemnitee
having actually realized a personal gain or profit to which the
Indemnitee was not legally entitled, including, without limitation,
profit from the purchase and sale by the Indemnitee of equity
securities of the Corporation which is recoverable by the Corporation
pursuant to Section 16(b) of the Securities Exchange Act of 1934, or
profit arising from transactions in publicly-traded securities of the
Corporation that were effected by the Indemnitee in violation of
Section 10(b) of the Securities Exchange Act of 1934, or Rule 10b-5
promulgated thereunder.
A determination as to whether the Indemnitee is entitled to indemnification
under this Section 3 is to be made in accordance with Section 4(a) hereof. The
Corporation shall pay the Expenses incurred by the Indemnitee in defending any
claim to which this Section 3 applies as they are actually and reasonably
incurred, in advance of the final disposition of such claim under the procedure
set forth in Section 4(b) hereof.
4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION. (a) For purposes of
pursuing the Indemnitee's rights to indemnification under Section 3 hereof, the
Indemnitee must (i) submit to the Board a sworn statement of request for
indemnification substantially in the form of Exhibit 1 attached hereto and made
a part hereof (the "Indemnification Statement") averring that the Indemnitee is
entitled to indemnification hereunder, and (ii) present to the Corporation
reasonable evidence of all amounts for which indemnification is requested.
Submission of an Indemnification Statement to the Board will create a
presumption that the Indemnitee is entitled to indemnification
7
<PAGE> 8
hereunder, and the Corporation shall, within 60 calendar days after submission
of the Indemnification Statement, make the payments requested in the
Indemnification Statement to or for the benefit of the Indemnitee, unless (x)
within such 60-calendar-day period the Board resolves, by vote of a majority of
the Directors at a meeting at which a quorum is present, that the Indemnitee is
not entitled to indemnification under Section 3 hereof, (y) such vote is based
upon clear and convincing evidence sufficient to rebut the foregoing presumption
and (z) the Indemnitee has received within such period notice in writing of such
vote, which notice must disclose with particularity the evidence upon which the
vote is based. The foregoing notice must be sworn to by all persons who
participated in the vote and voted to deny indemnification. The provisions of
this Section 4(a) are intended to be procedural only and will not affect the
right of Indemnitee to indemnification under Section 3 of this Agreement so long
as Indemnitee follows the prescribed procedure and any determination by the
Board that Indemnitee is not entitled to indemnification and any failure to make
the payments requested in the Indemnification Statement will be subject to
judicial review by any court of competent jurisdiction.
(b) For purposes of obtaining payments of Expenses in advance of final
disposition pursuant to the second sentence of Section 2(d) or the last sentence
of Section 3 hereof, the Indemnitee must submit to the Corporation a sworn
request for advancement of Expenses substantially in the form of Exhibit 2
attached hereto and made a part hereof (the "Undertaking"), averring that the
Indemnitee has reasonably incurred or will reasonably incur actual Expenses in
defending an action, suit or proceeding referred to in Section 2(a) or 2(b) or
any claim referred to in Section 3, or pursuant to Section 7 hereof. Unless at
the time of the Indemnitee's act or omission at issue, the Articles or
Regulations of the Corporation prohibit such advances by specific reference to
Ohio Revised Code Section 1701.13(E)(5)(a) and unless the only liability
asserted against the
8
<PAGE> 9
Indemnitee in the subject action, suit or proceeding is pursuant to Ohio Revised
Code Section 1701.95, the Indemnitee will be eligible to execute Part A of the
Undertaking by which the Indemnitee undertakes to (a) repay such amount if it is
proved by clear and convincing evidence in a court of competent jurisdiction
that the Indemnitee's action or failure to act involved an act or omission
undertaken with deliberate intent to cause injury to the Corporation or
undertaken with reckless disregard for the best interests of the Corporation and
(b) reasonably cooperate with the Corporation concerning the action, suit,
proceeding or claim. In all cases, the Indemnitee will be eligible to execute
Part B of the Undertaking by which the Indemnitee undertakes to repay such
amount if it ultimately is determined that the Indemnitee is not entitled to be
indemnified by the Corporation under this Agreement or otherwise. In the event
that the Indemnitee is eligible to and does execute both Part A and Part B of
the Undertaking, the Indemnitee shall be required to repay the Expenses which
are paid by the Corporation pursuant thereto only if the Indemnitee is required
to do so under the terms of both Part A and Part B of the Undertaking. Upon
receipt of the Undertaking, the Corporation shall thereafter promptly pay such
Expenses of the Indemnitee as are noticed to the Corporation in writing and in
reasonable detail arising out of the matter described in the Undertaking. No
security is required in connection with any Undertaking.
5. LIMITATION ON INDEMNITY. Notwithstanding anything contained herein
to the contrary, the Corporation is not required hereby to indemnify the
Indemnitee with respect to any Action that was initiated by the Indemnitee
unless (i) such Action was initiated by the Indemnitee to enforce any rights to
indemnification arising hereunder and such person has been formally adjudged to
be entitled to indemnity by reason hereof, (ii) authorized by another agreement
to which the Corporation is a party whether heretofore or hereafter entered or
(iii) otherwise ordered by the court in which the suit was brought.
9
<PAGE> 10
6. SUBROGATION, DUPLICATION OF PAYMENTS. (a) In the event of payment
under this Agreement, the Corporation will be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who shall execute
all papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable the
Corporation effectively to bring suit to enforce such rights.
(b) The Corporation will not be liable under this Agreement to make any
payment in connection with any claim made against the Indemnitee to the extent
the Indemnitee has actually received payment (under any insurance policy, the
Corporation's Regulations any other provision of this Agreement, or otherwise)
of the amounts otherwise payable hereunder.
7. FEES AND EXPENSES OF ENFORCEMENT. It is the intent of the
Corporation that the Indemnitee not be required to incur the expenses associated
with the enforcement of the Indemnitee's rights under this Agreement by
litigation or other legal action because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the
Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee that
the Corporation has failed to comply with any of its obligations under this
Agreement or in the event that the Corporation or any other person takes any
action to declare this Agreement void or unenforceable, or institutes any
action, suit or proceeding to deny, or to recover from, the Indemnitee the
benefits intended to be provided to the Indemnitee hereunder, the Corporation
irrevocably authorizes the Indemnitee from time to time to retain counsel of
Indemnitee's choice, at the expense of the Corporation as hereafter provided, to
represent the Indemnitee in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Corporation or any
director, officer, shareholder, or other person affiliated with the Corporation,
in any jurisdiction. Regardless of the outcome thereof, the Corporation shall
pay and be solely responsible for any and all costs, charges, and expenses,
10
<PAGE> 11
including without limitation fees and expenses of attorneys and others,
reasonably incurred by the Indemnitee pursuant to this Section 7.
8. MERGER OR CONSOLIDATION. In the event that the Corporation becomes a
constituent corporation in a consolidation, merger, or other reorganization, the
Corporation, if it will not be the surviving, resulting, or acquiring
corporation therein, shall require as a condition thereto that the surviving,
resulting, or acquiring corporation assume, and acknowledge in a written
instrument addressed to the indemnitee its assumption of, all of the obligations
of the Corporation hereunder and to become obligated to indemnify the Indemnitee
to the full extent provided herein. Whether or not the Corporation is the
resulting, surviving, or acquiring corporation in any such transaction, the
Indemnitee will stand in the same position under this Agreement with respect to
the resulting, surviving, or acquiring corporation as the Indemnitee would have
with respect to the Corporation if its separate existence had continued.
9. NONEXCLUSIVITY AND SEVERABILITY. (a) The rights to indemnification
provided by this Agreement are not be exclusive of any other rights of
indemnification to which the Indemnitee may be entitled under the Articles, the
Regulations, the Ohio Revised Code or any other statute, any insurance policy,
agreement, or a vote of shareholders or directors or otherwise, as to any
actions or failures to act by the Indemnitee, and will continue after the
Indemnitee has ceased to be a Director, officer, employee, or agent of the
Corporation or other entity for which the Indemnitee's service gives rise to a
right hereunder, and will inure to the benefit of the Indemnitee's heirs,
executors and administrators. It is the intention of the Corporation to expand
the indemnification of the Indemnitee beyond that expressly recited in provision
(1), (2), (3), (4) and (5) of Section 1701.13(E) of the Ohio Revised Code as
such provision exist on the date of the Agreement.
11
<PAGE> 12
(b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable,
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances will not be affected, and the
provision so held to be invalid, unenforceable, or otherwise illegal is to be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal; in no case is the Indemnitee entitled to receive
under this Agreement less than the level of indemnification permissible to the
paid by the Corporation under Section 1701.13(E) of the Ohio Revised Code as
such provision existed at the date of this Agreement.
10. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Ohio, without giving effect to the
principles of conflict of laws thereof.
11. MODIFICATION. This Agreement and the rights and duties of the
Indemnitee and the Corporation hereunder may be modified only by an instrument
in writing signed by both parties hereto.
[12. SHAREHOLDER RATIFICATION. The Corporation may, at its option,
propose at any future meeting of Shareholders that this Agreement be ratified by
the Shareholders; PROVIDED, HOWEVER, that the Indemnitee's rights hereunder are
fully enforceable in accordance with the terms hereof whether or not such
ratification is sought or obtained.]
[12. SHAREHOLDER RATIFICATION. The Corporation may, at its option,
propose at any future meeting of Shareholders that this Agreement be ratified by
the Shareholders; if the Shareholders vote not to ratify this Agreement, the
Corporation will have the right to unilaterally rescind this Agreement;
PROVIDED, HOWEVER, that no such rescission will deny or diminish the
Indemnitee's rights to indemnity pursuant hereto (or the procedures set forth
herein to obtain
12
<PAGE> 13
indemnification) as applied to any act or failure to act occurring in whole or
in part prior to the date of such rescission (whether or not a claim hereunder
is made before or after such date).]fn (7)
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
_________________
By_____________________________
[Title]
_______________________________
[Signature of Indemnitee]
- --------
(fn) Select one or the other alternatives for shareholder ratification.
13
<PAGE> 14
Exhibit 1
---------
INDEMNIFICATION STATEMENT
STATE OF _______________)
) SS
COUNTY OF_______________)
I,_____________ , being first duly sworn, do depose and say as follows:
1. This Indemnification Statement is submitted pursuant to the
Indemnification Agreement, dated _______ , __ , between _________________, an
Ohio corporation (the "Corporation"), and the undersigned.
2. I am requesting indemnification against costs, charges, expenses
(which may include fees and expenses of attorneys and/or others), judgments,
fines, and amounts paid in settlement (collectively, "Liabilities"), which have
been actually and reasonably incurred by me in connection with a claim referred
to in Section 3 of the aforesaid Indemnification Agreement.
3. With respect to all matters related to any such claim, I am entitled
to be indemnified as herein contemplated pursuant to the aforesaid
Indemnification Agreement.
<PAGE> 15
4. Without limiting any other rights which I have or may have,
I am requesting indemnification against Liabilities which have or may arise out
of ________________________________________
_______________________________
______________________.
_________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this ____ day of _____ , __.
_________________________
[Seal]
My commission expires the ____ day of _____________, __.
2
<PAGE> 16
Exhibit 2
---------
UNDERTAKING
-----------
STATE OF _______________)
) SS
COUNTY OF ______________)
I, ______________________ , being first duly sworn, do depose and say
as follows:
1. This Undertaking is submitted pursuant to the Indemnification
Agreement, dated____________________, __ , between ____________________, an Ohio
corporation (the "Corporation"), and the undersigned.
2. I am requesting payment of costs, charges, and expenses which I have
reasonably incurred or will reasonably incur in defending an action, suit or
proceeding, referred to in Section 2(a) or 2(b) or any claim referred to in
Section 3, or pursuant to Section 7, of the aforesaid Indemnification Agreement.
3. The costs, charges, and expenses for which payment is requested are,
in general, all expenses related to ________________________
__________________________________.
4. Part A
------
I hereby undertake to (a) repay all amounts paid pursuant hereto if it
is proved by clear and convincing evidence in a court of competent jurisdiction
that my action or failure to act which is the subject of the matter described
herein involved an act or omission undertaken with deliberate intent to cause
injury to the Corporation or undertaken with reckless disregard for the best
<PAGE> 17
interests of the Corporation and (b) reasonably cooperate with the Corporation
concerning the action, suit, proceeding or claim.
_______________________
[Signature of Indemnitee]
4. Part B
------
I hereby undertake to repay all amounts paid pursuant hereto if it
ultimately is determined that I am not entitled to be indemnified by the
Corporation under the aforesaid Indemnification Agreement or otherwise.
_________________________
[Signature of Indemnitee]
Subscribed and sworn to before me, a Notary Public in and for said
County and State, this day of ______ , ______.
_________________________
[Seal]
My commission expires the ____ day of _____________, ____.
2
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No. ________) of our reports dated July 24, 1998 and June 8, 1998, on our
audits of the financial statements of Conley, Canitano & Associates, Inc. and
Kelly-Levey & Associates, Inc. respectively. We also consent to the references
to the firm under the captions "Experts" and "Selected Financial Data."
PricewaterhouseCoopers
July 24, 1998
<PAGE> 1
Exhibit 24
DIRECTOR AND/OR OFFICER OF
CONLEY, CANITANO & ASSOC., INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Conley, Canitano &
Assoc., Inc., an Ohio corporation (the "Corporation"), hereby constitutes and
appoints Kenneth L. Conley and Paul Farmer, or any of them, with full power of
substitution and resubstitution, as attorneys or attorneys of the undersigned,
for him or her and in his or her name, place and stead, to sign and file under
the Securities Act of 1933 one or more Registration Statement(s) on Form S-1
relating to the registration for sale of the Corporation's Common Stock, and any
and all amendments, supplements and exhibits thereto, including pre-effective
and post-effective amendments or supplements, and any and all applications or
other documents to be filed with the Securities and Exchange Commission
pertaining to such registration(s), with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED as of June __, 1998.
Director, Chairman of the Board and
/s/ Nicholas A. Canitano Chief Executive Officer
- --------------------------------- -----------------------------------
Signature Title
Nicholas A. Canitano
- ---------------------------------
Name
<PAGE> 2
Exhibit 24
DIRECTOR AND/OR OFFICER OF
CONLEY, CANITANO & ASSOC., INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Conley, Canitano &
Assoc., Inc., an Ohio corporation (the "Corporation"), hereby constitutes and
appoints Nicholas A. Canitano, Kenneth L. Conley and Paul Farmer, or any of
them, with full power of substitution and resubstitution, as attorneys or
attorney of the undersigned, for him or her and in his or her name, place and
stead, to sign and file under the Securities Act of 1933 one or more
Registration Statement(s) on Form S-1 relating to the registration for sale of
the Corporation's Common Stock, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute.
EXECUTED as of June __, 1998.
Director, Executive Vice President and
/s/ Annette M. Canitano Secretary
- -------------------------------- --------------------------------------
Signature Title
Annette M. Canitano
- --------------------------------
Name
<PAGE> 3
Exhibit 24
DIRECTOR AND/OR OFFICER OF
CONLEY, CANITANO & ASSOC., INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Conley, Canitano &
Assoc., Inc., an Ohio corporation (the "Corporation"), hereby constitutes and
appoints Nicholas A. Canitano and Paul Farmer, or any of them, with full power
of substitution and resubstitution, as attorneys or attorney of the undersigned,
for him or her and in his or her name, place and stead, to sign and file under
the Securities Act of 1933 one or more Registration Statement(s) on Form S-1
relating to the registration for sale of the Corporation's Common Stock, and any
and all amendments, supplements and exhibits thereto, including pre-effective
and post-effective amendments or supplements, and any and all applications or
other documents to be filed with the Securities and Exchange Commission
pertaining to such registration(s), with full power and authority to do and
perform any and all acts and things whatsoever required and necessary to be done
in the premises, hereby ratifying and approving the act of said attorneys and
any of them and any such substitute.
EXECUTED as of June __, 1998.
Director, President and
/s/ Kenneth L. Conley Chief Operating Officer
- --------------------------------- -----------------------------------
Signature Title
Kenneth L. Conley
- ---------------------------------
Name
<PAGE> 4
Exhibit 24
DIRECTOR AND/OR OFFICER OF
CONLEY, CANITANO & ASSOC., INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Conley, Canitano &
Assoc., Inc., an Ohio corporation (the "Corporation"), hereby constitutes and
appoints Nicholas A. Canitano, Kenneth L. Conley and Paul Farmer, or any of
them, with full power of substitution and resubstitution, as attorneys or
attorney of the undersigned, for him or her and in his or her name, place and
stead, to sign and file under the Securities Act of 1933 one or more
Registration Statement(s) on Form S-1 relating to the registration for sale of
the Corporation's Common Stock, and any and all amendments, supplements and
exhibits thereto, including pre-effective and post-effective amendments or
supplements, and any and all applications or other documents to be filed with
the Securities and Exchange Commission pertaining to such registration(s), with
full power and authority to do and perform any and all acts and things
whatsoever required and necessary to be done in the premises, hereby ratifying
and approving the act of said attorneys and any of them and any such substitute,
EXECUTED as of June __, 1998.
Director, Executive Vice President and
/s/ Karen M. Conley Treasurer
- ---------------------------------- ----------------------------------------
Signature Title
Karen M. Conley
- ----------------------------------
Name
<PAGE> 5
Exhibit 24
DIRECTOR AND/OR OFFICER OF
CONLEY, CANITANO & ASSOC., INC.
REGISTRATION STATEMENT ON FORM S-1
POWER OF ATTORNEY
The undersigned director and/or officer of Conley, Canitano &
Assoc., Inc., an Ohio corporation (the "Corporation"), hereby constitutes and
appoints Nicholas A. Canitano and Kenneth L. Conley, or any of them, with full
power of substitution and resubstitution, as attorneys or attorney of the
undersigned, for him or her and in his or her name, place and stead, to sign and
file under the Securities Act of 1933 one or more Registration Statement(s) on
Form S-1 relating to the registration for sale of the Corporation's Common
Stock, and any and all amendments, supplements and exhibits thereto, including
pre-effective and post-effective amendments or supplements, and any and all
applications or other documents to be filed with the Securities and Exchange
Commission pertaining to such registration(s), with full power and authority to
do and perform any and all acts and things whatsoever required and necessary to
be done in the premises, hereby ratifying and approving the act of said
attorneys and any of them and any such substitute.
EXECUTED as of June __, 1998.
Vice President and
/s/ Paul Farmer Chief Financial Officer
- ----------------------------- -----------------------------------
Signature Title
Paul Farmer
- -----------------------------
Name
